SECURITIES AND EXCHANGE COMMISSION
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 201424, 2016
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto Commission file number:File Number: 000-10030001-36743
APPLE INC.
Apple Inc.
(Exact name of
registrantRegistrant as specified in its charter)
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| California | | 94-2404110 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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Cupertino, California | | 95014 |
| (Address of principal executive offices) | | (Zip Code) |
(408) 996-1010
(Registrant’s telephone number, including area
code:(408) 996-1010code)
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, $0.00001 par value per share 1.000% Notes due 2022 1.375% Notes due 2024 1.625% Notes due 2026 2.000% Notes due 2027 3.050% Notes due 2029 3.600% Notes due 2042 | | The NASDAQ Stock Market LLC New York Stock Exchange LLC New York Stock Exchange LLC New York Stock Exchange LLC New York Stock Exchange LLC New York Stock Exchange LLC New York Stock Exchange LLC |
| (Title of class) | | (Name of exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the
registrantRegistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the
registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the
registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrantRegistrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. x☐ Indicate by check mark whether the
registrantRegistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x☒ | | | | Accelerated filer | | ¨
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Non-accelerated filer ¨☐ | | (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨
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Indicate by check mark whether the
registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the voting and non-voting stock held by non-affiliates of the
registrant,Registrant, as of March
28, 2014,25, 2016, the last business day of the
registrant’sRegistrant’s most recently completed second fiscal quarter, was approximately
$462,522,000,000.$578,807,000,000. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of the
registrantRegistrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.
5,864,840,000
5,332,313,000 shares of common stock were issued and outstanding as of October
10, 2014.14, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
registrant’sRegistrant’s definitive proxy statement relating to its
20152017 annual meeting of shareholders (the
“2015“2017 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The
20152017 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
For the Fiscal Year Ended September 27, 201424, 2016
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This Annual Report on Form 10-K (“Form 10-K (“Form 10-K””) containsforward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II, Item 7 of this Form 10-K under the heading “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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. Forward-looking statements can also be identified by words such as “future,“future,” “anticipates,“anticipates,” “believes,“believes,” “estimates,“estimates,” “expects,“expects,” “intends,“intends,” “will,“plans,” “would,“predicts,” “could,“will,” “can,“would,” “may,“could,” “can,”“may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in theforward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form10-K under the heading “Risk“Risk Factors,” which are incorporated herein by reference. All information presented herein is based on the Company’s fiscal calendar. 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. Each of the terms the “Company” “Company” and “Apple” “Apple” as used herein refers collectively to Apple Inc. and its wholly-owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
The Company designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, the iOS, and OS XmacOS™, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of accessory, service and support offerings. In September 2014, the Company announced Apple Watch™, which is expected to be available in early calendar year 2015, and Apple Pay™, which became available in the U.S. in October 2014. The Company also sells and delivers digital content and applications through the iTunes Store®, App Store™Store®, Mac App Store, TV App Store, iBooks Store™ and Mac App Store.Apple Music® (collectively “Internet Services”). 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. In addition, the Company sells a variety of third-party iPhone, iPad, Mac and iPodApple compatible products, including application software and various accessories through its onlineretail and retailonline stores. The Company sells to consumers, small and mid-sized businesses (“SMB”) and education, enterprise and government customers. The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company is a California corporation established in 1977. The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services. 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. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of third-party digital content and applications through the iTunes Store. As part of the iTunes Store, the Company’s App Store and iBooks Store allowits Internet Services, which allows customers to discover and download digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a Mac or Windows-basedWindows personal computer or through iPhone, iPad and iPod touch® devices (“iOS devices”). The Company’s Mac App Store allows customers to easily discover, download, Apple TV and install Mac applications.Apple Watch. 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. 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. 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. The Company believes continualongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products and technologies. The Company manages its business primarily on a geographic basis.
Accordingly, the Company determined itsThe Company’s reportable operating segments
which are generally based on the nature and locationconsist of
its customers, to be the Americas, Europe, Greater China, Japan
and Rest of Asia
Pacific and Retail.Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and
those Asian countries
other than those countriesnot included in the Company’s other
reportable operating segments.
The results ofAlthough the
Company’s geographicreportable operating segments
do not include the results of the Retail segment. Each operating segment providesprovide similar hardware and software products and similar
services.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. Further information regarding the Company’s
reportable operating segments may be found in Part II, Item 7 of this Form
10-K under the subheading “Segment Operating Performance,” and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.”
iPhone is the Company’s line of smartphones that combines a phone, music player and internet device in one product, and is based on Apple’sits iOS Multi-Touch™ operating system. iPhone has an integrated photo and video camera and photo library app, and on qualifying devices, also includes Siri®, a voice activated intelligent assistant.assistant, and Apple Pay and Touch ID® on qualifying devices. In September 2016, the Company introduced iPhone 7 and 7 Plus, featuring new camera systems, immersive stereo speakers and water and dust resistance. During the third quarter of 2016, the Company also began selling iPhone SE, which has a 4-inch Retina® display. iPhone works with the iTunes Store, the App Store, and iBooks Store and Apple Music for purchasing, organizing and playing music, movies, TV shows, podcasts, booksdigital content and apps. In addition to apps delivered with iOS, free downloads of iLife® and iWork® apps for iOS are available with all new iPhones. iPhone is compatible with both Mac and Windows personal computers and Apple’s iCloud services which provide synchronization of mail, contacts, calendars, apps, music, photos, documents and more across users’ devices. In September 2014, the Company introduced iPhone 6 and iPhone 6 Plus that feature larger 4.7-inch and 5.5-inch Retina® HD displays and support for Apple Pay.
iPad is the Company’s line of multi-purpose tablets based on Apple’sits iOS Multi-Touch operating system, which includes iPad Air™Pro™, iPad Air® and iPad mini™. iPad has an integrated photoincludes Siri and video camera and photo library app, andalso includes Touch ID on qualifying devices, also includes Siri.devices. iPad works with the iTunes Store, theApp Store, iBooks Store and the App StoreApple Music for purchasing, organizing and playing music, movies, TV shows, podcasts, booksdigital content and apps. In addition to apps delivered with iOS for qualifying devices, iLife and iWork apps for iOS are available as free downloads with all new iPads. iPad is compatible with both
Mac
and Windows personal computers and Apple’s iCloud services. In October 2014, the Company introduced iPad Air 2 and iPad mini 3 that feature a Retina display, Touch ID™ and support for Apple Pay.Mac
Mac is the Company’s line of desktop and portable personal computers. Macs feature Intel microprocessors, the OS Xcomputers based on its macOS operating system and include Mail, Safari® web browser, Messages, Calendar, Reminders, Contacts and the iLife apps. The Company’s iWork apps are also available as free downloads with all new Macs.system. The Company’s desktop computers include iMac®, 21.5” iMac with Retina 4K display, 27” iMac with Retina 5K display, Mac Pro® and Mac mini.mini®. The Company’s portable computers include MacBook Pro®, MacBook Air®, MacBook Pro® and MacBook Pro with Retina display and MacBook Air®. In October 2014, the Company introduced the 27-inch iMac with Retina 5K display with improved performance, power efficiency and visual quality; and updated the Mac mini.iPod
The Company’s iPod line of portable digital music and media players includes iPod touch, iPod nano® and iPod shuffle®. All iPods work with iTunes® to purchase and synchronize content. iPod touch, based on the Company’s iOS Multi-Touch operating system, is a flash-memory-based iPod with an integrated photo and video camera and photo library app, and also includes Siri. iPod touch works with the iTunes Store, the App Store and the iBooks Store for purchasing and playing music, movies, TV shows, podcasts, books and apps. In addition to apps delivered with iOS, iLife and iWork apps for iOS are available as free downloads for all new iPod touch products. iPod touch is compatible with both Mac and Windows personal computers and Apple’s iCloud services.
iTunes and the iTunes Store
Apple’s iTunes app, available for iOS devices, Mac and Windows personal computers and Apple TV, keeps users’ music, movies and TV shows organized in one place. iTunes is integrated with the iTunes Store, the App Store, the iBooks Store, iTunes U® and iTunes Radio™. The iTunes Store allows customers to purchase and download music and TV shows, rent or purchase movies and download free Podcasts. The App Store allows customers to discover and download apps and purchase in-app content. The iBooks Store features e-books from major and independent publishers. iTunes U allows users to download free lectures, videos and more from top universities, museums and other institutions. iTunes Radio provides a free Internet streaming service that allows users to personalize radio stations featuring music from the iTunes Store. In July 2014, the Company acquired Beats Music, LLC, which offers a subscription streaming music service that offers a curated listening experience and complements the Company’s other music services and offerings.
Mac App Store
The Mac App Store allows customers to discover, download and install Mac applications. The Mac App Store offers applications in education, games, graphics and design, lifestyle, productivity, utilities and other categories. The Company’s OS X operating system software and its iLife, iWork and other application software titles are also available on the Mac App Store.
iCloud
iCloud is the Company’s cloud service which stores music, photos, applications, contacts, calendars, mail, documents and more, keeping them up-to-date and available to multiple iOS devices, Mac and Windows personal computers and Apple TV. iCloud services include iTunes in the Cloud, iCloud DriveSM, iCloud Photo Sharing, Family Sharing, Find My iPhone, iPad or Mac and iCloud Backup for iOS devices. Users can sign up for free access to iCloud using a device running qualifying versions of iOS or OS X.
Apple Pay
In October 2014, the Company released Apple Pay in the U.S., a new service aimed at making mobile payments easy, secure and private. Apple Pay works with iPhone 6, iPhone 6 Plus, iPad Air 2 and iPad mini 3. Apple Pay will also work with the newly announced Apple Watch upon its expected availability in early calendar year 2015.
display.
Operating System Software
iOS is the Company’s
Multi-TouchMulti-Touch™ operating system that serves as the foundation for iOS devices.
Apps delivered with iOS for qualifying devices include Safari web browser, FaceTime® video calling, Maps, Mail, Contacts, Calendar, Clock, Weather, Calculator, Notes, Reminders, Stocks, Compass and Messages. Devices running iOS are compatible with both Mac and Windows personal computers and Apple’s iCloud services. In September
2014,2016, the Company released iOS
8,10, which introduces the ability for Siri to do more by working with apps, updates Messages, includes redesigned Maps, Photos, Apple Music and News apps, and the Home app, which provides
new features for Messages and Photos, predictive typing for Apple’s QuickType™ keyboard and a
new Health app. iOS 8 also introduced Family Sharing, which enables easier sharing of purchases, photos and calendars within the same household.OS X
OS X,way to manage home automation products in one place.
macOS
macOS is the Company’s Mac operating system and is built on an open-source UNIX-based foundation and provides an intuitive and integrated computer experience. OS X Yosemite, released in October 2014, is the eleventh major release of OS X. Support for iCloud is built into OS XmacOS so users can access content and information from their Macs, theirMac, iOS devices and other supported devices and access downloaded content and apps from the iTunes Store. Apps deliveredmacOS Sierra, released in September 2016, is the 13th major release of macOS and incorporates Siri and Apple Pay on the Mac, improves continuity and document access across Apple devices and includes the new Memories feature in Photos.
watchOS
watchOS is the Company’s operating system for Apple Watch. Released in September 2016, watchOS 3 provides improved performance with OSthe ability to launch favorite apps instantly, enhanced navigation with the new Dock and new fitness and health capabilities for Apple Watch, including the Breathe app designed to promote exercises for relaxation and stress reduction.
tvOS
tvOS is the Company's operating system for Apple TV. The tvOS operating system is based on the Company’s iOS platform and enables developers to create new apps and games specifically for Apple TV and deliver them to customers through the Apple TV App Store. The new tvOS, released in September 2016, incorporates new Siri capabilities that allow searching across more apps and services.
Application Software
The Company’s application software includes iLife®, iWork® and various other software, including Final Cut Pro®, Logic® Pro X include Mail, Safari web browser, Messages, Calendar, Reminders, Contacts, Maps, iBooksand FileMaker® and the Pro. iLife apps. OS X Yosemite incorporates additional continuity features including Handoff, which allows users to start an activity on one Mac or iOS device and pass it to another Mac or iOS device.Application Software
iLife
iLife for Mac is the Company’s consumer-oriented digital lifestyle software application suite included with all Mac computers. iLifecomputers and features iPhotoiMovie
®, a digital photo application for storing, viewing, editing and sharing photos; iMovie®, a digital video editing application;application, and GarageBand®, a music creation application that allows users to play, record and create music. The Company also has Multi-Touch versions of these iLife applications designed specifically for use on iOS devices.iWork
iWork for Mac is the Company’s integrated productivity suite included with all Mac computers and is designed to help users create, present and publish documents presentations and spreadsheets. iWork includesthrough Pages
® for word processing, presentations through Keynote® and page layout, Keynotespreadsheets through Numbers® for presentations and Numbers® for spreadsheets.. The Company also has iOS Multi-Touch versions of eachiLife and iWork applicationapplications designed specifically for use on iOS devices, which are available as free downloads for all new iOS devices.Other Application Software
Services
Internet Services
The
Company also sells various other application software, including its professional line of applications: Final Cut Pro®, Logic® Pro X and its FileMaker® Pro database software.Accessories
The Company sells a variety of Apple-branded and third-party Mac-compatible and iOS-compatible accessories, including Apple TV, headphones, cases, displays, storageiTunes Store, available for iOS devices, and various other connectivity and computing products and supplies. In July 2014, the Company acquired Beats Electronics, LLC, which makes Beats® headphones, speakers and audio software.
Apple TV
Apple TV connects to consumers’ high definition TVs and enables them to access iTunes content directly for streaming HD video, playing music and viewing photos. Content from iTunes Radio, Beats Music™ and other media services, including Netflix, YouTube, Flickr, Hulu Plus, Vevo, MLB, NBA and NHL is available on Apple TV. Apple TV allows streaming iTunes content from MacsMac and Windows personal computers through Home Share and through AirPlay® from compatible MacApple TV, allows customers to purchase and iOS devices. Compatible Macdownload music and TV shows, rent or purchase movies and download free podcasts. The App Store, available for iOS devices, can also mirror their device screens as well as streamallows customers to discover and playdownload apps and purchase in-app content. The Mac App Store, available for Mac computers, allows customers to discover, download and install Mac applications. The TV App Store allows customers access to apps and games on Apple TV.
Apple Watch
In September 2014, the Company announced Apple Watch, a personal electronic device that combines new precision watch technology with an iOS-based user interface created specifically for a smaller device.the Apple Watch features Digital Crown, a unique navigation tool that allows users to seamlessly scroll, zoom and navigate. Apple Watch enables customers to communicate in new ways from their wrist and features Force Touch, a technology that senses the difference between a tap and a press and allows users to access controls within apps. Apple Watch is expected to beTV. The iBooks Store, available in early calendar year 2015 and will be compatible with iPhone 5 and newer iPhone models running the latest version of iOS 8.
iOS and Mac Developer Programs
The Company’s iOS and Mac Developer Programs support app developers with the development, testing and distribution of iOS and Mac apps through the App Store and the Mac App Store. Development tools included with the Company’s Developer Programs include Xcode®, the Company’s integrated development environment for creating apps for iOS devices and Mac. Xcode includes project management tools; analysis toolsMac computers, features e-books from major and independent publishers. Apple Music offers users a curated listening experience with on-demand radio stations that evolve based on a user’s play or download activity and a subscription-based internet streaming service that also provides unlimited access to collect, display and compare app performance data; simulation tools to locally run, test and debug apps; tools to simplify the design and development of user interfaces; Swift™,Apple Music library.
iCloud
iCloud is the Company’s new programming language for bothcloud service which stores music, photos, contacts, calendars, mail, documents and more, keeping them up-to-date and available across multiple iOS devices, Mac and OS X introduced in June 2014;Windows personal computers and the latest software development kitsApple TV. iCloud services include iCloud Drive®, iCloud Photo Library, Family Sharing, Find My iPhone, iPad or Mac, Find My Friends, Notes, iCloud Keychain® and iCloud Backup for iOS and OS X. The Company’s Developer Programs also provide access to multiple development resources including the Company’s Developer Forums, extensive technical documentation and sample code. The Company’s Developer Programs also provide developers with access tools and information for submitting their apps to the App Store and the Mac App Store.Product Support and Services
devices.
AppleCare
AppleCare® offers a range of support options for the Company’s customers. These include assistance that is built into software products, printed and electronic product manuals, online support including comprehensive product information as well as technical assistance, the AppleCare Protection Plan (“APP”) and the AppleCare+ Protection Plan (“AC+”). APP is a fee-based service that typically includes two to three yearsextends the service coverage of phone support, hardware repairs and dedicated web-based support resources.resources for Mac, Apple TV and display products. AC+ is a fee-based service available in certain countries for iPhone and iPad. AC+ offersoffering additional coverage under some circumstances for instances of accidental damage in addition to the services offered by APP.APP and is available in certain countries for iPhone, iPad, Apple Watch and iPod.
Apple Pay
Apple Pay is the Company’s mobile payment service available in certain countries that offers an easy, secure and private way to pay. Apple Pay allows users to pay for purchases in stores accepting contactless payments and to pay for purchases within participating apps on qualifying devices. Apple Pay accepts credit and debit cards across major card networks and also supports reward programs and store-issued credit and debit cards.
Other Products
Accessories
The Company sells a variety of Apple-branded and third-party Mac-compatible and iOS-compatible accessories, including Apple TV, Apple Watch, Beats products, iPod, headphones, displays, storage devices, and various other connectivity and computing products and supplies. In September 2016, the Company introduced AirPods™, new wireless headphones that interact with Siri.
Apple TV
Apple TV connects to consumers’ TVs and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos. Content from Apple Music and other media services are also available on Apple TV. Apple TV allows streaming digital content from Mac and Windows personal computers through Home Share and from compatible Mac and iOS devices through AirPlay®. The Company's Apple TV runs on its tvOS operating system and is based on apps built for the television. Additionally, the Apple TV remote features Siri, allowing users to search and access content with their voice.
Apple Watch
Apple Watch is a personal electronic device that combines the watchOS user interface and technologies created specifically for a smaller device, including the Digital Crown™, a unique navigation tool that allows users to seamlessly scroll, zoom and navigate, and Force Touch, a technology that senses the difference between a tap and a press and allows users to access controls within apps. Apple Watch enables users to communicate in new ways from their wrist, track their health and fitness through activity and workout apps, and includes Siri and Apple Pay. In September 2016, the Company introduced Apple Watch Series 2, featuring new fitness and health capabilities, built-in GPS and a 50-meter water resistance rating for swimming.
iPod
iPod is the Company’s line of portable digital music and media players, which includes iPod touch, iPod nano® and iPod shuffle®. All iPods work with iTunes to purchase and synchronize content. iPod touch, based on the Company’s iOS operating system, is a flash-memory-based iPod that works with the iTunes Store, App Store and iBooks Store for purchasing and playing digital content and apps.
Developer Programs
The Company’s developer programs support app developers with building, testing and distributing apps for iOS, macOS, watchOS and tvOS. Developer program membership provides access to beta software and advanced app capabilities (e.g., CloudKit®, HealthKit™ and Apple Pay), the ability to test apps using TestFlight®, distribution on the App Store, access to App Analytics and code-level technical support. Developer programs also exist for businesses creating apps for internal use (the Apple Developer Enterprise Program) and developers creating accessories for Apple devices (the MFi Program). All developers, even those who are not developer program members, can sign in with their Apple ID to post on the Apple Developer Forums and use Xcode®, the Company’s integrated development environment for creating apps for Apple platforms. Xcode includes project management tools; analysis tools to collect, display and compare app performance data; simulation tools to locally run, test and debug apps; and tools to simplify the design and development of user interfaces. All developers also have access to extensive technical documentation and sample code.
The Company’s customers are primarily in the consumer,
SMB,small and mid-sized business, education, enterprise and government markets. The Company sells its products and resells third-party products in most of its major markets directly to consumers and
SMBssmall and mid-sized businesses through its retail and online stores and its direct sales force. The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers and value-added resellers. During
2014,2016, the Company’s net sales through its direct and indirect distribution channels accounted for
28%25% and
72%75%, respectively, of total net sales.
The Company believes that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware and software integration and demonstrate the unique solutions that are available on its products. The Company further believes providing direct contact with its targeted customers is an effective way to demonstrate the advantages of its products over those of its competitors and providing a high-quality sales and after-sales support experience is critical to attracting new and retaining existing customers.
To ensure a high-quality buying experience for its products in which service and education are emphasized, the Company continues to build and improve its distribution capabilities by expanding the number of its own retail stores worldwide. The Company’s retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts. By operating its own stores and locating them in desirable high-traffic locations the Company is better positioned to ensure a high quality customer buying experience and attract new customers. The stores are designed to simplify and enhance the presentation and marketing of the Company’s products and related solutions. The retail stores employ experienced and knowledgeable personnel who provide product advice, service and training and offer a wide selection of third-party hardware, software and other accessories that complement the Company’s products.
The Company has also invested in programs to enhance reseller sales by placing high-quality Apple fixtures, merchandising materials and other resources within selected third-party reseller locations. Through the Apple Premium Reseller Program, certain third-party resellers focus on the Apple platform by providing a high level of product expertise, integration and support services.
The Company is committed to delivering solutions to help educators teach and students learn. The Company believes effective integration of technology into classroom instruction can result in higher levels of student achievement and has designed a range of products, services and programs to address the needs of education customers. The Company also supports mobile learning and real-time distribution of, and access to, education related materials through iTunes U, a platform that allows students and teachers to share and distribute educational media online. The Company sells its products to the education market through its direct sales force, select third-party resellers and its
retail and online
and retail stores.
The Company also sells its hardware and software products to enterprise and government customers in each of its
geographicreportable operating segments. The Company’s products are deployed in these markets because of their performance, productivity, ease of use and seamless integration into information technology environments. The Company’s products are compatible with thousands of third-party business applications and services, and its tools enable the development and secure deployment of custom applications as well as remote device administration.
In July 2014, the Company announced a global partnership with IBM to offer MobileFirst for iOS, a new class of industry-specific mobile solutions; AppleCare for Enterprise, a new service and support product tailored to the needs of enterprise customers; and Device Supply, Activate and Manage, a suite of value-added reselling services for iPhone, iPad and Mac.No single customer accounted for more than 10% of net sales in
2014, 2013 or 2012.2016, 2015 and 2014.
The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business. These markets are characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of mobile communication and media devices, personal computers and other digital electronic devices. The Company’s competitors
whothat sell mobile devices and personal computers based on other operating systems have aggressively cut prices and lowered their product margins to gain or maintain market share. The Company’s financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins. Principal competitive factors important to the Company include price, product features
(including security features), relative
price/price and performance, product quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support and corporate reputation.
The Company is focused on expanding its market opportunities related to personal computers and mobile communication and media devices. These markets are highly competitive and include many large, well-funded and experienced participants. The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. These markets are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors and price sensitivity on the part of consumers and businesses.
The Company’s digital content services have faced significant competition from other companies promoting their own digital music and content products and services, including those offering free peer-to-peer music and video services.
The Company’s future financial condition and operating results depend on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets in which it competes. The Company believes it offers superior innovation and integration of the entire solution including the hardware
(iPhone, iPad,(iOS devices, Mac,
Apple Watch and
iPod)Apple TV), software (iOS,
OS XmacOS, watchOS and
iTunes)tvOS), online services and distribution of digital content and applications
(iTunes Store, App Store, iBooks Store and Mac App Store)(Internet Services). Some of the Company’s current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company’s offerings.
Although most components essential to the Company’s business are generally available from multiple sources, a number of components are currently obtained from single or limited sources. In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.
The Company uses some custom components that are not commonly used by its competitors, and
new products introduced by the Company often
utilizeutilizes custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. If the Company’s supply of components
for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers concentrated on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.
While
the Company manufactures some
MacsMac computers are manufactured in the
United States,U.S. and Ireland, substantially all of the Company’s hardware products are currently manufactured by outsourcing partners that are located primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s
manufacturing purchase
commitmentsobligations typically cover its requirements for periods up to 150 days.
Because the industries in which the Company competes are characterized by rapid technological advances, the Company’s ability to compete successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products, services and technologies to the marketplace. The Company continues to develop new technologies to enhance existing products and to expand the range of its product offerings through R&D, licensing of intellectual property and acquisition of third-party businesses and technology. Total R&D expense was
$10.0 billion, $8.1 billion and $6.0 billion
$4.5 billionin 2016, 2015 and
$3.4 billion in 2014,
2013 and 2012, respectively.
Patents, Trademarks, Copyrights and Licenses
The Company currently holds rights to patents and copyrights relating to certain aspects of its hardware devices, accessories, software and services. The Company has registered or has applied for trademarks and service marks in the U.S. and a number of foreign countries. Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on
thesuch ownership,
thereof, the Company relies primarily on the innovative skills, technical competence and marketing abilities of its personnel.
The Company regularly files patent applications to protect innovations arising from its research, development and design, and is currently pursuing thousands of patent applications around the world. Over time, the Company has accumulated a large portfolio of issued patents around the world. The Company holds copyrights relating to certain aspects of its products and services. No single patent or copyright is solely responsible for protecting the Company’s products. The Company believes the duration of its patents is adequate relative to the expected lives of its products.
Many of the Company’s products are designed to include intellectual property obtained from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of its products, processes and services. While the Company has generally been able to obtain such licenses on commercially reasonable terms in the past, there is no guarantee that such licenses could be obtained in the future on reasonable terms or at all. Because of technological changes in the industries in which the Company competes, current extensive patent coverage and the rapid rate of issuance of new patents, it is possible that certain components of the Company’s products, processes and services may unknowingly infringe existing patents or intellectual property rights of others. From time to time, the Company has been notified that it may be infringing certain patents or other intellectual property rights of third parties.
Foreign and Domestic Operations and Geographic Data
During
2014,2016, the Company’s domestic and international net sales accounted for
38%35% and
62%65%, respectively, of total net sales. Information regarding financial data by geographic segment is set forth in Part II, Item 7 of this Form 10-K under the subheading “Segment Operating Performance,” and in Part II, Item 8 of this Form
10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.”
While
some Mac computers are manufactured in the U.S. and Ireland, substantially all of the Company’s hardware products are currently manufactured by outsourcing partners that are located primarily in
Asia, the Company also performs final assembly of certain products at its manufacturing facility in Ireland.Asia. The supply and manufacture of a number of components is performed by sole-sourced outsourcing partners in the U.S., Asia and Europe. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties. Information regarding concentration in the available sources of supply of materials and products is set forth in Part II, Item 8 of this Form
10-K in the Notes to Consolidated Financial Statements in Note 10, “Commitments and Contingencies.”
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. Additionally, new product introductions can significantly impact net sales, product costs and operating expenses. 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 often, channel inventory of a particular product declines as the next related major product launch approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction. 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.
The Company offers a limited parts and labor warranty on most of its hardware products. The basic warranty period is typically one year from the date of purchase by the original end-user. The Company also offers a
90-day basic warranty for its service parts used to repair the Company’s hardware products. In certain jurisdictions, local law requires that manufacturers guarantee their products for a period prescribed by statute, typically at least two years. In addition, where available, consumers may purchase APP or AC+, which extends service coverage on many of the Company’s hardware products.
In the Company’s experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects. In particular, backlog often increases immediately following new product introductions as customers anticipate shortages. Backlog is often reduced once customers believe they can obtain sufficient supply. Because of the foregoing, backlog should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial performance.
As of September
27, 2014,24, 2016, the Company had approximately
92,600116,000 full-time equivalent
employees and an additional 4,400 full-time equivalent temporary employees and contractors. Approximately 46,200 of the total full-time equivalent employees worked in the Company’s Retail segment.employees.
The Company’s Annual Report 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 Securities and Exchange Commission (the “SEC”). 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. Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website atinvestor.apple.com/sec.cfm when such reports are available on the SEC’s website. 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. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internetinternet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC atwww.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to thewebsite URLs for these websites are intended to be inactive textual references only.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding
any statementother statements in this Form
10-K or elsewhere.10-K. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described
below. Anybelow, any one or more of
such factorswhich could, directly or indirectly, cause the Company’s actual
results of operationsfinancial condition and
financial conditionoperating results to vary materially from past, or
from anticipated future,
results of operationsfinancial condition and
financial condition.operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition,
operating results
of operations and stock price.
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 periods.
Global and regional economic conditions could materially adversely affect the Company.
The Company’s operations and performance depend significantly on global and regional economic conditions. 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. These worldwide and regional economic conditions could have a material adverse effect on demand for the Company’s products and services. 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. Other factors that could influence worldwide or regional demand include
increaseschanges 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. These and other economic factors could materially adversely affect demand for the Company’s products and services.
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
a new or incremental tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, currency and equity markets. 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 obtain credit to finance purchases of the Company’s products; failure of derivative counterparties and other financial institutions; and restrictions on the Company’s ability to issue new debt. 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 balances; volatility in foreign exchange rates; and changes in fair value of derivative instruments. 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.
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.
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 characteristics, rapid adoption of technological and product advancements by competitors and price sensitivity on the part of consumers.
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. 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. As a result, the Company must make significant investments in R&D. 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. In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the
Company’sCompany's products and infringing on its intellectual property. 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.
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. 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. 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 offer. The Company
competes with business models that provide content to users for free. The Company also competes with illegitimate
waysmeans to obtain third-party digital content and
applications and with business models that include content provided to users for free.applications. Some of the Company’s competitors have greater experience, product breadth and distribution channels than the Company. 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. 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. 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.
The Company is the only authorized maker of hardware using
OS X,macOS, which has a minority market share in the personal computer market. This market has been contracting and is dominated by computer makers using competing operating systems, most notably Windows. 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. Historically, consolidation in this market has resulted in larger competitors. Price competition has been particularly intense as competitors
selling Windows-based personal computers have aggressively cut prices and lowered product margins. An increasing number of
Internet-enabledinternet-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. 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.
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
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,
and effectively stimulate customer demand for
new and upgraded products and successfully manage the transition to these new and upgraded products. 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, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand and the risk that new products may have quality or other defects or deficiencies in the early stages of introduction. Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.
The Company depends on the performance of distributors, carriers and other resellers.
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. 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 online and retail stores.
Carriers
Some carriers providing cellular network service for iPhone
typically subsidize users’ purchases of the device. 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.
Many resellers
have narrow operating margins and have been adversely affected in the past by weak economic conditions.
Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors and resellers of the Company’s products. Such a perception could discourage resellers from investing resources in the distribution and sale of the Company’s products or lead them to limit or cease distribution of those products. 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. These programs could require a substantial investment while providing no assurance of return or incremental revenue. 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.
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
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. 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. 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. 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 in the industries in which the Company competes.
The Company must order components for its products and build inventory in advance of product announcements and shipments. 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.
Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. Purchase commitmentsManufacturing purchase obligations typically cover forecasted component and manufacturing requirements for periods up to 150 days. 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.
Future operating results depend upon the Company’s ability to obtain components in sufficient
quantities.quantities on commercially reasonable terms.
Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations. 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. 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.components on commercially reasonable terms. The follow-on effects fromof 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.Therefore, the Company remains subject to significant risks of supply shortages and price increases.The Company and other participants in the markets for mobile communication and media devices and personal computers also compete for various components with other industries that have experienced increased demand for their products. The Company uses some custom components that are not common to the rest of these industries.
The Company’s new products often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. Continued availability of these components at acceptable prices, or at all, may be affected
for any number of reasons, including if those suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements. The supply of components for a new or existing product could be delayed or constrained, or a key manufacturing vendor could delay shipments of completed products to the Company.
The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of
whomwhich are located outside of the U.S.
Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners located primarily in Asia. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. Although arrangements with these partners may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects and could experience an unanticipated product defect or warranty liability. While the Company relies on its partners to adhere to its supplier code of conduct, material violations of the supplier code of conduct could occur.
The Company relies on sole-sourced outsourcing partners in the U.S., Asia and Europe to supply and manufacture many critical components, and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the Company’s hardware products. Any failure of these partners to perform may have a negative impact on the Company’s cost or supply of components or finished goods. In addition, manufacturing or logistics in these locations or transit to final destinations may be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions or economic, business, labor, environmental, public health, or political issues.
The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply agreements. While these arrangements help ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems or other disruptions in their business,
such continued supply could be reduced or terminated and the net realizable value of these assets could be negatively impacted.
The Company’s products and services may experience quality problems from time to time that can result in decreased sales and operating margin and harm to the Company’s reputation.
The Company sells complex hardware and software products and services that can contain design and manufacturing defects. Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the software’s intended operation. The Company’s online services may from time to time experience outages, service slowdowns, or errors. Defects may also occur in components and products the Company purchases from third parties. There can be no assurance the Company will be able to detect and fix all defects in the hardware, software and services it sells. Failure to do so could result in lost revenue, significant warranty and other expenses and harm to the Company’s reputation.
The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
The Company contracts with numerous third parties to offer their digital content
through the iTunes Store.to customers. This includes the right to
makesell currently available music, movies, TV shows and
books currently available through the iTunes Store.books. The licensing or other distribution arrangements with these third parties are for relatively short terms and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers and distributors currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license or otherwise distribute their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the cost of, such content. The Company may be unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach. Failure to obtain the right to make available third-party digital content, or to make available such content on commercially reasonable terms, could have a material adverse impact on the Company’s financial condition and operating results.
Some third-party digital content providers require the Company to provide digital rights management and other security solutions. If requirements change, the Company may have to develop or license new technology to provide these solutions. There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In addition, certain countries have passed or may propose and adopt legislation that would force the Company to license its digital rights management, which could lessen the protection of content and subject it to piracy and also could negatively affect arrangements with the Company’s content providers.
The Company’s future performance depends in part on support from
third-party software developers.
The Company believes decisions by customers to purchase its hardware products depend in part on the availability of
third-party third‑party software applications and services. There is no assurance that third-party developers will continue to develop and maintain software applications and services for the Company’s products. If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.
With respect to its Mac products, the Company believes the availability of
third-party third‑party software applications and services depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software for the Company’s products compared to Windows-based products. This analysis may be based on factors such as the market position of the Company and its products, the anticipated revenue that may be generated, expected future growth of Mac sales and the costs of developing such applications and services. If the Company’s minority share of the global personal computer market causes developers to question the Mac’s prospects, developers could be less inclined to develop or upgrade software for the Company’s Mac products and more inclined to devote their resources to developing and upgrading software for the larger Windows market.
With respect to iOS devices, the Company relies on the continued availability and development of compelling and innovative software applications, which are distributed through a single distribution channel, the App Store. iOS devices are subject to rapid technological change, and, if third-party developers are unable to or choose not to keep up with this pace of change, third-party applications might not successfully operate and may result in dissatisfied customers. As with applications for the Company’s Mac products, the availability and development of these applications also depend on developers’ perceptions and analysis of the relative benefits of developing,
maintaining or upgrading software for the Company’s iOS devices rather than its competitors’ platforms, such as Android. If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s iOS devices may suffer.
The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.
Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties. Based on past experience and industry practice, the Company believes such licenses generally can be obtained on reasonable terms. There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could preclude the Company from selling certain products or otherwise have a material adverse impact on the Company’s financial condition and operating results.
The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights.
The Company is subject to various legal proceedings and claims that have not yet been fully resolved and that have arisen in the ordinary course of business, and additional claims may arise in the future.
For example, technology companies, including many of the Company’s competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.
As the Company has grown, theThe intellectual property rights claims against
itthe Company have
generally increased
over time and may continue to increase. In particular, the
Company’sCompany's cellular enabled products compete with
products from mobile communication and media device companies that hold significant patent portfolios, and the
Company has faced a significant number of patent claims against
the Company has significantly increased.it. The Company is vigorously defending infringement actions in courts in a number of U.S. jurisdictions and before the U.S. International Trade Commission, as well as internationally in various countries. The plaintiffs in these actions frequently seek injunctions and substantial damages.
Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation. If the Company is found to infringe one or more patents or other intellectual property rights, regardless of whether it can develop non-infringing technology, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from marketing or selling certain products.
In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Company’s operating expenses.
Regardless of the merit of particular claims, litigation may be expensive, time-consuming, disruptive to the Company’s operations and distracting to management. In recognition of these considerations, the Company may enter into arrangements to settle litigation.
In management’s opinion, there is 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, including matters related to infringement of intellectual property rights. However, the outcome of litigation is inherently uncertain.
Although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company that could materially adversely affect its financial condition and operating results.
The Company is subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of labor, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, quality of services, telecommunications, mobile communications and media, television, intellectual property ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental, health and safety.
By way of example, laws and regulations related to mobile communications and media devices in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes could include, among others, restrictions on the production, manufacture, distribution and use of devices, locking devices to a carrier’s network, or mandating the use of devices on more than one carrier’s network. These devices are also subject to certification and regulation by governmental and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications, or delays in product shipment dates, or could preclude the Company from selling certain products.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s products and services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or the Company’s policies and procedures.
The Company’s business is subject to the risks of international operations.
The Company derives a significant portion of its revenue and earnings from its international operations. Compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, environmental laws, labor laws and anti-competition regulations, increases the costs of doing business in foreign jurisdictions. Although the Company has implemented policies and procedures to comply with these laws and regulations, a violation by the Company’s employees, contractors, or agents could nevertheless occur.
In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect the Company’s brand, international growth efforts and business.
The Company also could be significantly affected by other risks associated with international activities including, but not limited to, economic and labor conditions, increased duties, taxes and other costs and political instability. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by international trade regulations, including duties, tariffs and antidumping penalties. The Company is also exposed to credit and collectability risk on its trade receivables with customers in certain international markets. There can be no assurance the Company can effectively limit its credit risk and avoid losses.
The Company’s
Retail segment hasretail stores have required and will continue to require a substantial investment and commitment of resources and
isare subject to numerous risks and uncertainties.
The Company’s retail stores have required substantial investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has entered into substantial operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high cost structure associated with the
Retail segment,Company’s retail stores, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and severance costs.
Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties. These risks and uncertainties include, but are not limited to, macro-economic factors that could have an adverse effect on general retail activity, as well as the Company’s inability to manage costs associated with store construction and operation, the Company’s failure to manage relationships with its existing retail partners, more challenging environments in managing retail operations outside the U.S., costs associated with unanticipated fluctuations in the value of retail inventory, and the Company’s inability to obtain and renew leases in quality retail locations at a reasonable cost.
Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks not originally contemplated.
The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital and unidentified issues not discovered in the Company’s due diligence. These new ventures are inherently risky and may not be successful.
The Company’s business and reputation may be impacted by information technology system failures or network disruptions.
The Company may be subject to information technology system failures and network disruptions. These may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or other events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could,
among other things, prevent access to the Company’s online stores and services, preclude retail store transactions, compromise Company or customer data, and result in delayed or cancelled orders. System failures and disruptions could also impede the manufacturing and shipping of products, delivery of online services, transactions processing and financial reporting.
There may be breaches of the Company’s information technology systems that materially damage business partner and customer relationships, curtail or otherwise adversely impact access to online stores and services, or subject the Company to significant reputational, financial, legal and operational consequences.
The Company’s business requires it to use and store customer, employee and business partner personally identifiable information (“PII”). This may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers and payment account information. Although malicious attacks to gain access to PII affect many companies across various industries, the Company is at a relatively greater risk of being targeted because of its high profile and the amount of PII it manages.
The Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company data or accounts. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access the Company’s information technology systems. To help protect customers and the Company, the Company monitors accounts and systems for unusual activity and may freeze accounts under suspicious circumstances, which may result in the delay or loss of customer orders.
The Company devotes significant resources to network security, data encryption and other security measures to protect its systems and data, but these security measures cannot provide absolute security. To the extent the Company was to experience a breach of its systems and was unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise adversely impact access to online stores and services. Moreover, if a computer security breach affects the Company’s systems or results in the unauthorized release of PII, the Company’s reputation and brand could be materially damaged, use of the Company’s products and services could decrease, and the Company could be exposed to a risk of loss or litigation and possible liability. While the Company maintains insurance coverage that, subject to policy terms and conditions and subject to a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.
The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding data protection.
The Company is subject to federal, state and international laws relating to the collection, use, retention, security and transfer of PII. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between the Company and its subsidiaries, and among the Company, its subsidiaries and other parties with which the Company has commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to change its business practices. Noncompliance could result in penalties or significant legal liability.
The Company’s privacy policy, which includes related practices concerning the use and disclosure of data, is posted on its website. Any failure by the Company, its suppliers or other parties with whom the Company does business to comply with its posted privacy policy or with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against the Company by governmental entities or others.
The Company is also subject to payment card association rules and obligations under its contracts with payment card processors. Under these rules and obligations, if information is compromised, the Company could be liable to payment card issuers for associated expenses and penalties. In addition, if the Company fails to follow payment card industry security standards, even if no customer information is compromised, the Company could incur significant fines or experience a significant increase in payment card transaction costs.
The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding data protection.
The Company is subject to federal, state and international laws relating to the collection, use, retention, security and transfer of PII. In many cases, these laws apply not only to third-party transactions, but also may restrict transfers of PII among the Company and its international subsidiaries. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to change its business practices. Noncompliance could result in significant penalties or legal liability.
The Company makes statements about its use and disclosure of PII through its privacy policy, information provided on its website and press statements. Any failure by the Company to comply with these public statements or with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against the Company by governmental entities or others. Penalties could include ongoing audit requirements or significant legal liability.
The Company’s success depends largely on the continued service and availability of key personnel.
Much of the Company’s future success depends on the continued availability and service of key personnel, including its Chief Executive Officer, executive team and other highly skilled employees. Experienced personnel in the technology industry are in high demand and competition for their talents is intense, especially in Silicon Valley, where most of the Company’s key personnel are located.
The Company’s business may be impacted by political events, war, terrorism, public health issues, natural disasters and other business interruptions.
War, terrorism, geopolitical uncertainties, public health issues and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a material adverse effect on the Company, its suppliers, logistics providers, manufacturing vendors and customers, including channel partners. The Company’s business operations are subject to interruption by, among others, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents
and other industrial accidents, terrorist attacks and other hostile acts, labor disputes, public health issues and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult or impossible for the Company to make and deliver products to its customers, including channel partners, or to receive components from its suppliers, and create delays and inefficiencies in the Company’s supply chain.
While the Company's suppliers are required to maintain safe working environments and operations, an industrial accident could occur and could result in disruption to the Company's business and harm to the Company's reputation. Should major public health issues, including pandemics, arise, the Company could be adversely affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products and disruptions in the operations of the Company’s manufacturing vendors and component suppliers. The majority of the Company’s R&D activities, its corporate headquarters, information technology systems and other critical business operations, including certain component suppliers and manufacturing vendors, are in locations that could be affected by natural disasters. In the event of a natural disaster, the Company could incur significant losses, require substantial recovery time and experience significant expenditures in order to resume operations.
The Company expects its quarterly revenue and operating results to fluctuate.
The Company’s profit margins vary across its products and distribution channels. The Company’s software, accessories, and service and support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the Company’s hardware products vary across product lines and can change over time as a result of product transitions, pricing and configuration changes, and component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher associated gross margins than its indirect sales through its channel partners. In addition, the Company’s gross margin and operating margin percentages, as well as overall profitability, may be materially adversely impacted as a result of a shift in product, geographic or channel mix, component cost increases, the strengthening U.S. dollar, price competition, or the introduction of new products, including those that have higher cost structures with flat or reduced pricing.
The Company has typically experienced higher net sales in its first quarter compared to other quarters due in part to seasonal holiday demand. Additionally, new product introductions can significantly impact net sales, product costs and operating expenses.
Further, the Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact quarterly net sales. The Company could
also be subject to unexpected developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, issues with new product introductions, an internal systems failure, or failure of one of the Company’s logistics, components supply, or manufacturing partners.
The Company’s stock price is subject to volatility.
The Company’s stock price has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, the Company, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to these companies’ operating performance. Price volatility over a given period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time. The Company believes its stock price
reflectsshould reflect expectations of future growth and profitability. The Company also believes its stock price
reflectsshould reflect expectations that its cash dividend will continue at current levels or grow and that its current share repurchase program will be fully consummated. Future dividends are subject to declaration by the Company’s Board of Directors, and the Company’s share repurchase program does not obligate it to acquire any specific number of shares. If the Company fails to meet
any of these expectations related to future growth, profitability, dividends, share repurchases or other market expectations, its stock price may decline significantly, which could have a material adverse impact on investor confidence and employee retention.
The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S.
dollar denominateddollar-denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign
currency denominatedcurrency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency-denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its foreign currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
The Company uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.
The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
Given the global nature of its business, the Company has both domestic and international investments. Credit ratings and pricing of the Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of the Company’s cash, cash equivalents and marketable securities may fluctuate substantially. Therefore, although the Company has not realized any significant losses on its cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized loss.
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.
The Company distributes its products through third-party cellular network carriers, wholesalers, retailers and value-added resellers. The Company also sells its products directly to small and mid-sized businesses and education, enterprise and government customers. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral, third-party financing arrangements or credit insurance. The Company’s exposure to credit and collectability risk on its trade receivables is higher in certain international markets and its ability to mitigate such risks may be limited. The Company also has unsecured vendor non-trade receivables resulting from purchases of components by outsourcing partners and other vendors that manufacture sub-assemblies or assemble final products for the Company. In addition, the Company has made prepayments associated with long-term supply agreements to secure supply of inventory components. As of September
27, 2014,24, 2016, a significant portion of the Company’s trade receivables was concentrated within cellular network carriers, and its vendor non-trade receivables and prepayments related to long-term supply agreements were concentrated among a few individual vendors located primarily in Asia. While the Company has procedures to monitor and limit exposure to credit risk on its trade and vendor non-trade receivables, as well as long-term prepayments, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, including Ireland, where a number of the Company’s subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company’s
future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including in the U.S. and Ireland.
For example, in June 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Ireland with regard to the corporate income tax to be paid by two of the Company’s Irish subsidiaries comply with European Union rules on state aid. If the European Commission were to take a final decision against Ireland, it could require changes to existing tax rulings that, in turn, could increase the Company’s taxes in the future. The European Commission could also require Ireland to recover from the Company past taxes reflective of the disallowed state aid.
The Company is also subject to the examination of its tax returns and other tax matters by the
U.S. Internal Revenue Service
(the "IRS") and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations. If the Company’s effective tax rates were to increase, particularly in the U.S. or Ireland, or if the ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s
financial condition, operating results
and cash flows
and financial condition could be adversely affected.
| |
| Item 1B. | Unresolved Staff Comments |
The Company’s headquarters are located in Cupertino, California. As of September
27, 2014,24, 2016, the Company owned
or7.1 million square feet and leased
19.722.3 million square feet of building space, primarily in the U.S.
The Company also owned or leased building space in various locations, including throughout Europe, China, Singapore and Japan. Of the total owned or leased building space 13.6 million square feet was leased building space, which includes approximately 4.9 million square feet related to retail store space. Additionally,
the Company owns a total of 1,486 acres of land in various locations.As of September 27, 2014, the Company owned a manufacturing facilitytotal of 2,583 acres of land primarily in Cork, Ireland that also housed a customer support call center; facilities in Elk Grove, California that included warehousing and distribution operations and a customer support call center; and a manufacturing facility in Mesa, Arizona. The Company also owned land in Austin, Texas where it is expanding its existing office space and customer support call center. In addition,the U.S.
As of September 24, 2016, the Company owned facilities
and land for R&D,
and corporate functions
in Cupertino, California,and data centers at various locations throughout the U.S., including land
in California that is being developed for the Company’s second corporate campus.
The Company also owned data centers in Newark, California; Maiden, North Carolina; Prineville, Oregon; and Reno, Nevada. Outside the U.S., the Company owned additional facilities
and land for various purposes.
The Company believes its existing facilities and equipment, which are used by all operating segments, are in good operating condition and are suitable for the conduct of its business. The Company has invested in internal capacity and strategic relationships with outside manufacturing vendors and continues to make investments in capital equipment as needed to meet anticipated demand for its products.
The Company is subject to the various legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. 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.contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. 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 materially adversely affected. 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 I, Item 1A of this Form 10-K under the heading “Risk Factors.” The Company settled certain matters during the fourth quarter of 20142016 that did not individually or in the aggregate have a material impact on the Company’s financial condition or results of operations.The Apple iPod iTunes Antitrust Litigation (formerly Charoensak v. Apple Computer, Inc. and Tucker v. Apple Computer, Inc.)
These related cases were filed on January 3, 2005 and July 21, 2006 in the United States District Court for the Northern District of California on behalf of a purported class of direct purchasers of iPods and iTunes Store content, alleging various claims including alleged unlawful tying of music and video purchased on the iTunes Store with the purchase of iPods and unlawful acquisition or maintenance of monopoly market power under §§1 and 2 of the Sherman Act, the Cartwright Act, California Business & Professions Code §17200 (unfair competition), the California Consumer Legal Remedies Act and California monopolization law. Plaintiffs are seeking unspecified compensatory and punitive damages for the class, treble damages, injunctive relief, disgorgement of revenues and/or profits and attorneys fees. Plaintiffs are also seeking digital rights management free versions of any songs downloaded from iTunes or an order requiring the Company to license its digital rights management to all competing music players. The cases are set for trial in November 2014.
Apple eBooks Antitrust Litigation (United States of America v. Apple Inc., et al.)
On April 11, 2012, the U.S. Department of Justice filed a civil antitrust action against the Company and five major book publishers in the U.S. District Court for the Southern District of New York, alleging an unreasonable restraint of interstate trade and commerce in violation of §1 of the Sherman Act and seeking, among other things, injunctive relief, the District Court’s declaration that the Company’s agency agreements with the publishers are null and void and/or the District Court’s reformation of such agreements. On July 10, 2013, the District Court found, following a bench trial, that the Company conspired to restrain trade in violation of §1 of the Sherman Act and relevant state statutes to the extent those laws are congruent with §1 of the Sherman Act. The District Court entered a permanent injunction, which took effect on October 6, 2013 and will be in effect for five years unless the judgment is overturned on appeal. The Company has taken the necessary steps to comply with the terms of the District Court’s order, including renegotiating agreements with the five major eBook publishers, updating its antitrust training program and hiring an antitrust compliance monitor. The Company appealed the District Court’s decision. Pursuant to a settlement agreement reached by the parties in June 2014, any damages the Company may be obligated to pay will be determined by the outcome of the appellate decision.
operating results.
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| Item 4. | Mine Safety Disclosures |
| |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company’s common stock is traded on the NASDAQ Stock Market LLC (“NASDAQ”) under the symbol AAPL.
Price Range of Common Stock
The price range per share of common stock presented below represents the highest and lowest intraday sales prices for the Company’s common stock on the NASDAQ during each quarter of the two most recent years.
On June 6, 2014, the Company effected a seven-for-one stock split to shareholders of record as of June 2, 2014. All share and per share information has been retroactively adjusted to reflect the stock split.
|
| | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | Third Quarter | | | Second Quarter | | | First Quarter | |
20142016 price range per share
| $116.18 - $91.50 | | $ | 103.74112.39 - $ 92.09 | $89.47 | | $ | 95.05109.43 - $ 73.05 | $92.39 | | $ | 80.18123.82 - $ 70.51 | | | $ | 82.16 - $ 67.77 | $105.57 |
20132015 price range per share
| $132.97 - $92.00 | | $ | 73.39134.54 - $ 57.32 | $123.10 | | $ | 66.54133.60 - $ 55.01 | $104.63 | | $ | 79.29119.75 - $ 59.86 | | | $ | 96.68 - $ 71.60 | $95.18 |
As of October
10, 2014,14, 2016, there were
26,11225,641 shareholders of record.
The Company paid a total of
$11.0$12.0 billion and
$10.5$11.4 billion in dividends during
20142016 and
2013,2015, respectively, and expects to pay quarterly dividends of
$0.47$0.57 per common share each quarter, subject to declaration by the Board of Directors. The Company also plans to increase its dividend on an annual basis, subject to declaration by the Board of Directors.
Recent Sales of Unregistered Securities
On July 31, 2014, in connection with its acquisitions of Beats Music, LLC and Beats Electronics, LLC (collectively “Beats”), the Company issued approximately 5.1 million shares of its common stock to certain former equity holders of Beats in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The majority of these shares will vest over time based on continued employment with Apple.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended September
27, 201424, 2016 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):
| | | | | | | | | | | | | | | | |
Q4 Fiscal Periods | | Total
Number of
Shares
Purchased | | | Average
Price
Paid Per
Share | | | Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs | | | Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs (1) | |
June 29, 2014 to August 2, 2014: | | | | | | | | | | | | | | | | |
Open Market Purchases | | | 19,530 | | | $ | 96.77 | | | | 19,530 | | | | | |
August 3, 2014 to August 30, 2014: | | | | | | | | | | | | | | | | |
August 2014 ASR | | | 59,924 | (2) | | | | (2) | | | 59,924 | (2) | | | | |
Open Market Purchases | | | 56,062 | | | $ | 98.83 | | | | 56,062 | | | | | |
August 31, 2014 to September 27, 2014: | | | | | | | | | | | | | | | | |
Open Market Purchases | | | 5,663 | | | $ | 100.64 | | | | 5,663 | | | | | |
| | | | | | | | | | | | | | | | |
Total | | | 141,179 | | | | | | | | | | | $ | 22,050 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| Periods | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
| June 26, 2016 to July 30, 2016: | | | | | | | | |
| Open market and privately negotiated purchases | | 9,036 |
| | $ | 96.83 |
| | 9,036 |
| | |
| | | | | | | | | |
| July 31, 2016 to August 27, 2016: | | | | | | | | |
| May 2016 ASR | | 12,269 |
| | (2) |
| | 12,269 |
| | |
| Open market and privately negotiated purchases | | 11,919 |
| | $ | 108.11 |
| | 11,919 |
| | |
| | | | | | | | | |
| August 28, 2016 to September 24, 2016: | | | | | | | | |
| August 2016 ASR | | 22,468 |
| (3) | (3) |
| | 22,468 |
| (3) | |
| Open market and privately negotiated purchases | | 7,624 |
| | $ | 109.71 |
| | 7,624 |
| | |
| Total | | 63,316 |
| | | | | | $ | 42,024 |
|
| |
| (1) |
In 2012,April 2016, the Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock beginning in 2013. The Company’s Board of Directors increased the Company's share repurchase program authorization from $140 billion to $60 billion in April 2013 and to $90 billion in April 2014. As of September 27, 2014, $67.9$175 billion of the $90Company’s common stock. As of September 24, 2016, $133 billion of the $175 billion had been utilized. The remaining $22.1$42 billion in the table represents the amount available to repurchase shares under the authorized repurchase program as of September 27, 2014.24, 2016. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. | |
| |
| (2) | In May 2016, the Company entered into an accelerated share repurchase arrangement ("ASR") to purchase up to $6.0 billion of the Company's common stock. In August 2014,2016, the purchase period for this ASR ended and an additional 12.3 million shares were delivered and retired. In total, 60.5 million shares were delivered under this ASR at an average repurchase price of $99.25. |
| |
| (3) | In August 2016, the Company entered into a new accelerated share repurchase arrangement (“ASR”)ASR to purchase up to $9.0$3.0 billion of the Company’s common stock. In exchange for an up-front payments totaling $9.0payment of $3.0 billion, the financial institutionsinstitution party to the arrangement committed to deliver shares to the Company during the ASR’s purchase period, which will end in or before February 2015.November 2016. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the applicable purchase period based on the volume weighted-average price of the Company’s common stock during that period. During the fourth quarter of 2014, 59.9 million shares were delivered and retired under the ASR, and the final number of shares to be delivered will be determined at the conclusion of the purchase period. | |
Company Stock Performance
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for the Company, the S&P 500 Index, the
S&P Information Technology Index and the Dow Jones U.S. Technology Supersector
Index and the S&P Information Technology Index for the five years ended September
27, 2014. The Company has added the S&P Information Technology Index to the graph to capture the stock performance of companies whose products and services relate to those of the Company. The S&P Information Technology Index replaces the S&P Computer Hardware Index, which is no longer tracked by S&P.24, 2016. The graph assumes $100 was invested in each of the Company’s common stock, the S&P 500 Index, the
S&P Information Technology Index and the Dow Jones U.S. Technology Supersector
Index and the S&P Information Technology Index as of the market close on September
25, 2009.23, 2011. Note that historic stock price performance is not necessarily indicative of future stock price performance.
| |
| * | $100 invested on 9/25/0923/11 in stock or index, including reinvestment of dividends. Data points are the last day of each fiscal year for the Company’s common stock and September 30th for indexes. | |
Copyright© 2014 2016 S&P, a division of The McGraw-Hill Companies Inc.McGraw Hill Financial. All rights reserved. Copyright© 2014 2016 Dow Jones & Co. All rights reserved. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September
2009 | | | September
2010 | | | September
2011 | | | September
2012 | | | September
2013 | | | September
2014 | |
Apple Inc. | | $ | 100 | | | $ | 160 | | | $ | 222 | | | $ | 367 | | | $ | 272 | | | $ | 407 | |
S&P 500 Index | | $ | 100 | | | $ | 110 | | | $ | 111 | | | $ | 145 | | | $ | 173 | | | $ | 207 | |
Dow Jones U.S. Technology Supersector Index | | $ | 100 | | | $ | 112 | | | $ | 115 | | | $ | 150 | | | $ | 158 | | | $ | 205 | |
S&P Information Technology Index | | $ | 100 | | | $ | 111 | | | $ | 115 | | | $ | 152 | | | $ | 163 | | | $ | 210 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 2011 | | September 2012 | | September 2013 | | September 2014 | | September 2015 | | September 2016 |
| Apple Inc. | | $ | 100 |
| | $ | 166 |
| | $ | 123 |
| | $ | 183 |
| | $ | 212 |
| | $ | 213 |
|
| S&P 500 Index | | $ | 100 |
| | $ | 130 |
| | $ | 155 |
| | $ | 186 |
| | $ | 185 |
| | $ | 213 |
|
| S&P Information Technology Index | | $ | 100 |
| | $ | 132 |
| | $ | 142 |
| | $ | 183 |
| | $ | 187 |
| | $ | 230 |
|
| Dow Jones U.S. Technology Supersector Index | | $ | 100 |
| | $ | 130 |
| | $ | 137 |
| | $ | 178 |
| | $ | 177 |
| | $ | 217 |
|
| |
| Item 6. | Selected Financial Data |
The information set forth below for the five years ended September
27, 2014,24, 2016, is not necessarily indicative of results of future operations, and should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in Part II, Item 8 of this Form
10-K to fully understand factors that may affect the comparability of the information presented below (in millions, except number of shares, which are reflected in thousands, and per share amounts).
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
Net sales | | $ | 182,795 | | | $ | 170,910 | | | $ | 156,508 | | | $ | 108,249 | | | $ | 65,225 | |
Net income | | $ | 39,510 | | | $ | 37,037 | | | $ | 41,733 | | | $ | 25,922 | | | $ | 14,013 | |
Earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 6.49 | | | $ | 5.72 | | | $ | 6.38 | | | $ | 4.01 | | | $ | 2.20 | |
Diluted | | $ | 6.45 | | | $ | 5.68 | | | $ | 6.31 | | | $ | 3.95 | | | $ | 2.16 | |
Cash dividends declared per share | | $ | 1.82 | | | $ | 1.64 | | | $ | 0.38 | | | $ | 0 | | | $ | 0 | |
Shares used in computing earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 6,085,572 | | | | 6,477,320 | | | | 6,543,726 | | | | 6,469,806 | | | | 6,366,224 | |
Diluted | | | 6,122,663 | | | | 6,521,634 | | | | 6,617,483 | | | | 6,556,514 | | | | 6,472,983 | |
| | | | | | | | | | | | | | | | | | | | |
Total cash, cash equivalents and marketable securities | | $ | 155,239 | | | $ | 146,761 | | | $ | 121,251 | | | $ | 81,570 | | | $ | 51,011 | |
Total assets | | $ | 231,839 | | | $ | 207,000 | | | $ | 176,064 | | | $ | 116,371 | | | $ | 75,183 | |
Commercial paper | | $ | 6,308 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Long-term debt | | $ | 28,987 | | | $ | 16,960 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Other long-term obligations(1) | | $ | 24,826 | | | $ | 20,208 | | | $ | 16,664 | | | $ | 10,100 | | | $ | 5,531 | |
Total liabilities | | $ | 120,292 | | | $ | 83,451 | | | $ | 57,854 | | | $ | 39,756 | | | $ | 27,392 | |
Total shareholders’ equity | | $ | 111,547 | | | $ | 123,549 | | | $ | 118,210 | | | $ | 76,615 | | | $ | 47,791 | |
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Net sales | $ | 215,639 |
| | $ | 233,715 |
| | $ | 182,795 |
| | $ | 170,910 |
| | $ | 156,508 |
|
| Net income | $ | 45,687 |
| | $ | 53,394 |
| | $ | 39,510 |
| | $ | 37,037 |
| | $ | 41,733 |
|
| | | | | | | | | | |
| Earnings per share: | | | | | | | | | |
| Basic | $ | 8.35 |
| | $ | 9.28 |
| | $ | 6.49 |
| | $ | 5.72 |
| | $ | 6.38 |
|
| Diluted | $ | 8.31 |
| | $ | 9.22 |
| | $ | 6.45 |
| | $ | 5.68 |
| | $ | 6.31 |
|
| | | | | | | | | | |
| Cash dividends declared per share | $ | 2.18 |
| | $ | 1.98 |
| | $ | 1.82 |
| | $ | 1.64 |
| | $ | 0.38 |
|
| | | | | | | | | | |
| Shares used in computing earnings per share: | | | | | | | | | |
| Basic | 5,470,820 |
| | 5,753,421 |
| | 6,085,572 |
| | 6,477,320 |
| | 6,543,726 |
|
| Diluted | 5,500,281 |
| | 5,793,069 |
| | 6,122,663 |
| | 6,521,634 |
| | 6,617,483 |
|
| | | | | | | | | | |
| Total cash, cash equivalents and marketable securities | $ | 237,585 |
| | $ | 205,666 |
| | $ | 155,239 |
| | $ | 146,761 |
| | $ | 121,251 |
|
| Total assets | $ | 321,686 |
| | $ | 290,345 |
| | $ | 231,839 |
| | $ | 207,000 |
| | $ | 176,064 |
|
| Commercial paper | $ | 8,105 |
| | $ | 8,499 |
| | $ | 6,308 |
| | $ | — |
| | $ | — |
|
Total term debt (1) | $ | 78,927 |
| | $ | 55,829 |
| | $ | 28,987 |
| | $ | 16,960 |
| | $ | — |
|
Other long-term obligations (2) | $ | 36,074 |
| | $ | 33,427 |
| | $ | 24,826 |
| | $ | 20,208 |
| | $ | 16,664 |
|
| Total liabilities | $ | 193,437 |
| | $ | 170,990 |
| | $ | 120,292 |
| | $ | 83,451 |
| | $ | 57,854 |
|
| Total shareholders’ equity | $ | 128,249 |
| | $ | 119,355 |
| | $ | 111,547 |
| | $ | 123,549 |
| | $ | 118,210 |
|
| |
| (1) | Includes current and long-term portion of term debt. |
| |
| (2) | Other long-term obligations excludeexcludes non-current deferred revenue. | |
| |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This section and other parts of this Annual Report on Form 10-K (“Form 10-K (“Form10-K””) contain
forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. 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. Forward-looking statements can also be identified by words such as
“future,“future,” “anticipates,“anticipates,” “believes,“believes,” “estimates,“estimates,” “expects,“expects,” “intends,“intends,” “plans,“plans,” “predicts,“predicts,” “will,“will,” “would,“would,” “could,“could,” “can,“can,” “may,“may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in theforward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk“Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this Form10-K. All information presented herein is based on the Company’s fiscal calendar. 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. Each of the terms the “Company”“Company” and “Apple”“Apple” as used herein refers collectively to Apple Inc. and its wholly-owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. The Company designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, macOS™, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of accessory, service and support offerings. 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 “Internet Services”). 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. In addition, the Company sells a variety of third-party iPhone, iPad, Mac and iPodApple compatible products, including application software and various accessories through its onlineretail and retailonline stores. The Company sells to consumers;consumers, small and mid-sized businesses;businesses and education, enterprise and government customers.
Fiscal
20142016 Highlights
Net sales
rose 7%declined 8% or
$11.9$18.1 billion during
20142016 compared to
2013. This was2015, primarily driven by
increasesa year-over-year decrease in
net sales of iPhone; Mac; iTunes, Software and Services; and Accessories. Net sales and unit sales increased for iPhone
primarily due to the successful introduction of iPhone 5s and 5c in the latter half of calendar year 2013, the successful launch of iPhone 6 and 6 Plus beginning in the fourth quarter of 2014, and expanded distribution. Mac net sales and
unit sales increased primarily duethe effect of weakness in most foreign currencies relative to
strong demand for MacBook Air and MacBook Pro which were updatedthe U.S. dollar, partially offset by an increase in
2014 with faster processors and offered at lower prices. Net sales of iTunes, Software and Services grew primarily due to increased revenue from sales through the App Store, AppleCare and licensing. Net sales and unit sales for iPad declined in 2014 compared to 2013 due to lower unit sales in many markets. Growth in total net sales during 2014 was also negatively impacted by the continuing decline of iPod sales. All of the Company’s operating segments other than the Rest of Asia Pacific segment experienced increased net sales in 2014, with growth being strongest in the Greater China and Japan operating segments.During the first quarter of 2014, the Company introduced iPad Air, its fifth generation iPad and iPad mini with Retina display. At its Worldwide Developer Conference in June 2014,Services. In April 2016, the Company announced iOS 8 and OS X Yosemite. In September 2014,a significant increase to its capital return program by raising the Company introduced iPhone 6 and 6 Plus, released iOS 8, announced Apple Pay, which became available inexpected total size of the U.S. in October 2014, and previewed Apple Watch, which is expectedprogram from $200 billion to be available in early calendar 2015. In October 2014, the Company introduced iPad Air 2, iPad mini 3, iMac with Retina 5K Display and an updated Mac mini; and released OS X Yosemite.
During 2014, the Company completed various business acquisitions, including the acquisitions of Beats Music, LLC, which offers a subscription streaming music service, and Beats Electronics, LLC, which makes Beats headphones, speakers and audio software.
In April 2014, the Company increased$250 billion through March 2018. This included increasing its share repurchase authorization from $140 billion to $90$175 billion and theraising its quarterly dividend was raisedfrom $0.52 to $0.47$0.57 per common share resultingbeginning in an overall increase in its capital return program from $100May 2016. During 2016, the Company spent $29.0 billion to over $130 billion. During 2014, the Company utilized $45 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $11.1$12.2 billion. The current share repurchase program is expectedAdditionally, the Company issued $23.9 billion of U.S. dollar-denominated term debt and A$1.4 billion of Australian dollar-denominated term debt during 2016.
Fiscal 2015 Highlights
Net sales rose 28% or $50.9 billion during 2015 compared to
be completed2014, driven by
a year-over-year increase in iPhone net sales. iPhone net sales and unit sales in 2015 increased in all of the
end of December 2015.Company’s reportable operating segments. The Company also
issued $12.0 billionexperienced year-over-year net sales increases in Mac, Services and Other Products. Apple Watch, which launched during the third quarter of
long-term debt during 2014 with varying maturities through 2044 and launched a commercial paper program, with $6.3 billion outstanding as2015, accounted for more than 100% of
September 27, 2014.Fiscal 2013 Highlights
Net sales rose 9% or $14.4 billion during 2013 compared to 2012. This resulted fromthe year-over-year growth in net sales of iPhone; iTunes, Software and Services; and iPad. Growth in 2013 reflected strongOther Products. Net sales of iPhone 5, strong continuing sales of iPhone 4 and 4s, the introduction of iPhone 5c and 5s, strong performance of the iPad mini and fourth generation iPad, and continued growth in the Company’s online sales of apps, digital content and services. Growth in these areasduring 2015 was partially offset by declinesthe effect of weakness in most foreign currencies relative to the U.S. dollar and lower iPad net sales. Total net sales of Mac and iPod. Allincreased in each of the Company’s reportable operating segments, experienced increasedwith particularly strong growth in Greater China where year-over-year net sales in 2013, with net sales growth being particularly strong in the Americas, Greater China and Japan operating segments. Growth in total net sales was higher during the first half of 2013, rising $12.6 billion or 14.7% over the same period in 2012. First half growth in 2013 was driven by iPhone and iPad introductions at or near the beginning of 2013.
During the first quarter of 2013, the Company introduced the fourth generation iPad and iPad mini, a new MacBook Pro with Retina display, a new iPod touch, a new iMac, and expanded the rollout of iPhone 5 which began in September 2012. In June 2013 at its Worldwide Developer Conference, the Company announced iOS 7 and OS X Mavericks, announced iTunes Radio, introduced a significant upgrade to MacBook Air, and provided a preview of all new Mac Pro desktops that were introduced during 2014. In September 2013, the Company introduced iPhone 5s and iPhone 5c, released iOS 7, launched iTunes Radio, and announced that beginning in September 2013 iPhoto, iMovie and iWork Apps for iOS would be available as free downloads with all new iPhone, iPad and iPod touch devices (“iOS devices”)increased 84%.
In April
2013,2015, the Company announced a significant increase to its
program tocapital return
capital to shareholdersprogram by raising the
expected total
amount it expected to utilize forsize of the program
to $200 billion through
December 2015 to $100 billion.March 2017. This included increasing its share repurchase authorization to
$60$140 billion and raising its quarterly dividend to
$0.44$0.52 per
common share beginning in May
2013.2015. During
2013,2015, the Company
utilized $23.0spent $36.0 billion to repurchase
shares of its common
sharesstock and paid dividends
and dividend equivalents of
$10.5 billion or $1.64 per common share. In conjunction with its capital return program, in May 2013$11.6 billion. Additionally, the Company issued
$17.0$14.5 billion of
long-termU.S. dollar-denominated, €4.8 billion of euro-denominated, SFr1.3 billion of Swiss franc-denominated, £1.3 billion of British pound-denominated, A$2.3 billion of Australian dollar-denominated and ¥250.0 billion of Japanese yen-denominated term debt
with varying maturities through 2043.during 2015.
The following table shows net sales by operating segment and net sales and unit sales by product during
2014, 20132016, 2015 and
20122014 (dollars in millions and units in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net Sales by Operating Segment: | | | | | | | | | | | | | | | | | | | | |
Americas | | $ | 65,232 | | | | 4 | % | | $ | 62,739 | | | | 9 | % | | $ | 57,512 | |
Europe | | | 40,929 | | | | 8 | % | | | 37,883 | | | | 4 | % | | | 36,323 | |
Greater China | | | 29,846 | | | | 17 | % | | | 25,417 | | | | 13 | % | | | 22,533 | |
Japan | | | 14,982 | | | | 11 | % | | | 13,462 | | | | 27 | % | | | 10,571 | |
Rest of Asia Pacific | | | 10,344 | | | | (7 | )% | | | 11,181 | | | | 4 | % | | | 10,741 | |
Retail | | | 21,462 | | | | 6 | % | | | 20,228 | | | | 7 | % | | | 18,828 | |
| | | | | | | | | | | | | | | | | | | | |
Total net sales | | $ | 182,795 | | | | 7 | % | | $ | 170,910 | | | | 9 | % | | $ | 156,508 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net Sales by Product: | | | | | | | | | | | | | | | | | | | | |
iPhone (1) | | $ | 101,991 | | | | 12 | % | | $ | 91,279 | | | | 16 | % | | $ | 78,692 | |
iPad (1) | | | 30,283 | | | | (5 | )% | | | 31,980 | | | | 3 | % | | | 30,945 | |
Mac(1) | | | 24,079 | | | | 12 | % | | | 21,483 | | | | (7 | )% | | | 23,221 | |
iPod(1) | | | 2,286 | | | | (48 | )% | | | 4,411 | | | | (21 | )% | | | 5,615 | |
iTunes, Software and Services(2) | | | 18,063 | | | | 13 | % | | | 16,051 | | | | 25 | % | | | 12,890 | |
Accessories(3) | | | 6,093 | | | | 7 | % | | | 5,706 | | | | 11 | % | | | 5,145 | |
| | | | | | | | | | | | | | | | | | | | |
Total net sales | | $ | 182,795 | | | | 7 | % | | $ | 170,910 | | | | 9 | % | | $ | 156,508 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Unit Sales by Product: | | | | | | | | | | | | | | | | | | | | |
iPhone | | | 169,219 | | | | 13 | % | | | 150,257 | | | | 20 | % | | | 125,046 | |
iPad | | | 67,977 | | | | (4 | )% | | | 71,033 | | | | 22 | % | | | 58,310 | |
Mac | | | 18,906 | | | | 16 | % | | | 16,341 | | | | (10 | )% | | | 18,158 | |
iPod | | | 14,377 | | | | (45 | )% | | | 26,379 | | | | (25 | )% | | | 35,165 | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net Sales by Operating Segment: | | | | | | | | | |
| Americas | $ | 86,613 |
| | (8 | )% | | $ | 93,864 |
| | 17 | % | | $ | 80,095 |
|
| Europe | 49,952 |
| | (1 | )% | | 50,337 |
| | 14 | % | | 44,285 |
|
| Greater China | 48,492 |
| | (17 | )% | | 58,715 |
| | 84 | % | | 31,853 |
|
| Japan | 16,928 |
| | 8 | % | | 15,706 |
| | 3 | % | | 15,314 |
|
| Rest of Asia Pacific | 13,654 |
| | (10 | )% | | 15,093 |
| | 34 | % | | 11,248 |
|
| Total net sales | $ | 215,639 |
| | (8 | )% | | $ | 233,715 |
| | 28 | % | | $ | 182,795 |
|
| | | | | | | | | | |
| Net Sales by Product: | | | | | | | | | |
iPhone (1) | $ | 136,700 |
| | (12 | )% | | $ | 155,041 |
| | 52 | % | | $ | 101,991 |
|
iPad (1) | 20,628 |
| | (11 | )% | | 23,227 |
| | (23 | )% | | 30,283 |
|
Mac (1) | 22,831 |
| | (10 | )% | | 25,471 |
| | 6 | % | | 24,079 |
|
Services (2) | 24,348 |
| | 22 | % | | 19,909 |
| | 10 | % | | 18,063 |
|
Other Products (1)(3) | 11,132 |
| | 11 | % | | 10,067 |
| | 20 | % | | 8,379 |
|
| Total net sales | $ | 215,639 |
| | (8 | )% | | $ | 233,715 |
| | 28 | % | | $ | 182,795 |
|
| | | | | | | | | | |
| Unit Sales by Product: | | | | | | | | | |
| iPhone | 211,884 |
| | (8 | )% | | 231,218 |
| | 37 | % | | 169,219 |
|
| iPad | 45,590 |
| | (17 | )% | | 54,856 |
| | (19 | )% | | 67,977 |
|
| Mac | 18,484 |
| | (10 | )% | | 20,587 |
| | 9 | % | | 18,906 |
|
| |
| (1) | Includes deferrals and amortization of related non-software services and software upgrade rights. | rights and non-software services. |
| |
| (2) |
Includes revenue from the iTunes Store, the App Store, the Mac App Store, the iBooks Store,Internet Services, AppleCare®, Apple Pay, licensing and other services. | |
| |
| (3) |
Includes sales of Apple TV, Apple Watch, Beats® products, iPod and Apple-branded and third-party accessories for iPhone, iPad, Mac and iPod. | accessories. |
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’s fiscal years 2014, 2013 and 2012 ended on September 27, 2014, September 28, 2013 and September 29, 2012, respectively. Both fiscal years 2014 and 2013 spanned 52 weeks. Fiscal year 2012 spanned 53 weeks, with a 14th week included in the first quarter of 2012, as is done approximately every six years to realign the Company’s fiscal quarters more closely to calendar quarters. Inclusion of the additional week in 2012 increased the Company’s overall net sales and operating expenses for the year.
The following table presents iPhone net sales and unit sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions and units in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 101,991 | | | | 12% | | | $ | 91,279 | | | | 16% | | | $ | 78,692 | |
Percentage of total net sales | | | 56% | | | | | | | | 53% | | | | | | | | 50% | |
Unit sales | | | 169,219 | | | | 13% | | | | 150,257 | | | | 20% | | | | 125,046 | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 136,700 |
| | (12 | )% | | $ | 155,041 |
| | 52 | % | | $ | 101,991 |
|
| Percentage of total net sales | 63 | % | |
|
| | 66 | % | | | | 56 | % |
| Unit sales | 211,884 |
| | (8 | )% | | 231,218 |
| | 37 | % | | 169,219 |
|
iPhone net sales and unit sales decreased during 2016 compared to 2015. The Company believes the sales decline is due primarily to a lower rate of iPhone upgrades during 2016 compared to 2015 and challenging macroeconomic conditions in a number of major markets in 2016. Average selling prices (“ASPs”) for iPhone were lower year-over-year during 2016 due primarily to a different mix of iPhones, including the iPhone SE introduced in 2016, and the effect of weakness in most foreign currencies relative to the U.S. dollar.
The year-over-year growth in iPhone net sales and unit sales
induring 2015 primarily resulted from strong demand for iPhone 6 and 6 Plus during 2015. Overall ASPs for iPhone increased during 2015 compared to 2014,
resulteddue primarily
fromto the
successful introduction
of new iPhones in the latter half of calendar year 2013, the successful launch of iPhone 6 and 6 Plus
beginning in September 2014,
and expanded distribution. iPhone unit sales grew in all of the Company’s operating segments, while iPhone net sales grew in all segments except Rest of Asia Pacific. Overall average selling prices (“ASPs”) for iPhone were relatively flat in 2014 compared to 2013, with growth in ASPs in the Americas and Retail segments being offset by a decline in ASPs in the Greater China, Japan and Rest of Asia Pacific segments.The growth in iPhone net sales and unit sales during 2013 resulted from increased demand for iPhone in all of the Company’s operating segments primarily due to the launch of iPhone 5 beginning in September 2012 and strong ongoing demand for iPhone 4 and 4s. All of the Company’s operating segments experienced increases in net sales and unit sales of iPhone during 2013 compared to 2012. The year-over-year impact of higher iPhone unit sales in 2013 was partially offset by a 3% declinethe effect of weakness in iPhone ASPs primarily as a result of a shift in product mix towards lower-priced iPhone models, particularly iPhone 4. All ofmost foreign currencies relative to the Company’s geographic operating segments experienced a decline in iPhone ASPs during 2013.
U.S. dollar.
The following table presents iPad net sales and unit sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions and units in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 30,283 | | | | (5 | )% | | $ | 31,980 | | | | 3% | | | $ | 30,945 | |
Percentage of total net sales | | | 17% | | | | | | | | 19% | | | | | | | | 20% | |
Unit sales | | | 67,977 | | | | (4 | )% | | | 71,033 | | | | 22% | | | | 58,310 | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 20,628 |
| | (11 | )% | | $ | 23,227 |
| | (23 | )% | | $ | 30,283 |
|
| Percentage of total net sales | 10 | % | | | | 10 | % | | | | 17 | % |
| Unit sales | 45,590 |
| | (17 | )% | | 54,856 |
| | (19 | )% | | 67,977 |
|
iPad net sales decreased during 2016 compared to 2015 primarily due to lower unit sales and the effect of weakness in most foreign currencies relative to the U.S. dollar, partially offset by higher ASPs due to a shift in mix to higher-priced iPads. The Company believes the decline in iPad sales is due in part to a longer repurchase cycle for iPads and some level of cannibalization from the Company's other products.
Net sales and unit sales for iPad declined
in 2014during 2015 compared to
2013. iPad net sales and unit sales grew in2014. The Company believes the
Greater China and Japan segments but this growth was more than offset by a decline in
alliPad sales is due in part to a longer repurchase cycle for iPads and some level of cannibalization from the Company's other
segments. Overallproducts. iPad ASPs
were relatively flat in 2014declined during 2015 compared to
2013 with2014, primarily as a result of the effect of weakness in most foreign currencies relative to the U.S. dollar and a shift in mix to
higher-priced iPads being offset by the October 2013 price reduction of iPad mini. ASPs increased in the Japan and Retail segments but were flat to slightly down in other segments.The growth in net sales and unit sales of iPad during 2013 resulted from growth in iPad unit sales in all of the Company’s operating segments. This growth was driven by the launch of iPad mini and the fourth generation iPad beginning in the first quarter of 2013. The year-over-year growth rate of total iPad unit sales was significantly higher than the growth rate of total iPad net sales for 2013 due to a reduction in iPad ASPs of 15% in 2013 compared to 2012. This decline resulted primarily from introduction of the lower priced iPad mini and the full year impact of the price reduction on iPad 2 made in 2012. The decline in iPad ASPs was experienced to various degrees by all of the Company’s operating segments.
lower-priced iPads.
The following table presents Mac net sales and unit sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions and units in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 24,079 | | | | 12% | | | $ | 21,483 | | | | (7 | )% | | $ | 23,221 | |
Percentage of total net sales | | | 13% | | | | | | | | 13% | | | | | | | | 15% | |
Unit sales | | | 18,906 | | | | 16% | | | | 16,341 | | | | (10 | )% | | | 18,158 | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 22,831 |
| | (10 | )% | | $ | 25,471 |
| | 6 | % | | $ | 24,079 |
|
| Percentage of total net sales | 11 | % | | | | 11 | % | | | | 13 | % |
| Unit sales | 18,484 |
| | (10 | )% | | 20,587 |
| | 9 | % | | 18,906 |
|
Mac net sales and unit sales decreased during 2016 compared to 2015. The year-over-year decline in Mac unit sales during 2016 was at rates similar to the overall market. The effect of weakness in most foreign currencies relative to the U.S. dollar also negatively impacted Mac net sales.
The year-over-year growth in Mac net sales and unit sales
for 2014during 2015 was
primarily driven by
increased sales of MacBook Air, MacBook Pro andstrong demand for Mac
Pro. Mac net sales and unit sales increased in all of the Company’s operating segments.portables. Mac ASPs
decreaseddeclined during
20142015 compared to
2013 primarily2014 largely due to
price reductions on certain Mac models and a shift in mix towards Mac portable systems.Mac net sales and unit sales for 2013 were down or relatively flat in allthe effect of the Company’s operating segments. Mac ASPs increased slightly partially offsetting the impact of lower unit sales on net sales. The decline in Mac unit sales and net sales reflected the overall weakness in most foreign currencies relative to the market for personal computers.
iTunes, Software and U.S. dollar.
The following table presents net sales information of
iTunes, Software and Services for
2014, 20132016, 2015 and
20122014 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
iTunes, Software and Services | | $ | 18,063 | | | | 13% | | | $ | 16,051 | | | | 25% | | | $ | 12,890 | |
Percentage of total net sales | | | 10% | | | | | | | | 9% | | | | | | | | 8% | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 24,348 |
| | 22 | % | | $ | 19,909 |
| | 10 | % | | $ | 18,063 |
|
| Percentage of total net sales | 11 | % | | | | 9 | % | | | | 10 | % |
The year-over-year increase in net sales of Services in 2016 was due primarily to growth from the App Store, licensing and AppleCare sales, partially offset by the effect of weakness in most foreign currencies relative to the U.S. dollar. During the first quarter of 2016, the Company received $548 million from Samsung Electronics Co., Ltd. related to its patent infringement lawsuit, which was recorded as licensing net sales within Services.
The increase in net sales of
iTunes, Software and Services
in 2014during 2015 compared to
20132014 was primarily due to growth
in net sales from
the iTunes Store, AppleCare and licensing. The iTunes Store generated a total of $10.2 billion in net sales during 2014 compared to $9.3 billion during 2013. Growth in net sales from the iTunes Store was driven by increases in revenue from app sales reflecting continued growth in the installed base of iOS devices and the expanded offerings of iOS Apps and related in-App purchases. This was partially offset by a decline in sales of digital music.The increase in net sales of iTunes, Software and Services in 2013 compared to 2012 was primarily due to growth in net sales from the iTunes Store, AppleCare and licensing. The iTunes Store generated a total of $9.3 billion in net sales during 2013, a 24% increase from 2012. Growth in the iTunes Store, which includes the App Store the Mac App Store and the iBooks Store, reflected continued growth in the installed base of iOS devices, expanded offerings of iOS Apps and related in-App purchases, and expanded offerings of iTunes digital content.
licensing.
Segment Operating Performance
The Company manages its business primarily on a geographic basis.
Accordingly, the Company determined itsThe Company’s reportable operating segments
which are generally based on the nature and locationconsist of
its customers, to be the Americas, Europe, Greater China, Japan
and Rest of Asia
Pacific and Retail.Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and
those Asian countries
other than those countriesnot included in the Company’s other
reportable operating segments.
The results ofAlthough the
Company’s geographicreportable operating segments
do not include results of the Retail segment. Each operating segment providesprovide similar hardware and software products and similar
services.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. Further information regarding the Company’s
reportable operating segments
maycan be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.”
The following table presents Americas net sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 65,232 | | | | 4% | | | $ | 62,739 | | | | 9% | | | $ | 57,512 | |
Percentage of total net sales | | | 36% | | | | | | | | 37% | | | | | | | | 37% | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 86,613 |
| | (8 | )% | | $ | 93,864 |
| | 17 | % | | $ | 80,095 |
|
| Percentage of total net sales | 40 | % | | | | 40 | % | | | | 44 | % |
Americas net sales decreased during 2016 compared to 2015 due primarily to lower net sales and unit sales of iPhone.
The year-over-year growth in the Americas segment in 2014 was due to increased net sales during 2015 was driven primarily by growth in net sales and unit sales of iPhone, Mac and iTunes, Software and Services that were partially offset by a decline in net sales and unit sales of iPodiPad.
Europe
The following table presents Europe net sales information for 2016, 2015 and iPad and2014 (dollars in millions):
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 49,952 |
| | (1 | )% | | $ | 50,337 |
| | 14 | % | | $ | 44,285 |
|
| Percentage of total net sales | 23 | % | | | | 22 | % | | | | 24 | % |
Europe net sales decreased during 2016 compared to 2015 driven primarily by the effect of weakness in foreign currencies relative to the U.S. dollar compared to 2013.and a decrease in unit sales of Mac, largely offset by an increase in iPhone growth resulted primarily from the successful introduction of iPhone 5sunit sales and 5cServices.
The year-over-year increase in
September 2013 and the successful launch of iPhone 6 and 6 Plus in September 2014. Mac growthEurope net sales during 2015 was driven primarily by
increasedgrowth in net sales and unit sales of
MacBook Air and Mac Pro.The growth in the Americas segment net sales during 2013 was driven by increased sales of iPhone, following the introduction of iPhone 5 in September 2012 and iPhone 5s and 5c in September 2013, increased sales from the iTunes Store, and increased sales of iPad, particularly iPad mini. These increases were partially offset by a decreasethe effect of weakness in net sales of iPod and Mac and a decline in iPad ASPs.
Europe
The following table presents Europe net sales information for 2014, 2013 and 2012 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 40,929 | | | | 8% | | | $ | 37,883 | | | | 4% | | | $ | 36,323 | |
Percentage of total net sales | | | 22% | | | | | | | | 22% | | | | | | | | 23% | |
The growth in the Europe segment in 2014 was due to increased net sales of iPhone, Mac and iTunes, Software and Services, as well as strength in Europeanforeign currencies relative to the U.S. dollar partially offset byand a decline in net sales of both iPad and iPod. iPhone growth resulted primarily from the successful introduction of iPhone 5s and 5c in the second half of calendar 2013 and the successful launch of iPhone 6 and 6 Plus in over 20 countries in Europe in September 2014. Mac growth was driven primarily by increased net sales and unit sales of MacBook Air, MacBook Pro and Mac Pro.
The growth in net sales in the Europe segment during 2013 was primarily driven by increased sales of iPhone, iPad and higher net sales from iTunes. These increases were partially offset by decreases in net sales of Mac and iPod and a decline in iPad ASPs. Net sales in the Europe segment continued to be negatively impacted by unfavorable economic conditions in parts of the region reflected by second half 2013 net sales falling 4% compared to the second half of 2012, which followed an 11% increase in net sales during the first half of 2013.
iPad.
The following table presents Greater China net sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 29,846 | | | | 17% | | | $ | 25,417 | | | | 13% | | | $ | 22,533 | |
Percentage of total net sales | | | 16% | | | | | | | | 15% | | | | | | | | 14% | |
The
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 48,492 |
| | (17 | )% | | $ | 58,715 |
| | 84 | % | | $ | 31,853 |
|
| Percentage of total net sales | 22 | % | | | | 25 | % | | | | 17 | % |
Greater China
segment experienced year-over-year growth in net sales
in 2014 that was significantly higher than the growth rate for the Company overall. Greater China growth was driven by higher unit sales and net sales of all major product categories except iPod, in additiondecreased during 2016 compared to
higher net sales of iTunes, Software and Services. Growth in2015 due primarily to lower net sales and unit sales of iPhone
was especially strong, driven by the successful launch of iPhone 5s and 5c in Mainland China and Hong Kong in September 2013, the successful launch of iPhone 6 and 6 Plus in Hong Kong in September 2014, increased demand for the Company’s entry-priced iPhones and the
additioneffect of
a significant new carrierweakness in
foreign currencies relative to the
second quarter of 2014.The growthU.S. dollar.
Greater China experienced strong year-over-year increases in net sales
in the Greater China segment during
2013 resulted from two major2015 driven primarily by iPhone
introductions during the year, iPhone 5 in December 2012 and iPhone 5c and iPhone 5s in September 2013. Further contributing to the growth in 2013 was the introduction of the fourth generation iPad and iPad mini during the second quarter of 2013 and an increase in iPhone channel inventory as of the end of 2013 compared to the end of 2012. While net sales in the Greater China segment were up 13% for all of 2013, net sales for the second half of 2013 declined 4% compared to the second half of 2012.sales.
The following table presents Japan net sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 14,982 | | | | 11% | | | $ | 13,462 | | | | 27% | | | $ | 10,571 | |
Percentage of total net sales | | | 8% | | | | | | | | 8% | | | | | | | | 7% | |
In 2014 the
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 16,928 |
| | 8 | % | | $ | 15,706 |
| | 3 | % | | $ | 15,314 |
|
| Percentage of total net sales | 8 | % | | | | 7 | % | | | | 8 | % |
Japan segment generated year-over-year increases in net sales and unit sales of every major product category except iPod and experienced growth inincreased during 2016 compared to 2015 due primarily to higher net sales of iTunes, SoftwareServices and Service. the strength in the Japanese yen relative to the U.S. dollar.
The year-over-year
increase in Japan net sales during 2015 was driven primarily by growth in
iPhone was driven by the successful launch of iPhone 5s and 5c in September 2013, the successful launch of iPhone 6 and 6 Plus in September 2014, increased demand for the Company’s entry-priced iPhones and the addition of a significant new carrier in the fourth quarter of 2013. These positive factors wereServices largely associated with strong App Store sales, partially offset by
the effect of weakness in the Japanese
Yenyen relative to the U.S. dollar.
The increase in net sales in the Japan segment during 2013 reflected significant increases in unit volumes of iPhone and iPad, strong growth of iTunes Store net sales and an increase in iPhone channel inventory as of the end of 2013 compared to the end of 2012. These positive factors were partially offset by declines in ASPs for iPhone and iPad and by weakness in the Japanese Yen relative to the U.S. dollar.
The following table presents Rest of Asia Pacific net sales information for
2014, 20132016, 2015 and
20122014 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 10,344 | | | | (7 | )% | | $ | 11,181 | | | | 4% | | | $ | 10,741 | |
Percentage of total net sales | | | 6% | | | | | | | | 7% | | | | | | | | 7% | |
Net sales in the
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Net sales | $ | 13,654 |
| | (10 | )% | | $ | 15,093 |
| | 34 | % | | $ | 11,248 |
|
| Percentage of total net sales | 6 | % | | | | 6 | % | | | | 6 | % |
Rest of Asia Pacific
segment declined in 2014net sales decreased during 2016 compared to
20132015 due
primarily to
year-over-year reductions inlower net sales
in all major product categories except Mac and
reductions in unit sales of
iPadiPhone and
iPod. Net sales in 2014 were also negatively affected by the
effect of weakness in
several foreign currencies relative to the U.S.
dollar, including the Australian dollar.
The year-over-year
growthincrease in Rest of Asia Pacific
segment net sales during
2013 was2015 primarily
driven by the launch of iPhone 5 and higher sales from the iTunes Store, partially offset by a decrease in net sales of iPad and Mac.Retail
The following table presents Retail information for the years ended and as of September 27, 2014, September 28, 2013 and September 29, 2012 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Net sales | | $ | 21,462 | | | | 6% | | | $ | 20,228 | | | | 7% | | | $ | 18,828 | |
Percentage of total net sales | | | 12% | | | | | | | | 12% | | | | | | | | 12% | |
| | | | | |
U.S. stores | | | 259 | | | | | | | | 254 | | | | | | | | 250 | |
International stores | | | 178 | | | | | | | | 162 | | | | | | | | 140 | |
| | | | | | | | | | | | | | | | | | | | |
Total store count | | | 437 | | | | | | | | 416 | | | | | | | | 390 | |
| | | | | | | | | | | | | | | | | | | | |
Headcount | | | 46,200 | | | | | | | | 42,800 | | | | | | | | 42,400 | |
Thereflects strong growth in Retail segment net sales in 2014 was primarily driven by increases in net sales and unit sales of iPhone, and Mac, partially offset by declinesthe effect of weakness in foreign currencies relative to the U.S. dollar and a decline in net sales and unit sales of iPad and iPod. With an average of 424 and 403 open stores during 2014 and 2013, respectively, average revenue per store increased to $50.6 million in 2014 from $50.2 million in 2013.
The growth in Retail segment net sales during 2013 was primarily driven by increased unit sales of iPhone and iPad following the new product introductions in the first half of 2013 and increased sales of services. With an average of 403 and 365 open stores during 2013 and 2012, respectively, average revenue per store decreased to $50.2 million in 2013, compared to $51.5 million in 2012.
The Retail segment’s operating income was $4.6 billion, $4.0 billion and $4.6 billion during 2014, 2013 and 2012, respectively. The year-over-year increase in Retail segment operating income in 2014 was attributable to higher net sales and higher gross margin primarily due to a higher mix of iPhone. The year-over-year decrease in Retail segment operating income in 2013 was primarily attributable to lower gross margin similar to that experienced by the Company overall, partially offset by higher net sales.
iPad.
Gross margin for
2016, 2015 and 2014
2013 and 2012 areis as follows (dollars in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Net sales | | $ | 182,795 | | | $ | 170,910 | | | $ | 156,508 | |
Cost of sales | | | 112,258 | | | | 106,606 | | | | 87,846 | |
| | | | | | | | | | | | |
Gross margin | | $ | 70,537 | | | $ | 64,304 | | | $ | 68,662 | |
| | | | | | | | | | | | |
Gross margin percentage | | | 38.6% | | | | 37.6% | | | | 43.9% | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net sales | $ | 215,639 |
| | $ | 233,715 |
| | $ | 182,795 |
|
| Cost of sales | 131,376 |
| | 140,089 |
| | 112,258 |
|
| Gross margin | $ | 84,263 |
| | $ | 93,626 |
| | $ | 70,537 |
|
| Gross margin percentage | 39.1 | % | | 40.1 | % | | 38.6 | % |
Gross margin decreased in 2016 compared to 2015 due primarily to the effect of weakness in most foreign currencies relative to the U.S. dollar and, to a lesser extent, unfavorable leverage on fixed costs from lower net sales, partially offset by a favorable shift in mix to Services.
The year-over-year increase in the gross margin percentage in
20142015 was driven
primarily by
multiple factors including lower commodity costs, a favorable shift in mix to products with higher margins and,
to a lesser extent, by improved leverage on fixed costs from higher net
sales, which wassales. These positive factors were partially offset
primarily by higher product cost structures and, to a lesser extent, by the
effect of weakness in
severalmost foreign currencies relative to the U.S.
dollar, price reductions on select products and higher cost structures on certain new products.The year-over-year decrease in gross margin in 2013 compared to 2012 was driven by multiple factors including introduction of new versions of existing products with higher cost structures and flat or reduced pricing; a shift in sales mix to products with lower margins; introduction of iPad mini with gross margin significantly below the Company’s average product margins; higher expenses associated with changes to certain of the Company’s service policies and other warranty costs; price reductions on certain products, including iPad 2 and iPhone 4; and unfavorable impact from foreign exchange fluctuations.
dollar.
The Company anticipates gross margin during the first quarter of
20152017 to be between
37.5%38% and 38.5%. The foregoing statement regarding the Company’s expected gross margin percentage in the first quarter of
20152017 is forward-looking and could differ from actual results. The Company’s future gross margins can be impacted by multiple factors including, but not limited to, those set forth
above in Part I, Item 1A of this Form 10-K under the heading “Risk Factors” and those described in this paragraph. 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, increased competition, compressed product life cycles, product transitions, potential increases in the cost of components, and potential strengthening of the U.S. dollar, as well as potential increases in the costs of outside manufacturing services and a potential shift in the Company’s sales mix towards products with lower gross margins. In response to competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins. Gross margins could also be affected by the Company’s ability to manage product quality and warranty costs effectively and to stimulate demand for certain of its products. Due to the Company’s significant international operations,
its financial
condition and operating results,
canincluding gross margins, could be significantly affected by fluctuations in exchange rates.
Operating expenses for
2014, 20132016, 2015 and
20122014 are as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Research and development | | $ | 6,041 | | | | 35% | | | $ | 4,475 | | | | 32% | | | $ | 3,381 | |
Percentage of total net sales | | | 3% | | | | | | | | 3% | | | | | | | | 2% | |
Selling, general and administrative | | $ | 11,993 | | | | 11% | | | $ | 10,830 | | | | 8% | | | $ | 10,040 | |
Percentage of total net sales | | | 7% | | | | | | | | 6% | | | | | | | | 6% | |
Total operating expenses | | $ | 18,034 | | | | 18% | | | $ | 15,305 | | | | 14% | | | $ | 13,421 | |
Percentage of total net sales | | | 10% | | | | | | | | 9% | | | | | | | | 9% | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Research and development | $ | 10,045 |
| | 25 | % | | $ | 8,067 |
| | 34 | % | | $ | 6,041 |
|
| Percentage of total net sales | 5 | % | | | | 3 | % | | | | 3 | % |
| Selling, general and administrative | $ | 14,194 |
| | (1 | )% | | $ | 14,329 |
| | 19 | % | | $ | 11,993 |
|
| Percentage of total net sales | 7 | % | | | | 6 | % | | | | 7 | % |
| Total operating expenses | $ | 24,239 |
| | 8 | % | | $ | 22,396 |
| | 24 | % | | $ | 18,034 |
|
| Percentage of total net sales | 11 | % | | | | 10 | % | | | | 10 | % |
Research and Development
(“R&D”) ExpenseThe year-over-year growth in
2014 and 2013 R&D expense
in 2016 and 2015 was driven primarily by an increase in headcount and related expenses,
including share-based compensationand material costs
and machinery and equipment to support expanded R&D activities. The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace, and
are directly related to
timelythe development of new and
enhancedupdated products that are central to the Company’s core business strategy.
As such, the Company expects to make further investments in R&D to remain competitive.
Selling, General and Administrative
(“SG&A”) ExpenseThe decrease in selling, general and administrative expense in 2016 compared to 2015 was due primarily to lower discretionary expenditures and advertising costs, partially offset by an increase in headcount and related expenses. The year-over-year growth in SG&Aselling, general and administrative expense during 2014 compared to 2013in 2015 was primarily due to increased headcount and related expenses, including share-based compensation costs;and higher spending on marketing advertising and professional services;advertising.
Other Income/(Expense), Net
Other income/(expense), net for 2016, 2015 and
the Company’s continued expansion of its Retail segment. The growth in SG&A during 2013 compared to 2012 was primarily due to the Company’s continued expansion of its Retail segment and increased headcount and related expenses, partially offset by decreased spending on professional services.Other Income and Expense
Other income and expense for 2014 2013 and 2012 are as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | Change | | | 2013 | | | Change | | | 2012 | |
Interest and dividend income | | $ | 1,795 | | | | | | | $ | 1,616 | | | | | | | $ | 1,088 | |
Interest expense | | | (384 | ) | | | | | | | (136 | ) | | | | | | | 0 | |
Other expense, net | | | (431 | ) | | | | | | | (324 | ) | | | | | | | (566 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total other income/(expense), net | | $ | 980 | | | | (15 | )% | | $ | 1,156 | | | | 121 | % | | $ | 522 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | 2016 | | Change | | 2015 | | Change | | 2014 |
| Interest and dividend income | $ | 3,999 |
| | | | $ | 2,921 |
| | | | $ | 1,795 |
|
| Interest expense | (1,456 | ) | | | | (733 | ) | | | | (384 | ) |
| Other expense, net | (1,195 | ) | | | | (903 | ) | | | | (431 | ) |
| Total other income/(expense), net | $ | 1,348 |
| | 5 | % | | $ | 1,285 |
| | 31 | % | | $ | 980 |
|
The
decreaseyear-over-year increase in other
incomeincome/(expense), net during 2016 and
expense during 2014 compared to 20132015 was due primarily to
higher interest income, partially offset by higher interest expense on debt and higher expenses associated with foreign exchange
rate movements, partially offset by lower premium expenses on foreign exchange contracts and higher interest income. The year-over-year increase in other income and expense during 2013 was due primarily to higher interest and dividend income resulting from the Company’s higher cash, cash equivalents and marketable securities balances and lower premium expenses on foreign exchange contracts, partially offset by interest expense on debt issued in the third quarter of 2013 and higher expenses associated with foreign exchange rate movements.activity. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was
1.11%1.73%,
1.03%1.49% and
1.03% during1.11% in 2016, 2015 and 2014,
2013 and 2012, respectively.
The Company had no debt outstanding during 2012 and accordingly did not incur any related interest expense.
Provision for Income Taxes
Provision for income taxes and effective tax rates for
2014, 20132016, 2015 and
20122014 are as follows (dollars in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Provision for income taxes | | $ | 13,973 | | | $ | 13,118 | | | $ | 14,030 | |
Effective tax rate | | | 26.1% | | | | 26.2% | | | | 25.2% | |
|
| | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Provision for income taxes | 15,685 |
| | $ | 19,121 |
| | $ | 13,973 |
|
| Effective tax rate | 25.6 | % | | 26.4 | % | | 26.1 | % |
The Company’s effective tax rates for
all years2016, 2015 and 2014 differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings, a substantial portion of which was generated by subsidiaries organized in Ireland, for which no U.S. taxes are provided
becausewhen such earnings are intended to be indefinitely reinvested outside the U.S.
The lower effective tax rate in 2016 compared to 2015 was due primarily to greater R&D tax credits. The higher effective tax rate during 2015 compared to 2014 was due primarily to higher foreign taxes.
As of September
27, 2014,24, 2016, the Company had deferred tax assets arising from deductible temporary differences, tax losses and tax credits of
$5.1$4.1 billion and deferred tax liabilities of
$20.3$26.0 billion. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the deferred tax assets. The Company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and the amount of a valuation allowance.
During the
fiscal year ended September 27, 2014,fourth quarter of 2016, the
U.S. Internal Revenue Service (“IRS”) concludedCompany reached a partial settlement with the IRS on its
reviewexamination of
the years 2004 through 2009. The IRS is currently examining the years 2010 through 2012.
In connection with this settlement, the Company recognized a tax benefit in the fourth quarter of 2016 that was not significant to its consolidated financial statements. All years prior to 2013 are closed, except for the years 2010 through 2012 relating to R&D tax credits. In addition, the Company is subject to audits by state, local and foreign tax
authorities. In major states and major foreign jurisdictions, the years subsequent to 2003 generally remain open and could be subject to examination by the taxing authorities. Management believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
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"). The State Aid Decision orders Ireland to calculate and recover additional taxes from the Company for the period June 2003 through September 2014. Irish legislative changes, effective as of the beginning of 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and intends to appeal to the General Court of the Court of Justice of the European Union. Ireland has also announced its intention to appeal the State Aid Decision. 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. Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, pending conclusion of all appeals. The Company believes that any incremental Irish corporate income taxes potentially due would be creditable against U.S. taxes.
Recent Accounting Pronouncements
Income Taxes
In May 2014,October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory ("ASU 2016-16"), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-06 will be effective for the Company in its first quarter of 2019. The Company is currently evaluating the impact of adopting ASU 2016-16 on its consolidated financial statements.
Stock Compensation
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company beginning in its first quarter of 2018. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its first quarter of 2020, and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting ASU 2016-02 on its consolidated financial statements.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019. The Company does not believe the adoption of ASU 2016-01 will have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in its first quarter of 2021 and early adoption is permitted. The Company does not believe the adoption of ASU 2016-13 will have a material impact on its consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2018. Early2019, and early adoption is not permitted.
Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the “new revenue standards”).
The new revenue
standardstandards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company
is currently
evaluating the impact of adoptingexpects to adopt the new revenue
standardstandards in its first quarter of 2018 utilizing the full retrospective transition method. The Company does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements.
Liquidity and Capital Resources
The following table presents selected financial information and statistics as of and for the years ended September
24, 2016, September 26, 2015 and September 27, 2014
September 28, 2013 and September 29, 2012 (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Cash, cash equivalents and marketable securities | | $ | 155,239 | | | $ | 146,761 | | | $ | 121,251 | |
Property, plant and equipment, net | | $ | 20,624 | | | $ | 16,597 | | | $ | 15,452 | |
Long-term debt | | $ | 28,987 | | | $ | 16,960 | | | $ | 0 | |
Working capital | | $ | 5,083 | | | $ | 29,628 | | | $ | 19,111 | |
| | | |
Cash generated by operating activities | | $ | 59,713 | | | $ | 53,666 | | | $ | 50,856 | |
Cash used in investing activities | | $ | (22,579 | ) | | $ | (33,774 | ) | | $ | (48,227 | ) |
Cash used in financing activities | | $ | (37,549 | ) | | $ | (16,379 | ) | | $ | (1,698 | ) |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash, cash equivalents and marketable securities | $ | 237,585 |
| | $ | 205,666 |
| | $ | 155,239 |
|
| Property, plant and equipment, net | $ | 27,010 |
| | $ | 22,471 |
| | $ | 20,624 |
|
| Commercial paper | $ | 8,105 |
| | $ | 8,499 |
| | $ | 6,308 |
|
| Total term debt | $ | 78,927 |
| | $ | 55,829 |
| | $ | 28,987 |
|
| Working capital | $ | 27,863 |
| | $ | 8,768 |
| | $ | 5,083 |
|
| Cash generated by operating activities | $ | 65,824 |
| | $ | 81,266 |
| | $ | 59,713 |
|
| Cash used in investing activities | $ | (45,977 | ) | | $ | (56,274 | ) | | $ | (22,579 | ) |
| Cash used in financing activities | $ | (20,483 | ) | | $ | (17,716 | ) | | $ | (37,549 | ) |
The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations over the next 12 months.
To provide additional flexibility in managing liquidity, the Company began accessing the commercial paper markets in the third quarter of 2014. The Company currently anticipates the cash used for future dividends,
and the share repurchase program
and debt repayments will come from its current domestic cash, cash generated from on-going U.S. operating activities and from borrowings.
As of September 27, 201424, 2016 and September 28, 2013, $137.1 billion and $111.3 billion, respectively, of26, 2015, the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries were $216.0 billion and $186.9 billion, respectively, and are generally based in U.S.dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S. In connection with the State Aid Decision, 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. Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, pending conclusion of all appeals.
The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.
During
2014,2016, cash generated from operating activities of
$59.7$65.8 billion was a result of
$39.5$45.7 billion of net income, non-cash adjustments to net income of
$13.2$19.7 billion and an increase in
the net change in operating assets and liabilities of
$7.0 billion.$484 million. Cash used in investing activities of
$22.6$46.0 billion during
20142016 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of
$9.0 billion;$30.6 billion and cash used to acquire property, plant and equipment of
$9.6 billion; and cash paid for business acquisitions, net of cash acquired, of $3.8$12.7 billion. Cash used in financing activities of
$37.5$20.5 billion during
20142016 consisted primarily of cash used to repurchase common stock of
$45.0$29.7 billion,
and cash used to pay dividends and dividend equivalents of
$11.1$12.2 billion and cash used to repay term debt of $2.5 billion, partially offset by net proceeds from the issuance of
long-termterm debt
and commercial paper of
$12.0 billion and $6.3 billion, respectively.$25.0 billion.
During 2013,2015, cash generated from operating activities of $53.7$81.3 billion was a result of $37.0$53.4 billion of net income, non-cash adjustments to net income of $10.2$16.2 billion and an increase in the net change in operating assets and liabilities of $6.5$11.6 billion. Cash used in investing activities of $33.8$56.3 billion during 20132015 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $24.0$44.4 billion and cash used to acquire property, plant and equipment of $8.2$11.2 billion. Cash used in financing activities of $16.4$17.7 billion during 20132015 consisted primarily of cash used to repurchase common stock of $22.9$35.3 billion and cash used to pay dividends and dividend equivalents of $10.6$11.6 billion, partially offset by net proceeds from the issuance of long-termterm debt of $16.9$27.1 billion.
The Company’s capital expenditures were
$11.0$12.8 billion during
2014, consisting of $491 million for retail store facilities and $10.52016. The Company anticipates utilizing approximately $16.0 billion for
other capital expenditures
includingduring 2017, which includes product tooling and manufacturing process
equipment and other corporate facilities and infrastructure. The Company’s actual cash payments for capital expenditures during 2014 were $9.6 billion.The Company anticipates utilizing approximately $13.0 billion for capital expenditures during 2015, including approximately $600 million for retail store facilities and approximately $12.4 billion for other capital expenditures, including product tooling and manufacturing process equipment,equipment; data centers andcenters; corporate facilities and infrastructure, including information systems hardware, software and enhancements.
During 2015, theenhancements; and retail store facilities.
Debt
The Company
expects to open about 25 new retail stores, with approximately three-quarters located outside of the U.S. During 2015, the Company also expects to remodel approximately five of its existing stores.Debt
In April 2014, the Board of Directors authorized the Company to issueissues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company intends to useuses the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September 27, 2014,24, 2016, the Company had $6.3$8.1 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.12%0.45% and maturities generally less than nine months.
In the third quarter
As of 2014 and 2013,September 24, 2016, the Company issued $12.0 billion and $17.0 billion of long-term debt, respectively. The debt issuances includedhas outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $29.0$78.4 billion (collectively the “Notes”). During 2016, the Company repaid $2.5 billion of its Notes upon maturity. The Company has entered, and may enter in the future may enter, into interest rate swaps to manage interest rate risk on the Notes. Interest rate swaps allowIn addition, the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments. In the third quarter of 2014, the Companyhas entered, into interest rate swaps with an aggregate notional amount of $9.0 billion, which effectively converted most of the fixed-rate notes into floating-rate notes, and in the third quarterfuture may enter, into currency swaps to manage foreign currency risk on the Notes. The future principal payments for the Company’s Notes as of 2013,September 24, 2016 are as follows (in millions):
|
| | | |
| 2017 | $ | 3,500 |
|
| 2018 | 6,500 |
|
| 2019 | 6,834 |
|
| 2020 | 6,454 |
|
| 2021 | 7,750 |
|
| Thereafter | 47,346 |
|
| Total term debt | $ | 78,384 |
|
Further information regarding the
Company entered into interest rate swaps with an aggregate notional amountCompany’s debt issuances and related hedging activity can be found in Part II, Item 8 of
$3.0 billion, which effectively convertedthis Form 10-K in the
floating-rate notes into fixed-rate notes.Notes to the Consolidated Financial Statements in Note 2, “Financial Instruments” and Note 6, “Debt.”
In April 2014,2016, the Company’s Board of Directors increased the share repurchase program authorization from $60$140 billion to $90$175 billion of the Company’s common stock, increasing the expected total size of which $67.9the capital return program from $200 billion had been utilized asto $250 billion. Additionally in April 2016, the Company announced that the Board of Directors raised the rate of the Company's quarterly cash dividend by 10% from $0.52 to $0.57 per share, beginning with the dividend paid during the third quarter of 2016. The Company intends to increase its dividend on an annual basis subject to declaration by the Board of Directors.
As of September
27, 2014. The24, 2016, $133 billion of the share repurchase program
is expected to be completed by the end of December 2015.has been utilized. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
The increase to the Company’s share repurchase program authorization resulted in a total capital return program of over $130 billion. The Company expects to complete the capital return program by the end of December 2015 by paying dividends and dividend equivalents, repurchasing shares and remitting withheld taxes related to net share settlement of restricted stock units. To assist in funding its capital return program, the Company expects to access the debt markets, both domestically and internationally.
The following table presents the Company’s dividends, dividend equivalents, share repurchases and net share settlement activity from the start of the capital return program in August 2012 through September
201424, 2016 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Dividends and
Dividend
Equivalents Paid | | | Accelerated Share
Repurchases | | | Open Market
Share
Repurchases | | | Taxes Related
to Settlement of
Equity Awards | | | Total | |
2014 | | $ | 11,126 | | | $ | 21,000 | | | $ | 24,000 | | | $ | 1,158 | | | $ | 57,284 | |
2013 | | | 10,564 | | | | 13,950 | | | | 9,000 | | | | 1,082 | | | | 34,596 | |
2012 | | | 2,488 | | | | 0 | | | | 0 | | | | 56 | | | | 2,544 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 24,178 | | | $ | 34,950 | | | $ | 33,000 | | | $ | 2,296 | | | $ | 94,424 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Dividends and Dividend Equivalents Paid | | Accelerated Share Repurchases | | Open Market Share Repurchases | | Taxes Related to Settlement of Equity Awards | | Total |
| 2016 | $ | 12,150 |
| | $ | 12,000 |
| | $ | 17,000 |
| | $ | 1,570 |
| | $ | 42,720 |
|
| 2015 | 11,561 |
| | 6,000 |
| | 30,026 |
| | 1,499 |
| | 49,086 |
|
| 2014 | 11,126 |
| | 21,000 |
| | 24,000 |
| | 1,158 |
| | 57,284 |
|
| 2013 | 10,564 |
| | 13,950 |
| | 9,000 |
| | 1,082 |
| | 34,596 |
|
| 2012 | 2,488 |
| | — |
| | — |
| | 56 |
| | 2,544 |
|
| Total | $ | 47,889 |
| | $ | 52,950 |
| | $ | 80,026 |
| | $ | 5,365 |
| | $ | 186,230 |
|
The Company expects to execute its capital return program by the end of March 2018 by paying dividends and dividend equivalents, repurchasing shares and remitting withheld taxes related to net share settlement of restricted stock units. The Company plans to continue to access the domestic and international debt markets to assist in funding its capital return program.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or R&D services with the Company.
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of September
27, 2014,24, 2016, and excludes amounts already recorded on the Consolidated Balance Sheet, except for
long-termterm debt (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due in
Less Than 1 Year | | | Payments Due in
1-3 Years | | | Payments Due in
4-5 Years | | | Payments Due in
More Than 5 Years | | | Total | |
Long-term debt | | $ | 0 | | | $ | 5,000 | | | $ | 9,000 | | | $ | 15,000 | | | $ | 29,000 | |
Operating leases | | | 662 | | | | 1,321 | | | | 1,127 | | | | 1,877 | | | | 4,987 | |
Purchase commitments | | | 24,529 | | | | 0 | | | | 0 | | | | 0 | | | | 24,529 | |
Other obligations | | | 2,056 | | | | 1,276 | | | | 19 | | | | 0 | | | | 3,351 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 27,247 | | | $ | 7,597 | | | $ | 10,146 | | | $ | 16,877 | | | $ | 61,867 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due in Less Than 1 Year | | Payments Due in 1-3 Years | | Payments Due in 4-5 Years | | Payments Due in More Than 5 Years | | Total |
| Term debt | $ | 3,500 |
| | $ | 13,334 |
| | $ | 14,204 |
| | $ | 47,346 |
| | $ | 78,384 |
|
| Operating leases | 929 |
| | 1,834 |
| | 1,725 |
| | 3,139 |
| | 7,627 |
|
| Manufacturing purchase obligations | 24,695 |
| | 939 |
| | 1,830 |
| | 1,127 |
| | 28,591 |
|
| Other purchase obligations | 3,503 |
| | 1,732 |
| | 653 |
| | 732 |
| | 6,620 |
|
| Total | $ | 32,627 |
| | $ | 17,839 |
| | $ | 18,412 |
| | $ | 52,344 |
| | $ | 121,222 |
|
As of September 24, 2016, the Company’s total future minimum lease payments under noncancelable operating leases were $7.6 billion. The Company’s
majorretail store and other facility leases are typically for terms not exceeding 10 years and generally contain multi-year renewal options.
Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of September 27, 2014, the Company’s total future minimum lease payments under noncancelable operating leases were $5.0 billion, of which $3.6 billion related to leases for retail space.
Manufacturing Purchase
CommitmentsObligations
The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
Where appropriate,As of September 24, 2016, the
purchases are applied to inventory component prepayments that are outstanding with the respective supplier.Company had manufacturing purchase obligations of $28.6 billion.
Other
Purchase Obligations
The Company’s other
purchase obligations were comprised
mainly of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to advertising,
licensing, R&D,
Internetinternet and telecommunications services,
energy and other obligations.
As of September 24, 2016, the Company had other purchase obligations of $6.6 billion.
The Company’s other non-current liabilities in the Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross unrecognized tax benefits and the related gross interest and penalties. As of September
27, 2014,24, 2016, the Company had non-current deferred tax liabilities of
$20.3$26.0 billion. Additionally, as of September
27, 2014,24, 2016, the Company had gross unrecognized tax benefits of
$4.0$7.7 billion and an additional
$630 million$1.0 billion for gross interest and penalties classified as non-current liabilities. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments
due to uncertainties in
individual years in connection with thesethe timing of tax
liabilities;audit outcomes; therefore, such amounts are not included in the above contractual obligation table.
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. 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. However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party. 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.
The Company
did not recordoffers an iPhone Upgrade Program, which is available to customers who purchase a
qualifying iPhone in the U.S., the U.K. and mainland China. 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. The Company accounts for the trade-in right as a guarantee liability
for infringement costs relatedand recognizes arrangement revenue net of the fair value of such right with subsequent changes to
indemnification as of September 27, 2014 or September 28, 2013.the guarantee liability recognized within revenue.
The Company has entered into indemnification agreements with its directors and executive officers. 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. 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. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such
obligations and payments made under these agreements historically have not been material.obligations.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 1, “Summary of Significant Accounting
Policies”Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. 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. Actual results may differ from these estimates, and such differences may be material.
Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, valuation and impairment of marketable securities, inventory valuation,
and valuation of manufacturing-related assets and
estimatedestimation of purchase commitment cancellation fees, warranty costs, income taxes, and legal and other contingencies. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Audit and Finance Committee of the Company’s Board of Directors.
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, and service and support contracts. 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. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. 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.
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. 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. The Company recognizes revenue in accordance with
industry specificindustry-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.
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/or undelivered non-software services, the Company allocates revenue to all deliverables based on their relative selling prices. 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”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. 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.
For sales of qualifying versions of iOS devices, Mac,
Apple Watch and Apple TV, the Company has indicated it may from time to time provide future unspecified software upgrades
and featuresto the device’s essential software and/or non-software services free of
charge to customers. The Company also provides various non-software services to owners of qualifying versions of iOS devices and Mac.charge. Because the Company has neither VSOE nor TPE for the unspecified software upgrade rights or the non-software services, revenue is allocated to these rights and services based on the Company’s ESPs. Revenue allocated to the unspecified software upgrade rights and non-software services based on the Company’s ESPs 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 for each of these devices, which ranges from two to four years.provided.
The Company’s process for determining ESPs involves management’s judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable. Should future facts and circumstances change, the Company’s ESPs and the future rate of related amortization for
unspecified software upgrades and non-software services related to future sales of these devices could change. Factors subject to change include the unspecified software upgrade rights
and non-software services offered, the estimated value of unspecified software upgrade rights
the estimated or actual costs incurred to provideand non-software services and the estimated period
unspecified software upgrades and non-software services are expected to be provided.
The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded, provided the refund amount can be reasonably and reliably estimated and the other conditions for revenue recognition have been met. The Company’s policy requires that, if refunds cannot be reliably estimated, revenue is not recognized until reliable estimates can be made or the price protection lapses. For the Company’s other customer incentive programs, the estimated cost 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. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. Future market conditions and product transitions may require the Company to increase customer incentive programs that could result in reductions to future revenue. Additionally, certain customer incentive programs require management to estimate the number of customers who will actually redeem the incentive. Management’s estimates are based on historical experience and the specific terms and conditions of particular incentive programs. If a greater than estimated proportion of customers redeems such incentives, the Company would be required to record additional reductions to revenue, which would have an adverse impact on the Company’s
results of operations.operating results.
Valuation and Impairment of Marketable Securities
The Company’s investments in available-for-sale securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of securities are recognized in accumulated other comprehensive income, net of tax, in the Company’s Consolidated Balance Sheets. Changes in the fair value of available-for-sale securities impact the Company’s net income only when such securities are sold or an other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis. The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period any such determination is made. In making this
judgment,determination, the Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company’s assessment
onof whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular
security.security, which would have an adverse impact on the Company’s operating results.
Inventory Valuation,
and Valuation of Manufacturing-Related Assets and
EstimatedEstimation of Purchase Commitment Cancellation Fees
The Company must
orderpurchase components
for its products and build inventory in advance of product shipments and has invested in
manufacturing process equipment,manufacturing-related assets, including capital assets held at its suppliers’ facilities. In addition, the Company has made prepayments to certain of its suppliers associated with long-term supply agreements to secure supply of inventory components. The Company records a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. The Company performs a detailed review of inventory that considers multiple factors including demand forecasts, product life cycle status, product development plans, current sales levels and component cost trends. The Company also reviews its manufacturing-related capital assets and inventory prepayments for impairment whenever events or circumstances indicate the carrying amount of such assets may not be recoverable. If the Company determines that an asset is not recoverable, it records an impairment loss equal to the amount by which the carrying value of such an asset exceeds its fair value.
The industries in which the Company competes are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. In certain circumstances the Company may be required to record additional write-downs of inventory
inventory prepayments and/or
impairments of manufacturing-related
capital assets.assets or inventory prepayments. These circumstances include future demand or market conditions for the Company’s products being less favorable than forecasted, unforeseen technological changes or changes to the Company’s product development plans that negatively impact the utility of any of these assets, or significant deterioration in the financial condition of one or more of the Company’s suppliers that hold any of the Company’s
manufacturing process equipmentmanufacturing-related assets or to whom the Company has made an inventory prepayment. Such write-downs would adversely affect the Company’s
financial condition and operating results
of operations in the period when the
additional write-downs were recorded.
The Company
records accrualsaccrues for estimated
purchase commitment cancellation fees related to
componentinventory orders that have been cancelled or are expected to be cancelled. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders in each case based on projected demand.
Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. Purchase commitmentsManufacturing purchase obligations typically cover the Company’s forecasted component and manufacturing requirements for periods up to 150 days. If there is an abrupt and substantial decline in demand for one or more of the Company’s products,
ifa change in the Company’s product development plans,
change, or
if there is an unanticipated change in technological requirements for any of the Company’s products,
then the Company may be required to record additional accruals for cancellation fees that would adversely affect its results of operations in the period when the cancellation fees
arewere identified and recorded.
The Company
providesaccrues for the estimated cost of warranties
atin the
timeperiod the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost-per-claim and knowledge of specific product failures that are outside of the Company’s typical experience.
Each quarter, theThe Company
re-evaluatesregularly reviews these estimates
to assessand the
adequacy of its recorded warranty liabilities considering the size of thecurrent installed base of products subject to warranty protection
to assess the appropriateness of its recorded warranty liabilities and adjusts the amounts as necessary. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the Company’s
results of operations.financial condition and operating results.
The Company records a tax provision for the anticipated tax consequences of
theits reported
results of operations.operating results. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets
and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the deferred tax assets. In the event that the Company determines all or part of the net deferred tax assets are not realizable in the future, the Company will
makerecord an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.
Legal and Other Contingencies
As discussed in Part I, Item 3 of this Form 10-K under the heading “Legal Proceedings” and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 10, “Commitments and Contingencies,” the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably
estimable. There isestimable, the determination of which requires significant
judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.judgment. 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
contingencies.claims. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. 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 materially adversely affected.
| |
| Item 7A. | 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 related exposures. 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. 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.
The Company’s exposure to changes in interest rates relates primarily to the Company’s investment portfolio and outstanding debt. While the Company is exposed to
global interest rate fluctuations,
in many of the world’s leading industrialized countries, the Company’s interest income and expense are most sensitive to fluctuations in U.S. interest rates. 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.
Investments
The Company’s investment policy and strategy are focused on preservation of capital and supporting the Company’s liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives.
The Company’s exposure to changes in interest rates relates primarily to the Company’s investment portfolio. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss.
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 curve. Based on investment positions as of September 27, 2014,24, 2016 and September 26, 2015, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $3.4$4.9 billion and $4.3 billion incremental decline in the fair market value of the portfolio. As of September 28, 2013, a similar 100 basis point increase in the yield curve would have resulted in a $2.7 billion incremental decline in the fair market value of the portfolio.portfolio, respectively. Such losses would only be realized if the Company sold the investments prior to maturity.
Debt
In April 2014, the Board of Directors authorized the Company to issue Commercial Paper pursuant to a commercial paper program.
As of September
27, 2014,24, 2016 and September 26, 2015, the Company had
$6.3 billion of Commercial Paper outstanding
with maturities generally less than nine months.In the third quarters of 2014 and 2013, the Company issued $12.0 billion and $17.0 billion of long-term debt, respectively. The debt issuances included floating- and fixed-rate notes with varying maturities for an aggregate principalcarrying amount of $29.0$78.9 billion (collectively the “Notes”).and $55.8 billion, respectively. The Company has entered, and may enter in the future, into interest rate swaps to manage interest rate risk on the Notes.its outstanding term debt. Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments. InGains and losses on these instruments are generally offset by the third quarter of 2014,corresponding losses and gains on the Company entered into interest rate swaps with an aggregate notional amount of $9.0 billion, which effectively converted most of the fixed-rate notes into floating-rate notes, and in the third quarter of 2013, the Company entered into interest rate swaps with an aggregate notional amount of $3.0 billion, which effectively converted the floating-rate notes into fixed-rate notes. As of September 27, 2014, arelated hedging instrument. A 100 basis point increase in market interest rates would cause interest expense on the Company’s debt as of September 24, 2016 and September 26, 2015 to increase by $110$271 million and $200 million on an annualized basis.
basis, respectively.
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 6, “Debt.”
In general, the Company is a net receiver of currencies other than the U.S. dollar. 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. There is a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there
havehas been significant volatility in foreign currency exchange rates.
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.
In addition, the Company has entered, and may enter in the future, into non-designated foreign currency contracts to partially offset the foreign currency exchange gains and losses on its foreign-denominated debt issuances. The Company’s practice is to hedge a portion of its material foreign exchange exposures, typically for up to 12 months. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures.
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. The VAR model consisted of using a Monte Carlo simulation to generate thousands of random market price paths assuming normal market conditions. 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. The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool. The model assumes normal market conditions. Forecasted transactions, firm commitments and assets and liabilities denominated in foreign currencies were excluded from the model. Based on the results of the model, the Company estimates with 95% confidence, a maximum one-day loss in fair value of
$240$434 million as of September
27, 201424, 2016 compared to a maximum one-day loss in fair value of
$201$342 million as of September
28, 2013.26, 2015. Because the Company uses foreign currency instruments for hedging purposes, the loss in fair value incurred on those instruments are generally offset by increases in the fair value of the underlying exposures.
Actual future gains and losses associated with the Company’s investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of September
27, 201424, 2016 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchanges rates and the Company’s actual exposures and positions.
| |
| Item 8. | Financial Statements and Supplementary Data |
| | |
| | |
Index to Consolidated Financial Statements | | Page |
| | | | 45 | |
| | | | 46 | |
| | | | 47 | |
| | | | 48 | |
| | | | 49 | |
| | | | 50 | |
| | | | 80 | |
| | | | 81 | |
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 notes thereto.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)
| | | | | | | | | | | | |
| | | Years ended | |
| | | September 27,
2014 | | | September 28,
2013 | | | September 29,
2012 | |
Net sales | | $ | 182,795 | | | $ | 170,910 | | | $ | 156,508 | |
Cost of sales | | | 112,258 | | | | 106,606 | | | | 87,846 | |
| | | | | | | | | | | | |
Gross margin | | | 70,537 | | | | 64,304 | | | | 68,662 | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 6,041 | | | | 4,475 | | | | 3,381 | |
Selling, general and administrative | | | 11,993 | | | | 10,830 | | | | 10,040 | |
| | | | | | | | | | | | |
Total operating expenses | | | 18,034 | | | | 15,305 | | | | 13,421 | |
| | | | | | | | | | | | |
Operating income | | | 52,503 | | | | 48,999 | | | | 55,241 | |
Other income/(expense), net | | | 980 | | | | 1,156 | | | | 522 | |
| | | | | | | | | | | | |
Income before provision for income taxes | | | 53,483 | | | | 50,155 | | | | 55,763 | |
Provision for income taxes | | | 13,973 | | | | 13,118 | | | | 14,030 | |
| | | | | | | | | | | | |
Net income | | $ | 39,510 | | | $ | 37,037 | | | $ | 41,733 | |
| | | | | | | | | | | | |
| | | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 6.49 | | | $ | 5.72 | | | $ | 6.38 | |
Diluted | | $ | 6.45 | | | $ | 5.68 | | | $ | 6.31 | |
| | | | | | | | | | | | |
Shares used in computing earnings per share: | | | | | | | | | | | | |
Basic | | | 6,085,572 | | | | 6,477,320 | | | | 6,543,726 | |
Diluted | | | 6,122,663 | | | | 6,521,634 | | | | 6,617,483 | |
| | | |
Cash dividends declared per common share | | $ | 1.82 | | | $ | 1.64 | | | $ | 0.38 | |
|
| | | | | | | | | | | |
| | Years ended |
| | September 24,
2016 | | September 26,
2015 | | September 27,
2014 |
| Net sales | $ | 215,639 |
| | $ | 233,715 |
| | $ | 182,795 |
|
| Cost of sales | 131,376 |
| | 140,089 |
| | 112,258 |
|
| Gross margin | 84,263 |
|
| 93,626 |
|
| 70,537 |
|
| | | | | | |
| Operating expenses: | | | | | |
| Research and development | 10,045 |
| | 8,067 |
| | 6,041 |
|
| Selling, general and administrative | 14,194 |
| | 14,329 |
| | 11,993 |
|
| Total operating expenses | 24,239 |
|
| 22,396 |
|
| 18,034 |
|
| | | | | | |
| Operating income | 60,024 |
| | 71,230 |
| | 52,503 |
|
| Other income/(expense), net | 1,348 |
| | 1,285 |
| | 980 |
|
| Income before provision for income taxes | 61,372 |
|
| 72,515 |
|
| 53,483 |
|
| Provision for income taxes | 15,685 |
| | 19,121 |
| | 13,973 |
|
| Net income | $ | 45,687 |
|
| $ | 53,394 |
|
| $ | 39,510 |
|
| | | | | | |
| Earnings per share: | | | | | |
| Basic | $ | 8.35 |
| | $ | 9.28 |
| | $ | 6.49 |
|
| Diluted | $ | 8.31 |
| | $ | 9.22 |
| | $ | 6.45 |
|
| | | | | | |
| Shares used in computing earnings per share: | | | | | |
| Basic | 5,470,820 |
| | 5,753,421 |
| | 6,085,572 |
|
| Diluted | 5,500,281 |
| | 5,793,069 |
| | 6,122,663 |
|
| | | | | | |
| Cash dividends declared per share | $ | 2.18 |
| | $ | 1.98 |
| | $ | 1.82 |
|
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| | | | | | | | | | | | |
| | | Years ended | |
| | | September 27,
2014 | | | September 28,
2013 | | | September 29,
2012 | |
Net income | | $ | 39,510 | | | $ | 37,037 | | | $ | 41,733 | |
| | | | | | | | | | | | |
Other comprehensive income/(loss): | | | | | | | | | | | | |
Change in foreign currency translation, net of tax effects of $50, $35 and $13, respectively | | | (137 | ) | | | (112 | ) | | | (15 | ) |
| | | | | | | | | | | | |
Change in unrecognized gains/losses on derivative instruments: | | | | | | | | | | | | |
Change in fair value of derivatives, net of tax benefit/(expense) of $(297), $(351) and $73, respectively | | | 1,390 | | | | 522 | | | | (131 | ) |
Adjustment for net losses/(gains) realized and included in net income, net of tax expense/(benefit) of $(36), $255 and $220, respectively | | | 149 | | | | (458 | ) | | | (399 | ) |
| | | | | | | | | | | | |
Total change in unrecognized gains/losses on derivative instruments, net of tax | | | 1,539 | | | | 64 | | | | (530 | ) |
| | | | | | | | | | | | |
Change in unrealized gains/losses on marketable securities: | | | | | | | | | | | | |
Change in fair value of marketable securities, net of tax benefit/(expense) of $(153), $458 and $(421), respectively | | | 285 | | | | (791 | ) | | | 715 | |
Adjustment for net losses/(gains) realized and included in net income, net of tax expense/(benefit) of $71, $82 and $68, respectively | | | (134 | ) | | | (131 | ) | | | (114 | ) |
| | | | | | | | | | | | |
Total change in unrealized gains/losses on marketable securities, net of tax | | | 151 | | | | (922 | ) | | | 601 | |
| | | | | | | | | | | | |
Total other comprehensive income/(loss) | | | 1,553 | | | | (970 | ) | | | 56 | |
| | | | | | | | | | | | |
Total comprehensive income | | $ | 41,063 | | | $ | 36,067 | | | $ | 41,789 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended |
| | September 24,
2016 | | September 26,
2015 | | September 27,
2014 |
| Net income | $ | 45,687 |
| | $ | 53,394 |
| | $ | 39,510 |
|
| Other comprehensive income/(loss): | | | | | |
| Change in foreign currency translation, net of tax effects of $8, $201 and $50, respectively | 75 |
| | (411 | ) | | (137 | ) |
| | | | | | |
| Change in unrealized gains/losses on derivative instruments: | | | | | |
| Change in fair value of derivatives, net of tax benefit/(expense) of $(7), $(441) and $(297), respectively | 7 |
| | 2,905 |
| | 1,390 |
|
| Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $131, $630 and $(36), respectively | (741 | ) | | (3,497 | ) | | 149 |
|
| Total change in unrealized gains/losses on derivative instruments, net of tax | (734 | ) |
| (592 | ) |
| 1,539 |
|
| | | | | | |
| Change in unrealized gains/losses on marketable securities: | | | | | |
| Change in fair value of marketable securities, net of tax benefit/(expense) of $(863), $264 and $(153), respectively | 1,582 |
| | (483 | ) | | 285 |
|
| Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(31), $(32) and $71, respectively | 56 |
| | 59 |
| | (134 | ) |
| Total change in unrealized gains/losses on marketable securities, net of tax | 1,638 |
|
| (424 | ) |
| 151 |
|
| | | | | | |
| Total other comprehensive income/(loss) | 979 |
|
| (1,427 | ) |
| 1,553 |
|
| Total comprehensive income | $ | 46,666 |
|
| $ | 51,967 |
|
| $ | 41,063 |
|
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)
| | | | | | | | |
| | | September 27,
2014 | | | September 28,
2013 | |
|
| ASSETS: | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 13,844 | | | $ | 14,259 | |
Short-term marketable securities | | | 11,233 | | | | 26,287 | |
Accounts receivable, less allowances of $86 and $99, respectively | | | 17,460 | | | | 13,102 | |
Inventories | | | 2,111 | | | | 1,764 | |
Deferred tax assets | | | 4,318 | | | | 3,453 | |
Vendor non-trade receivables | | | 9,759 | | | | 7,539 | |
Other current assets | | | 9,806 | | | | 6,882 | |
| | | | | | | | |
Total current assets | | | 68,531 | | | | 73,286 | |
Long-term marketable securities | | | 130,162 | | | | 106,215 | |
Property, plant and equipment, net | | | 20,624 | | | | 16,597 | |
Goodwill | | | 4,616 | | | | 1,577 | |
Acquired intangible assets, net | | | 4,142 | | | | 4,179 | |
Other assets | | | 3,764 | | | | 5,146 | |
| | | | | | | | |
Total assets | | $ | 231,839 | | | $ | 207,000 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 30,196 | | | $ | 22,367 | |
Accrued expenses | | | 18,453 | | | | 13,856 | |
Deferred revenue | | | 8,491 | | | | 7,435 | |
Commercial paper | | | 6,308 | | | | 0 | |
| | | | | | | | |
Total current liabilities | | | 63,448 | | | | 43,658 | |
Deferred revenue – non-current | | | 3,031 | | | | 2,625 | |
Long-term debt | | | 28,987 | | | | 16,960 | |
Other non-current liabilities | | | 24,826 | | | | 20,208 | |
| | | | | | | | |
Total liabilities | | | 120,292 | | | | 83,451 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholders’ equity: | | | | | | | | |
Common stock and additional paid-in capital, $0.00001 par value; 12,600,000 shares authorized; 5,866,161 and 6,294,494 shares issued and outstanding, respectively | | | 23,313 | | | | 19,764 | |
Retained earnings | | | 87,152 | | | | 104,256 | |
Accumulated other comprehensive income/(loss) | | | 1,082 | | | | (471 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 111,547 | | | | 123,549 | |
| | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 231,839 | | | $ | 207,000 | |
| | | | | | | | |
|
| | | | | | | |
| | September 24,
2016 | | September 26,
2015 |
| ASSETS: |
| Current assets: | | | |
| Cash and cash equivalents | $ | 20,484 |
| | $ | 21,120 |
|
| Short-term marketable securities | 46,671 |
| | 20,481 |
|
| Accounts receivable, less allowances of $53 and $63, respectively | 15,754 |
| | 16,849 |
|
| Inventories | 2,132 |
| | 2,349 |
|
| Vendor non-trade receivables | 13,545 |
| | 13,494 |
|
| Other current assets | 8,283 |
| | 15,085 |
|
| Total current assets | 106,869 |
| | 89,378 |
|
| | | | |
| Long-term marketable securities | 170,430 |
| | 164,065 |
|
| Property, plant and equipment, net | 27,010 |
| | 22,471 |
|
| Goodwill | 5,414 |
| | 5,116 |
|
| Acquired intangible assets, net | 3,206 |
| | 3,893 |
|
| Other non-current assets | 8,757 |
| | 5,422 |
|
| Total assets | $ | 321,686 |
| | $ | 290,345 |
|
| | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY: |
| Current liabilities: | | | |
| Accounts payable | $ | 37,294 |
| | $ | 35,490 |
|
| Accrued expenses | 22,027 |
| | 25,181 |
|
| Deferred revenue | 8,080 |
| | 8,940 |
|
| Commercial paper | 8,105 |
| | 8,499 |
|
| Current portion of long-term debt | 3,500 |
| | 2,500 |
|
| Total current liabilities | 79,006 |
| | 80,610 |
|
| | | | |
| Deferred revenue, non-current | 2,930 |
| | 3,624 |
|
| Long-term debt | 75,427 |
| | 53,329 |
|
| Other non-current liabilities | 36,074 |
| | 33,427 |
|
| Total liabilities | 193,437 |
| | 170,990 |
|
| | | | |
| Commitments and contingencies |
| |
|
| | | | |
| Shareholders’ equity: | | | |
| Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,336,166 and 5,578,753 shares issued and outstanding, respectively | 31,251 |
| | 27,416 |
|
| Retained earnings | 96,364 |
| | 92,284 |
|
| Accumulated other comprehensive income/(loss) | 634 |
| | (345 | ) |
| Total shareholders’ equity | 128,249 |
| | 119,355 |
|
| Total liabilities and shareholders’ equity | $ | 321,686 |
|
| $ | 290,345 |
|
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except number of shares which are reflected in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | Common Stock and
Additional Paid-In Capital | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
Income/(Loss) | | | Total
Shareholders’
Equity | |
| | | Shares | | | Amount | | | | |
Balances as of September 24, 2011 | | | 6,504,937 | | | $ | 13,331 | | | $ | 62,841 | | | $ | 443 | | | $ | 76,615 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 0 | | | | 0 | | | | 41,733 | | | | 0 | | | | 41,733 | |
Other comprehensive income/(loss) | | | 0 | | | | 0 | | | | 0 | | | | 56 | | | | 56 | |
Dividends and dividend equivalents declared | | | 0 | | | | 0 | | | | (2,523 | ) | | | 0 | | | | (2,523 | ) |
Share-based compensation | | | 0 | | | | 1,740 | | | | 0 | | | | 0 | | | | 1,740 | |
Common stock issued, net of shares withheld for employee taxes | | | 69,521 | | | | 200 | | | | (762 | ) | | | 0 | | | | (562 | ) |
Tax benefit from equity awards, including transfer pricing adjustments | | | 0 | | | | 1,151 | | | | 0 | | | | 0 | | | | 1,151 | |
| | | | | | | | | | | | | | | | | | | | |
Balances as of September 29, 2012 | | | 6,574,458 | | | | 16,422 | | | | 101,289 | | | | 499 | | | | 118,210 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 0 | | | | 0 | | | | 37,037 | | | | 0 | | | | 37,037 | |
Other comprehensive income/(loss) | | | 0 | | | | 0 | | | | 0 | | | | (970 | ) | | | (970 | ) |
Dividends and dividend equivalents declared | | | 0 | | | | 0 | | | | (10,676 | ) | | | 0 | | | | (10,676 | ) |
Repurchase of common stock | | | (328,837 | ) | | | 0 | | | | (22,950 | ) | | | 0 | | | | (22,950 | ) |
Share-based compensation | | | 0 | | | | 2,253 | | | | 0 | | | | 0 | | | | 2,253 | |
Common stock issued, net of shares withheld for employee taxes | | | 48,873 | | | | (143 | )�� | | | (444 | ) | | | 0 | | | | (587 | ) |
Tax benefit from equity awards, including transfer pricing adjustments | | | 0 | | | | 1,232 | | | | 0 | | | | 0 | | | | 1,232 | |
| | | | | | | | | | | | | | | | | | | | |
Balances as of September 28, 2013 | | | 6,294,494 | | | | 19,764 | | | | 104,256 | | | | (471 | ) | | | 123,549 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 0 | | | | 0 | | | | 39,510 | | | | 0 | | | | 39,510 | |
Other comprehensive income/(loss) | | | 0 | | | | 0 | | | | 0 | | | | 1,553 | | | | 1,553 | |
Dividends and dividend equivalents declared | | | 0 | | | | 0 | | | | (11,215 | ) | | | 0 | | | | (11,215 | ) |
Repurchase of common stock | | | (488,677 | ) | | | 0 | | | | (45,000 | ) | | | 0 | | | | (45,000 | ) |
Share-based compensation | | | 0 | | | | 2,863 | | | | 0 | | | | 0 | | | | 2,863 | |
Common stock issued, net of shares withheld for employee taxes | | | 60,344 | | | | (49 | ) | | | (399 | ) | | | 0 | | | | (448 | ) |
Tax benefit from equity awards, including transfer pricing adjustments | | | 0 | | | | 735 | | | | 0 | | | | 0 | | | | 735 | |
| | | | | | | | | | | | | | | | | | | | |
Balances as of September 27, 2014 | | | 5,866,161 | | | $ | 23,313 | | | $ | 87,152 | | | $ | 1,082 | | | $ | 111,547 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Common Stock and Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income/(Loss) | | Total Shareholders’ Equity |
| | Shares | | Amount | |
| Balances as of September 28, 2013 | 6,294,494 |
| | $ | 19,764 |
| | $ | 104,256 |
| | $ | (471 | ) | | $ | 123,549 |
|
| Net income | — |
| | — |
| | 39,510 |
| | — |
| | 39,510 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | 1,553 |
| | 1,553 |
|
| Dividends and dividend equivalents declared | — |
| | — |
| | (11,215 | ) | | — |
| | (11,215 | ) |
| Repurchase of common stock | (488,677 | ) | | — |
| | (45,000 | ) | | — |
| | (45,000 | ) |
| Share-based compensation | — |
| | 2,863 |
| | — |
| | — |
| | 2,863 |
|
| Common stock issued, net of shares withheld for employee taxes | 60,344 |
| | (49 | ) | | (399 | ) | | — |
| | (448 | ) |
| Tax benefit from equity awards, including transfer pricing adjustments | — |
| | 735 |
| | — |
| | — |
| | 735 |
|
| Balances as of September 27, 2014 | 5,866,161 |
| | 23,313 |
| | 87,152 |
| | 1,082 |
| | 111,547 |
|
| Net income | — |
| | — |
| | 53,394 |
| | — |
| | 53,394 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | (1,427 | ) | | (1,427 | ) |
| Dividends and dividend equivalents declared | — |
| | — |
| | (11,627 | ) | | — |
| | (11,627 | ) |
| Repurchase of common stock | (325,032 | ) | | — |
| | (36,026 | ) | | — |
| | (36,026 | ) |
| Share-based compensation | — |
| | 3,586 |
| | — |
| | — |
| | 3,586 |
|
| Common stock issued, net of shares withheld for employee taxes | 37,624 |
| | (231 | ) | | (609 | ) | | — |
| | (840 | ) |
| Tax benefit from equity awards, including transfer pricing adjustments | — |
| | 748 |
| | — |
| | — |
| | 748 |
|
| Balances as of September 26, 2015 | 5,578,753 |
| | 27,416 |
| | 92,284 |
| | (345 | ) | | 119,355 |
|
| Net income | — |
| | — |
| | 45,687 |
| | — |
| | 45,687 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | 979 |
| | 979 |
|
| Dividends and dividend equivalents declared | — |
| | — |
| | (12,188 | ) | | — |
| | (12,188 | ) |
| Repurchase of common stock | (279,609 | ) | | — |
| | (29,000 | ) | | — |
| | (29,000 | ) |
| Share-based compensation | — |
| | 4,262 |
| | — |
| | — |
| | 4,262 |
|
| Common stock issued, net of shares withheld for employee taxes | 37,022 |
| | (806 | ) | | (419 | ) | | — |
| | (1,225 | ) |
| Tax benefit from equity awards, including transfer pricing adjustments | — |
| | 379 |
| | — |
| | — |
| | 379 |
|
| Balances as of September 24, 2016 | 5,336,166 |
| | $ | 31,251 |
| | $ | 96,364 |
| | $ | 634 |
| | $ | 128,249 |
|
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) | | | | | | | | | | | | |
| | | Years ended | |
| | | September 27,
2014 | | | September 28,
2013 | | | September 29,
2012 | |
Cash and cash equivalents, beginning of the year | | $ | 14,259 | | | $ | 10,746 | | | $ | 9,815 | |
| | | | | | | | | | | | |
Operating activities: | | | | | | | | | | | | |
Net income | | | 39,510 | | | | 37,037 | | | | 41,733 | |
Adjustments to reconcile net income to cash generated by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 7,946 | | | | 6,757 | | | | 3,277 | |
Share-based compensation expense | | | 2,863 | | | | 2,253 | | | | 1,740 | |
Deferred income tax expense | | | 2,347 | | | | 1,141 | | | | 4,405 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable, net | | | (4,232 | ) | | | (2,172 | ) | | | (5,551 | ) |
Inventories | | | (76 | ) | | | (973 | ) | | | (15 | ) |
Vendor non-trade receivables | | | (2,220 | ) | | | 223 | | | | (1,414 | ) |
Other current and non-current assets | | | 167 | | | | 1,080 | | | | (3,162 | ) |
Accounts payable | | | 5,938 | | | | 2,340 | | | | 4,467 | |
Deferred revenue | | | 1,460 | | | | 1,459 | | | | 2,824 | |
Other current and non-current liabilities | | | 6,010 | | | | 4,521 | | | | 2,552 | |
| | | | | | | | | | | | |
Cash generated by operating activities | | | 59,713 | | | | 53,666 | | | | 50,856 | |
| | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | |
Purchases of marketable securities | | | (217,128 | ) | | | (148,489 | ) | | | (151,232 | ) |
Proceeds from maturities of marketable securities | | | 18,810 | | | | 20,317 | | | | 13,035 | |
Proceeds from sales of marketable securities | | | 189,301 | | | | 104,130 | | | | 99,770 | |
Payments made in connection with business acquisitions, net | | | (3,765 | ) | | | (496 | ) | | | (350 | ) |
Payments for acquisition of property, plant and equipment | | | (9,571 | ) | | | (8,165 | ) | | | (8,295 | ) |
Payments for acquisition of intangible assets | | | (242 | ) | | | (911 | ) | | | (1,107 | ) |
Other | | | 16 | | | | (160 | ) | | | (48 | ) |
| | | | | | | | | | | | |
Cash used in investing activities | | | (22,579 | ) | | | (33,774 | ) | | | (48,227 | ) |
| | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | 730 | | | | 530 | | | | 665 | |
Excess tax benefits from equity awards | | | 739 | | | | 701 | | | | 1,351 | |
Taxes paid related to net share settlement of equity awards | | | (1,158 | ) | | | (1,082 | ) | | | (1,226 | ) |
Dividends and dividend equivalents paid | | | (11,126 | ) | | | (10,564 | ) | | | (2,488 | ) |
Repurchase of common stock | | | (45,000 | ) | | | (22,860 | ) | | | 0 | |
Proceeds from issuance of long-term debt, net | | | 11,960 | | | | 16,896 | | | | 0 | |
Proceeds from issuance of commercial paper, net | | | 6,306 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | |
Cash used in financing activities | | | (37,549 | ) | | | (16,379 | ) | | | (1,698 | ) |
| | | | | | | | | | | | |
Increase/(decrease) in cash and cash equivalents | | | (415 | ) | | | 3,513 | | | | 931 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of the year | | $ | 13,844 | | | $ | 14,259 | | | $ | 10,746 | |
| | | | | | | | | | | | |
Supplemental cash flow disclosure: | | | | | | | | | | | | |
Cash paid for income taxes, net | | $ | 10,026 | | | $ | 9,128 | | | $ | 7,682 | |
Cash paid for interest | | $ | 339 | | | $ | 0 | | | $ | 0 | |
|
| | | | | | | | | | | |
| | Years ended |
| | September 24,
2016 | | September 26,
2015 | | September 27,
2014 |
| Cash and cash equivalents, beginning of the year | $ | 21,120 |
| | $ | 13,844 |
| | $ | 14,259 |
|
| | | | | | |
| Operating activities: | | | | | |
| Net income | 45,687 |
| | 53,394 |
| | 39,510 |
|
| Adjustments to reconcile net income to cash generated by operating activities: | | | | | |
| Depreciation and amortization | 10,505 |
| | 11,257 |
| | 7,946 |
|
| Share-based compensation expense | 4,210 |
| | 3,586 |
| | 2,863 |
|
| Deferred income tax expense | 4,938 |
| | 1,382 |
| | 2,347 |
|
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | 1,095 |
| | 611 |
| | (4,232 | ) |
| Inventories | 217 |
| | (238 | ) | | (76 | ) |
| Vendor non-trade receivables | (51 | ) | | (3,735 | ) | | (2,220 | ) |
| Other current and non-current assets | 1,090 |
| | (179 | ) | | 167 |
|
| Accounts payable | 1,791 |
| | 5,400 |
| | 5,938 |
|
| Deferred revenue | (1,554 | ) | | 1,042 |
| | 1,460 |
|
| Other current and non-current liabilities | (2,104 | ) | | 8,746 |
| | 6,010 |
|
| Cash generated by operating activities | 65,824 |
|
| 81,266 |
|
| 59,713 |
|
| | | | | | |
| Investing activities: | | | | | |
| Purchases of marketable securities | (142,428 | ) | | (166,402 | ) | | (217,128 | ) |
| Proceeds from maturities of marketable securities | 21,258 |
| | 14,538 |
| | 18,810 |
|
| Proceeds from sales of marketable securities | 90,536 |
| | 107,447 |
| | 189,301 |
|
| Payments made in connection with business acquisitions, net | (297 | ) | | (343 | ) | | (3,765 | ) |
| Payments for acquisition of property, plant and equipment | (12,734 | ) | | (11,247 | ) | | (9,571 | ) |
| Payments for acquisition of intangible assets | (814 | ) | | (241 | ) | | (242 | ) |
| Payments for strategic investments | (1,388 | ) | | — |
| | (10 | ) |
| Other | (110 | ) | | (26 | ) | | 26 |
|
| Cash used in investing activities | (45,977 | ) |
| (56,274 | ) |
| (22,579 | ) |
| | | | | | |
| Financing activities: | | | | | |
| Proceeds from issuance of common stock | 495 |
| | 543 |
| | 730 |
|
| Excess tax benefits from equity awards | 407 |
| | 749 |
| | 739 |
|
| Payments for taxes related to net share settlement of equity awards | (1,570 | ) | | (1,499 | ) | | (1,158 | ) |
| Payments for dividends and dividend equivalents | (12,150 | ) | | (11,561 | ) | | (11,126 | ) |
| Repurchases of common stock | (29,722 | ) | | (35,253 | ) | | (45,000 | ) |
| Proceeds from issuance of term debt, net | 24,954 |
| | 27,114 |
| | 11,960 |
|
| Repayments of term debt | (2,500 | ) | | — |
| | — |
|
| Change in commercial paper, net | (397 | ) | | 2,191 |
| | 6,306 |
|
| Cash used in financing activities | (20,483 | ) |
| (17,716 | ) |
| (37,549 | ) |
| | | | | | |
| Increase/(Decrease) in cash and cash equivalents | (636 | ) | | 7,276 |
| | (415 | ) |
| Cash and cash equivalents, end of the year | $ | 20,484 |
|
| $ | 21,120 |
|
| $ | 13,844 |
|
| | | | | | |
| Supplemental cash flow disclosure: | | | | | |
| Cash paid for income taxes, net | $ | 10,444 |
| | $ | 13,252 |
| | $ | 10,026 |
|
| Cash paid for interest | $ | 1,316 |
| | $ | 514 |
| | $ | 339 |
|
See accompanying Notes to Consolidated Financial Statements.
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, personal computers and portable digital music players, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. 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. In addition, the Company sells a variety of third-party
iPhone, iPad, Mac and iPod compatibleApple-compatible products, including application software and various accessories through its
onlineretail and
retailonline stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated.
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. The preparation of these 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 consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’s fiscal years
2014, 20132016, 2015 and
20122014 ended on September
24, 2016, September 26, 2015 and September 27, 2014,
September 28, 2013respectively, and
September 29, 2012, respectively.each spanned 52 weeks. An additional week is included in the first fiscal quarter approximately every
five or six years to realign fiscal quarters with calendar
quarters. Fiscal years 2014 and 2013 spanned 52 weeks each. Fiscal year 2012 spanned 53 weeks, with a 14th week includedquarters, which will next occur in the first quarter of
2012.the Company's fiscal year ending September 30, 2017. 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.
During
the first quarter of 2014,2016, the Company adopted
updatedan accounting
standardsstandard that
(i) required disclosuresimplified the presentation of
additional information about the amounts reclassified out of accumulated other comprehensivedeferred income
(“AOCI”)taxes by
component and (ii) required gross and net disclosures about offsettingrequiring deferred tax assets and
liabilities.liabilities be classified as noncurrent in a classified statement of financial position. The Company has adopted this accounting standard prospectively; accordingly, the prior period amounts in the Company’s Consolidated Balance Sheets within this Annual Report on Form 10-K were not adjusted to conform to the new accounting standard. The adoption of
these updated standards only impacted the disclosures in the Notesthis accounting standard was not material to
Consolidated Financial Statements; accordingly, the adoption had no impact on the Company’s
consolidated financial
position or results of operations. The Company has provided these additional disclosures in thisForm 10-K in Note 8, ���Comprehensive Income” and Note 2, “Financial Instruments,” respectively.Common Stock Split
On June 6, 2014, the Company effected a seven-for-one stock split to shareholders of record as of June 2, 2014. All share and per share information has been retroactively adjusted to reflect the stock split.
statements.
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, and service and support contracts. 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. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. 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.
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. 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. 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.
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 billed to its customers. 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. Therefore, the Company accounts for such sales on a net basis by recognizing in net sales only the commission it retains from each sale. 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.
The Company records deferred revenue when it receives payments in advance of the delivery of products or the performance of services. 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. The Company sells gift cards redeemable at its retail and online stores, and also sells gift cards redeemable on
the iTunes
Store, App Store, Mac App Store, TV App Store and iBooks Store for the purchase of digital content and software. The Company records deferred revenue upon the sale of the card, which is relieved upon redemption of the card by the customer. Revenue from AppleCare service and support contracts is deferred and recognized over the service coverage periods. 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.
The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded. 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. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. 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.
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 services, the Company allocates revenue to all deliverables based on their relative selling prices. 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”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. 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. 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.
For sales of qualifying versions of iPhone, iPad,
and iPod touch,
(“iOS devices”), Mac,
Apple Watch and Apple TV, the Company has indicated it may from time to time provide future unspecified software upgrades
and features to the
device’s essential software
bundled with each of these hardware productsand/or non-software services free of
charge to customers. Essential software for iOS devices includes iOS and related applications and for Mac includes OS X and related applications. The Company also provides various non-software services to owners of qualifying versions of iOS devices and Mac.charge. The Company has identified up to three deliverables regularly included in arrangements involving the sale of these devices. 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. The second deliverable is the embedded right included with
the purchase of iOSqualifying devices
Mac and Apple TV to receive on a when-and-if-available basis, future unspecified software upgrades
and features relating to the product’s essential software. The third deliverable is the non-software services to be provided to qualifying
versions of iOS devices and Mac.devices. The Company allocates revenue between these deliverables using the relative selling price method. Because the Company has neither VSOE nor TPE for these deliverables, the allocation of revenue is based on the Company’s ESPs. 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. 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 for each of these devices, which ranges from two to four years.provided. Cost of sales related to delivered hardware and related essential software, including estimated warranty costs, are recognized at the time of sale. 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.
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. The Company believes its customers would be reluctant to buy unspecified software upgrade rights for the essential software included with its qualifying hardware products. This view is primarily based on the fact that unspecified software upgrade rights do not obligate the Company to provide upgrades at a particular time or at all, and do not specify to customers which upgrades or features will be delivered. The Company also believes its customers would be unwilling to pay a significant amount for access to the non-software services because other companies offer similar services at little or no cost to users. Therefore, the Company has concluded that if it were to sell upgrade rights or access to the non-software services on a standalone basis,deliverable including,
those rights and services attached to iOS devices, Mac and Apple TV, the selling prices would be relatively low. Key factors considered by the Company in developing the ESPs for software upgrade rights includewhere applicable, prices charged by the Company
for similar offerings,and market trends in the pricing
of Apple-branded and third-party Mac and iOS compatible software, the nature of the upgrade rights (e.g., unspecified versus specified) and the relative ESP of the upgrade rights as compared to the total selling price of the product. The Company may also consider additional factors as appropriate, including the impact of other products and services provided to customers, the pricing of competitive alternatives if they exist, product-specificfor similar offerings, product specific business objectives,
and the length of time a particular version of a device has been
available. When relevant, the same factors are considered by the Company in developing ESPs for offerings such as the non-software services with additional consideration given to theavailable, estimated cost to provide
such services.In 2014, 2013the non-software services and 2012, the Company’s combined ESPs forrelative ESP of the unspecified software upgrade rights and the rights to receive the non-software services included with its qualifying hardware devices have ranged from $5as compared to $40. Asthe total selling price of September 27, 2014, the combined ESPs for Mac was $40 and for iPhone and iPad ranged from $15 to $25. Revenue allocated to such rights is deferred and recognized on a straight-line basis over the estimated period the rights are expected to be provided for each device, which ranges from two to four years.
product.
Shipping Costs
For all periods presented, amounts
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are
included inclassified as cost of sales.
The Company generally provides for the estimated cost of hardware and software warranties
atin the
timeperiod the related revenue is recognized. The Company assesses the adequacy of its
pre-existingaccrued warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates.
Software Development Costs
Research and development (“R&D”) costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been
established. Costs incurred subsequent to achievement of technological feasibility were not significant,established and
as a result software development costs were expensed as
incurred during 2014, 2013 and 2012.incurred.
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Advertising expense was $1.2 billion, $1.1 billion and $1.0 billion for 2014, 2013 and 2012, respectively.The Company recognizes expense related to share-based payment transactions in which it receives employee services in exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the
enterprise’sCompany’s equity instruments or that may be settled by the issuance of such equity instruments. Share-based compensation cost for restricted stock and restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. The Company recognizes share-based compensation cost over the award’s requisite service period on a straight-line basis for time-based RSUs and on a graded basis for RSUs that are contingent on the achievement of performance
metrics.conditions. The Company recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’ Equity if an
incrementalexcess tax benefit is realized. In addition, the Company recognizes the indirect effects of share-based compensation on R&D tax credits, foreign tax credits and domestic manufacturing deductions in the Consolidated Statements of Operations. Further information regarding share-based compensation can be found in Note 9, “Benefit
Plans” of thisForm 10-K.Plans.”
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets
and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. See Note 5, “Income Taxes”
of this Form 10-K for additional information.
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. 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 had been issued. 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 RSUs. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. 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.
The following table shows the computation of basic and diluted earnings per share for
2014, 20132016, 2015 and
20122014 (net income in millions and shares in thousands):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Numerator: | | | | | | | | | | | | |
Net income | | $ | 39,510 | | | $ | 37,037 | | | $ | 41,733 | |
Denominator: | | | | | | | | | | | | |
Weighted-average shares outstanding | | | 6,085,572 | | | | 6,477,320 | | | | 6,543,726 | |
Effect of dilutive securities | | | 37,091 | | | | 44,314 | | | | 73,757 | |
| | | | | | | | | | | | |
Weighted-average diluted shares | | | 6,122,663 | | | | 6,521,634 | | | | 6,617,483 | |
| | | | | | | | | | | | |
| | | |
Basic earnings per share | | $ | 6.49 | | | $ | 5.72 | | | $ | 6.38 | |
Diluted earnings per share | | $ | 6.45 | | | $ | 5.68 | | | $ | 6.31 | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Numerator: | | | | | |
| Net income | $ | 45,687 |
| | $ | 53,394 |
| | $ | 39,510 |
|
| | | | | | |
| Denominator: | | | | | |
| Weighted-average shares outstanding | 5,470,820 |
| | 5,753,421 |
| | 6,085,572 |
|
| Effect of dilutive securities | 29,461 |
| | 39,648 |
| | 37,091 |
|
| Weighted-average diluted shares | 5,500,281 |
| | 5,793,069 |
|
| 6,122,663 |
|
| | | | | | |
| Basic earnings per share | $ | 8.35 |
| | $ | 9.28 |
| | $ | 6.49 |
|
| Diluted earnings per share | $ | 8.31 |
| | $ | 9.22 |
| | $ | 6.45 |
|
Potentially dilutive securities
thewhose effect
of which would have been antidilutive
were not significant for 2014, 2013 and 2012. The Companyare excluded
these securities from the computation of diluted earnings per share.
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s marketable debt and equity securities have been classified and accounted for as
available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the
designationsclassifications at each balance sheet date. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term.
The Company classifies its marketableMarketable equity securities, including mutual funds,
are classified as either short-term or long-term based on the nature of each security and its availability for use in current operations. The Company’s marketable debt and equity securities are carried at fair value, with
the unrealized gains and losses, net of taxes, reported as a component of
accumulated other comprehensive income (“AOCI”) in shareholders’
equity.equity, with the exception of unrealized losses believed to be other-than-temporary which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method.
Derivative Financial Instruments
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value.
For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI in shareholders’ equity and reclassified into incomeearnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized in earnings in the current income.period. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in income. earnings.
For derivative instruments that hedge the exposure to changes in the fair value of an asset or a liability and that are designated as fair value hedges, both the net gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings in the current period.
For derivative instruments designated as a hedge of theand foreign currency debt that hedge the exposure to changes in foreign currency exchange rates used for translation exposure of the net investment in a foreign operation and that are designated as a net investment hedge, the net gain or loss on the effective portion of the derivative instrument is reported in the same manner as a foreign currency translation adjustment. For forward exchange contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its definition of effectiveness. Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current income. period.
Derivatives that do not qualify as hedges are adjusted to fair value through
earnings in the current
income.period.
Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various
factors. The Company considersfactors, including historical experience,
the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect
the customers’
abilityabilities to pay.
Inventories are stated at the lower of cost, computed using the first-in, first-out method
or market. Ifand net realizable value. Any adjustments to reduce the cost of
inventories to their net realizable value are recognized in earnings in the
current period. As of September 24, 2016 and September 26, 2015, the Company’s inventories
exceeds their market value, provisions are made currently for the difference between the cost and the market value.consist primarily of finished goods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed by use of the
straight-line method over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between
twoone to five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease terms or
ten yearsuseful life for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was
$8.3 billion, $9.2 billion and $6.9 billion
$5.8 billionduring 2016, 2015 and
$2.6 billion during 2014,
2013 and 2012, respectively.
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews property, plant and equipment, inventory component prepayments and
certain identifiable intangibles, excluding goodwill
and intangible assets with indefinite useful lives, for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property, plant and equipment, inventory component prepayments and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value.
The Company did not record any significant impairments during 2014, 2013 and 2012.The Company does not amortize goodwill and intangible assets with indefinite useful lives, rather such assets are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. The Company performs its goodwill and intangible asset impairment tests in the fourth quarter of each year. The Company did not recognize any impairment charges related to goodwill or indefinite lived intangible assets during
2014, 20132016, 2015 and
2012. The2014. For purposes of testing goodwill for impairment, the Company established reporting units based on its current reporting structure.
For purposes of testing goodwill for impairment, goodwillGoodwill has been allocated to these reporting units to the extent it relates to each reporting unit. In
20142016 and
2013,2015, the Company’s goodwill was
primarily allocated to the Americas and Europe
reportable operating segments.reporting units.
The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its acquired intangible assets with definite useful lives over periods from three to seven years.
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use
in pricingto price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1– Quoted prices in active markets for identical assets or liabilities.
Level 2– 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 substantially the full term of the assets or liabilities.
Level 3– Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The Company’s valuation techniques used to measure the fair value of money market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or
model drivenmodel-driven valuations using significant inputs derived from or corroborated by observable market data.
In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Foreign Currency Translation and Remeasurement
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in AOCI in shareholders’ equity. The Company’s subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. Gains and losses from these remeasurements were not significant during 2014, 2013 and 2012 and have been included in the Company’s results of operations.
Note 2 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and
available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term marketable securities as of September
27, 201424, 2016 and September
28, 201326, 2015 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2014 | |
| | | Adjusted
Cost | | | Unrealized
Gains | | | Unrealized
Losses | | | Fair
Value | | | Cash and
Cash
Equivalents | | | Short-Term
Marketable
Securities | | | Long-Term
Marketable
Securities | |
Cash | | $ | 10,232 | | | $ | 0 | | | $ | 0 | | | $ | 10,232 | | | $ | 10,232 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | | 1,546 | | | | 0 | | | | 0 | | | | 1,546 | | | | 1,546 | | | | 0 | | | | 0 | |
Mutual funds | | | 2,531 | | | | 1 | | | | (132 | ) | | | 2,400 | | | | 0 | | | | 2,400 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 4,077 | | | | 1 | | | | (132 | ) | | | 3,946 | | | | 1,546 | | | | 2,400 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | | 23,140 | | | | 15 | | | | (9 | ) | | | 23,146 | | | | 12 | | | | 607 | | | | 22,527 | |
U.S. agency securities | | | 7,373 | | | | 3 | | | | (11 | ) | | | 7,365 | | | | 652 | | | | 157 | | | | 6,556 | |
Non-U.S. government securities | | | 6,925 | | | | 69 | | | | (69 | ) | | | 6,925 | | | | 0 | | | | 204 | | | | 6,721 | |
Certificates of deposit and time deposits | | | 3,832 | | | | 0 | | | | 0 | | | | 3,832 | | | | 1,230 | | | | 1,233 | | | | 1,369 | |
Commercial paper | | | 475 | | | | 0 | | | | 0 | | | | 475 | | | | 166 | | | | 309 | | | | 0 | |
Corporate securities | | | 85,431 | | | | 296 | | | | (241 | ) | | | 85,486 | | | | 6 | | | | 6,298 | | | | 79,182 | |
Municipal securities | | | 940 | | | | 8 | | | | 0 | | | | 948 | | | | 0 | | | | 0 | | | | 948 | |
Mortgage- and asset-backed securities | | | 12,907 | | | | 26 | | | | (49 | ) | | | 12,884 | | | | 0 | | | | 25 | | | | 12,859 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 141,023 | | | | 417 | | | | (379 | ) | | | 141,061 | | | | 2,066 | | | | 8,833 | | | | 130,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 155,332 | | | $ | 418 | | | $ | (511 | ) | | $ | 155,239 | | | $ | 13,844 | | | $ | 11,233 | | | $ | 130,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2013 | |
| | | Adjusted
Cost | | | Unrealized
Gains | | | Unrealized
Losses | | | Fair
Value | | | Cash and
Cash
Equivalents | | | Short-Term
Marketable
Securities | | | Long-Term
Marketable
Securities | |
Cash | | $ | 8,705 | | | $ | 0 | | | $ | 0 | | | $ | 8,705 | | | $ | 8,705 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | | 1,793 | | | | 0 | | | | 0 | | | | 1,793 | | | | 1,793 | | | | 0 | | | | 0 | |
Mutual funds | | | 3,999 | | | | 0 | | | | (197 | ) | | | 3,802 | | | | 0 | | | | 3,802 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 5,792 | | | | 0 | | | | (197 | ) | | | 5,595 | | | | 1,793 | | | | 3,802 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | | 27,642 | | | | 24 | | | | (47 | ) | | | 27,619 | | | | 431 | | | | 7,554 | | | | 19,634 | |
U.S. agency securities | | | 16,878 | | | | 12 | | | | (52 | ) | | | 16,838 | | | | 177 | | | | 3,412 | | | | 13,249 | |
Non-U.S. government securities | | | 5,545 | | | | 35 | | | | (137 | ) | | | 5,443 | | | | 50 | | | | 313 | | | | 5,080 | |
Certificates of deposit and time deposits | | | 2,344 | | | | 0 | | | | 0 | | | | 2,344 | | | | 1,264 | | | | 844 | | | | 236 | |
Commercial paper | | | 2,998 | | | | 0 | | | | 0 | | | | 2,998 | | | | 1,835 | | | | 1,163 | | | | 0 | |
Corporate securities | | | 54,586 | | | | 275 | | | | (252 | ) | | | 54,609 | | | | 0 | | | | 8,077 | | | | 46,532 | |
Municipal securities | | | 6,257 | | | | 45 | | | | (22 | ) | | | 6,280 | | | | 4 | | | | 1,114 | | | | 5,162 | |
Mortgage- and asset-backed securities | | | 16,396 | | | | 23 | | | | (89 | ) | | | 16,330 | | | | 0 | | | | 8 | | | | 16,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 132,646 | | | | 414 | | | | (599 | ) | | | 132,461 | | | | 3,761 | | | | 22,485 | | | | 106,215 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 147,143 | | | $ | 414 | | | $ | (796 | ) | | $ | 146,761 | | | $ | 14,259 | | | $ | 26,287 | | | $ | 106,215 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | Adjusted Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Short-Term Marketable Securities | | Long-Term Marketable Securities |
| Cash | $ | 8,601 |
| | $ | — |
| | $ | — |
| | $ | 8,601 |
| | $ | 8,601 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | |
| Level 1: | | | | | | | | | | | | | |
| Money market funds | 3,666 |
| | — |
| | — |
| | 3,666 |
| | 3,666 |
| | — |
| | — |
|
| Mutual funds | 1,407 |
| | — |
| | (146 | ) | | 1,261 |
| | — |
| | 1,261 |
| | — |
|
| Subtotal | 5,073 |
| | — |
| | (146 | ) | | 4,927 |
| | 3,666 |
| | 1,261 |
| | — |
|
| | | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | | |
| U.S. Treasury securities | 41,697 |
| | 319 |
| | (4 | ) | | 42,012 |
| | 1,527 |
| | 13,492 |
| | 26,993 |
|
| U.S. agency securities | 7,543 |
| | 16 |
| | — |
| | 7,559 |
| | 2,762 |
| | 2,441 |
| | 2,356 |
|
| Non-U.S. government securities | 7,609 |
| | 259 |
| | (27 | ) | | 7,841 |
| | 110 |
| | 818 |
| | 6,913 |
|
| Certificates of deposit and time deposits | 6,598 |
| | — |
| | — |
| | 6,598 |
| | 1,108 |
| | 3,897 |
| | 1,593 |
|
| Commercial paper | 7,433 |
| | — |
| | — |
| | 7,433 |
| | 2,468 |
| | 4,965 |
| | — |
|
| Corporate securities | 131,166 |
| | 1,409 |
| | (206 | ) | | 132,369 |
| | 242 |
| | 19,599 |
| | 112,528 |
|
| Municipal securities | 956 |
| | 5 |
| | — |
| | 961 |
| | — |
| | 167 |
| | 794 |
|
| Mortgage- and asset-backed securities | 19,134 |
| | 178 |
| | (28 | ) | | 19,284 |
| | — |
| | 31 |
| | 19,253 |
|
| Subtotal | 222,136 |
| | 2,186 |
| | (265 | ) | | 224,057 |
| | 8,217 |
| | 45,410 |
| | 170,430 |
|
| | | | | | | | | | | | | | |
| Total | $ | 235,810 |
| | $ | 2,186 |
| | $ | (411 | ) | | $ | 237,585 |
| | $ | 20,484 |
| | $ | 46,671 |
| | $ | 170,430 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | Adjusted Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Short-Term Marketable Securities | | Long-Term Marketable Securities |
| Cash | $ | 11,389 |
| | $ | — |
| | $ | — |
| | $ | 11,389 |
| | $ | 11,389 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | |
| Level 1: | | | | | | | | | | | | | |
| Money market funds | 1,798 |
| | — |
| | — |
| | 1,798 |
| | 1,798 |
| | — |
| | — |
|
| Mutual funds | 1,772 |
| | — |
| | (144 | ) | | 1,628 |
| | — |
| | 1,628 |
| | — |
|
| Subtotal | 3,570 |
| | — |
| | (144 | ) | | 3,426 |
| | 1,798 |
| | 1,628 |
| | — |
|
| | | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | | |
| U.S. Treasury securities | 34,902 |
| | 181 |
| | (1 | ) | | 35,082 |
| | — |
| | 3,498 |
| | 31,584 |
|
| U.S. agency securities | 5,864 |
| | 14 |
| | — |
| | 5,878 |
| | 841 |
| | 767 |
| | 4,270 |
|
| Non-U.S. government securities | 6,356 |
| | 45 |
| | (167 | ) | | 6,234 |
| | 43 |
| | 135 |
| | 6,056 |
|
| Certificates of deposit and time deposits | 4,347 |
| | — |
| | — |
| | 4,347 |
| | 2,065 |
| | 1,405 |
| | 877 |
|
| Commercial paper | 6,016 |
| | — |
| | — |
| | 6,016 |
| | 4,981 |
| | 1,035 |
| | — |
|
| Corporate securities | 116,908 |
| | 242 |
| | (985 | ) | | 116,165 |
| | 3 |
| | 11,948 |
| | 104,214 |
|
| Municipal securities | 947 |
| | 5 |
| | — |
| | 952 |
| | — |
| | 48 |
| | 904 |
|
| Mortgage- and asset-backed securities | 16,121 |
| | 87 |
| | (31 | ) | | 16,177 |
| | — |
| | 17 |
| | 16,160 |
|
| Subtotal | 191,461 |
| | 574 |
| | (1,184 | ) | | 190,851 |
| | 7,933 |
| | 18,853 |
| | 164,065 |
|
| | | | | | | | | | | | | | |
| Total | $ | 206,420 |
| | $ | 574 |
| | $ | (1,328 | ) | | $ | 205,666 |
| | $ | 21,120 |
| | $ | 20,481 |
| | $ | 164,065 |
|
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. The
net realized gains or losses recognized by the Company, related to such sales, were not significant during 2014, 2013 and 2012. The maturities of the Company’s long-term marketable securities generally range from one to five years.
As of September 27, 2014 and September 28, 2013, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant.
As of September 27, 2014, the
The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in
nature and does not consider any of its investments other-than-temporarily impaired.nature. The Company typically invests in highly-rated securities, and its investment policy
generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. 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 whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis.
During 2014, 2013 and 2012As of September 24, 2016, the Company
diddoes not
recognizeconsider any
significant impairment charges.of its investments to be other-than-temporarily impaired.
Derivative Financial Instruments
The Company
usesmay use derivatives to partially offset its business exposure to foreign currency and interest rate
risk. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset some of the risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities. 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. 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.
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. The Company’srevenue, and subsidiaries whose functional currency is not the U.S. dollar and who sell in local currencies may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. 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. The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
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 currency exchange rates.
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. In both of these cases, the Company designates these instruments as net investment hedges.
The Company may also enter into
non-designated foreign currency
forward contracts and option contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities denominated in non-functional currencies.
The Company may enter into interest rate swaps, options, or other instruments to manage interest rate risk. These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s
long-termterm debt or investments.
The Company records all derivatives in the Consolidated Balance Sheets atdesignates these instruments as either cash flow or fair value.value hedges. The Company’s accounting treatment for these instruments is based on the hedge designation. hedged interest rate transactions as of September 24, 2016 are expected to be recognized within 10 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings.
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. The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and net investment hedges are recorded in other income and expense. 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.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 the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized as a component ofin other income/(expense), net in the same period as the related income or expense is recognized. The Company’s foreign currencyineffective portions and interest rate transactions hedged withamounts excluded from the effectiveness testing of cash flow hedges as of September 27, 2014 are expected to occur within 12 months and four years, respectively.
recognized in other income/(expense), net.
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. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income and expense.income/(expense), net. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expenseincome/(expense), net unless they are re-designated as hedges of other transactions.
Net Investment Hedges
The Company did not recognize any significanteffective portions of net gains orinvestment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net.
Fair Value Hedges
Gains and losses related to
the loss of hedge designation on discontinued cash flowchanges in fair value hedges
during 2014, 2013 and 2012.The gain/lossare recognized in other income and expense for foreign currency forward and option contractsearnings along with a corresponding loss or gain related to the change in value of the underlying hedged item.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments was not significant during 2014, 2013 and 2012. These amounts representare adjusted to fair value through earnings in the net gain or loss onfinancial statement line item to which the derivative contracts and do not include changesrelates.
The Company records all derivatives in the related exposures, which generally offset a portionConsolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of September 24, 2016 and September 26, 2015 (in millions):
|
| | | | | | | | | | | |
| | 2016 |
| | Fair Value of Derivatives Designated as Hedge Instruments | | Fair Value of Derivatives Not Designated as Hedge Instruments | | Total Fair Value |
Derivative assets (1): | | | | | |
| Foreign exchange contracts | $ | 518 |
| | $ | 153 |
| | $ | 671 |
|
| Interest rate contracts | $ | 728 |
| | $ | — |
| | $ | 728 |
|
| | | | | | |
Derivative liabilities (2): | | | | | |
| Foreign exchange contracts | $ | 935 |
| | $ | 134 |
| | $ | 1,069 |
|
| Interest rate contracts | $ | 7 |
| | $ | — |
| | $ | 7 |
|
|
| | | | | | | | | | | |
| | 2015 |
| | Fair Value of Derivatives Designated as Hedge Instruments | | Fair Value of Derivatives Not Designated as Hedge Instruments | | Total Fair Value |
Derivative assets (1): | | | |
| Foreign exchange contracts | $ | 1,442 |
| | $ | 109 |
| | $ | 1,551 |
|
| Interest rate contracts | $ | 394 |
| | $ | — |
| | $ | 394 |
|
| | | | | | |
Derivative liabilities (2): | | | | | |
| Foreign exchange contracts | $ | 905 |
| | $ | 94 |
| | $ | 999 |
|
| Interest rate contracts | $ | 13 |
| | $ | — |
| | $ | 13 |
|
| |
| (1) | The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Consolidated Balance Sheets. |
| |
| (2) | The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Consolidated Balance Sheets. |
The following table shows the pre-tax gains and losses of the
gain or lossCompany’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges on
OCI and the
derivative contracts.Consolidated Statements of Operations for 2016, 2015 and 2014 (in millions):
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Gains/(Losses) recognized in OCI – effective portion: | | | | | |
| Cash flow hedges: | | | | | |
| Foreign exchange contracts | $ | 109 |
| | $ | 3,592 |
| | $ | 1,750 |
|
| Interest rate contracts | (57 | ) | | (111 | ) | | (15 | ) |
| Total | $ | 52 |
|
| $ | 3,481 |
|
| $ | 1,735 |
|
| | | | | | |
| Net investment hedges: | | | | | |
| Foreign exchange contracts | $ | — |
| | $ | 167 |
| | $ | 53 |
|
| Foreign currency debt | (258 | ) | | (71 | ) | | — |
|
| Total | $ | (258 | ) |
| $ | 96 |
|
| $ | 53 |
|
| | | | | | |
| Gains/(Losses) reclassified from AOCI into net income – effective portion: | | | | | |
| Cash flow hedges: | | | | | |
| Foreign exchange contracts | $ | 885 |
| | $ | 4,092 |
| | $ | (154 | ) |
| Interest rate contracts | (11 | ) | | (17 | ) | | (16 | ) |
| Total | $ | 874 |
|
| $ | 4,075 |
|
| $ | (170 | ) |
| | | | | | |
| Gains/(Losses) on derivative instruments: | | | | | |
| Fair value hedges: | | | | | |
| Interest rate contracts | $ | 341 |
| | $ | 337 |
| | $ | 39 |
|
| | | | | | |
| Gains/(Losses) related to hedged items: | | | | | |
| Fair value hedges: | | | | | |
| Interest rate contracts | $ | (341 | ) | | $ | (337 | ) | | $ | (39 | ) |
The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September
27, 201424, 2016 and September
28, 201326, 2015 (in millions):
| | | | | | | | | | | | | | | | |
| | | 2014 | | | 2013 | |
| | | Notional
Amount | | | Credit Risk
Amounts | | | Notional
Amount | | | Credit Risk
Amounts | |
Instruments designated as accounting hedges: | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 42,945 | | | $ | 1,333 | | | $ | 35,013 | | | $ | 159 | |
Interest rate contracts | | $ | 12,000 | | | $ | 89 | | | $ | 3,000 | | | $ | 44 | |
Instruments not designated as accounting hedges: | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 38,510 | | | $ | 222 | | | $ | 16,131 | | | $ | 25 | |
|
| | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Notional Amount | | Credit Risk Amount | | Notional Amount | | Credit Risk Amount |
| Instruments designated as accounting hedges: | | | | | | | |
| Foreign exchange contracts | $ | 44,678 |
| | $ | 518 |
| | $ | 70,054 |
| | $ | 1,385 |
|
| Interest rate contracts | $ | 24,500 |
| | $ | 728 |
| | $ | 18,750 |
| | $ | 394 |
|
| | | | | | | | |
| Instruments not designated as accounting hedges: | | | | | | | |
| Foreign exchange contracts | $ | 54,305 |
| | $ | 153 |
| | $ | 49,190 |
| | $ | 109 |
|
The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. 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.
The Company’s gross exposure on these transactions may be further mitigated by collateral received from certain counterparties. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. 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. 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.
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. 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. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Consolidated Balance Sheets.
As of September 27, 2014,The net cash collateral received by the Company
received $2.1 billion of cash collateral related to
the derivative instruments under its collateral security arrangements
was $163 million as of September 24, 2016 and $1.0 billion as of September 26, 2015, which were recorded as accrued expenses in the Consolidated Balance
Sheet. As of September 28, 2013, the Company posted cash collateral related to the derivative instruments under its collateral security arrangements of $164 million, which were recorded as other current assets in the Consolidated Balance Sheet. The Company did not have any derivative instruments with credit-risk related contingent features that would require it to post additional collateral as of September 27, 2014 or September 28, 2013.Sheets.
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. As of September
27, 201424, 2016 and September
28, 2013,26, 2015, 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
$1.6$1.5 billion and
$333 million,$2.2 billion, respectively, resulting in
a net derivative
liabilitiesasset of
$549$160 million and
$57a net derivative liability of $78 million, respectively.
The following tables show the Company’s derivative instruments at gross fair value as reflected in the Consolidated Balance Sheets as of September 27, 2014 and September 28, 2013 (in millions):
| | | | | | | | | | | | |
| | | 2014 | |
| | | Fair Value of Derivatives
Designated as Hedge Instruments | | | Fair Value of Derivatives Not
Designated as Hedge Instruments | | | Total
Fair Value | |
Derivative assets (1): | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 1,332 | | | $ | 222 | | | $ | 1,554 | |
Interest rate contracts | | $ | 81 | | | $ | 0 | | | $ | 81 | |
Derivative liabilities (2): | | | | |
Foreign exchange contracts | | $ | 41 | | | $ | 40 | | | $ | 81 | |
| | | | | | | | | | | | |
| | | 2013 | |
| | | Fair Value of Derivatives
Designated as Hedge Instruments | | | Fair Value of Derivatives Not
Designated as Hedge Instruments | | | Total
Fair Value | |
Derivative assets (1): | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 145 | | | $ | 25 | | | $ | 170 | |
Interest rate contracts | | $ | 44 | | | $ | 0 | | | $ | 44 | |
Derivative liabilities (2): | | | | |
Foreign exchange contracts | | $ | 389 | | | $ | 46 | | | $ | 435 | |
| (1) | The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Consolidated Balance Sheets.
| |
| (2) | The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Consolidated Balance Sheets.
| |
The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow, net investment and fair value hedges on OCI and the Consolidated Statements of Operations for 2014, 2013 and 2012 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gains/(Losses) Recognized in
OCI-Effective Portion | | | Gains/(Losses) Reclassified from AOCI
into Net Income-Effective Portion | |
| | | 2014 | | | 2013 | | | 2012 | | | 2014 | | | 2013 | | | 2012 | |
Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 1,750 | | | $ | 891 | | | $ | (175 | ) | | $ | (154 | ) | | $ | 676 | | | $ | 607 | |
Interest rate contracts | | | (15 | ) | | | 12 | | | | 0 | | | | (16 | ) | | | (6 | ) | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,735 | | | $ | 903 | | | $ | (175 | ) | | $ | (170 | ) | | $ | 670 | | | $ | 607 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net investment hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 53 | | | $ | 143 | | | $ | (5 | ) | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Gains/(Losses) On Derivative
Instruments | | | Gains/(Losses) Related to
Hedged Items | |
| | | 2014 | | | 2013 | | | 2012 | | | 2014 | | | 2013 | | | 2012 | |
Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | | $ | 39 | | | $ | 0 | | | $ | 0 | | | $ | (39 | ) | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The Company recognized a charge of $120 million, $301 million and $658 million in other income and expense during 2014, 2013 and 2012, respectively, for the ineffective portions of and amounts excluded from the effectiveness testing of cash flow hedges. The ineffective portions of and amounts excluded from the effectiveness testing of net investment and fair value hedges recognized in other income and expense were not significant during 2014, 2013 and 2012.
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. The Company generally does not require collateral from its customers; however, the Company will require collateral in certain instances to limit credit risk. 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. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of September
27, 2014,24, 2016 and September 26, 2015, the Company had
two customersone customer that represented 10% or more of total trade receivables,
one of which accounted for
16%10% and
the other 13%. As of September 28, 2013, the Company had two customers that represented 10% or more of total trade receivables, one of which accounted for 13% and the other 10%.12%, respectively. The Company’s cellular network carriers accounted for
72%63% and
68%71% of trade receivables as of September
27, 201424, 2016 and September
28, 2013,26, 2015, respectively.
The additions and write-offs to the Company’s allowance for doubtful accounts during 2014, 2013 and 2012 were not significant.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. ThreeVendor non-trade receivables from two of the Company’s vendors accounted for 51%47% and 21% of total vendor non-trade receivables as of September 24, 2016 and three of the Company’s vendors accounted for 38%, 16%18% and 14% of total vendor non-trade receivables as of September 27, 2014 and three of the Company’s vendors accounted for 47%, 21% and 15% of total vendor non-trade receivables as of September 28, 2013. The Company does not reflect the sale of these components in net sales and does not recognize any profits on these sales until the related products are sold by the Company, at which time any profit is recognized as a reduction of cost of sales.26, 2015.
Note 3 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated
balance sheetfinancial statement details as of September
27, 201424, 2016 and September
28, 201326, 2015 (in millions):
Inventories
| | | | | | | | |
| | | 2014 | | | 2013 | |
Components | | $ | 471 | | | $ | 683 | |
Finished goods | | | 1,640 | | | | 1,081 | |
| | | | | | | | |
Total inventories | | $ | 2,111 | | | $ | 1,764 | |
| | | | | | | | |
Property, Plant and Equipment,
| | | | | | | | |
| | | 2014 | | | 2013 | |
Land and buildings | | $ | 4,863 | | | $ | 3,309 | |
Machinery, equipment and internal-use software | | | 29,639 | | | | 21,242 | |
Leasehold improvements | | | 4,513 | | | | 3,968 | |
| �� | | | | | | | |
Gross property, plant and equipment | | | 39,015 | | | | 28,519 | |
Accumulated depreciation and amortization | | | (18,391 | ) | | | (11,922 | ) |
| | | | | | | | |
Net property, plant and equipment | | $ | 20,624 | | | $ | 16,597 | |
| | | | | | | | |
Accrued Expenses
| | | | | | | | |
| | | 2014 | | | 2013 | |
Accrued warranty and related costs | | $ | 4,159 | | | $ | 2,967 | |
Accrued marketing and selling expenses | | | 2,321 | | | | 1,291 | |
Accrued taxes | | | 1,209 | | | | 1,200 | |
Accrued compensation and employee benefits | | | 1,209 | | | | 959 | |
Deferred margin on component sales | | | 1,057 | | | | 1,262 | |
Other current liabilities | | | 8,498 | | | | 6,177 | |
| | | | | | | | |
Total accrued expenses | | $ | 18,453 | | | $ | 13,856 | |
| | | | | | | | |
Net
|
| | | | | | | |
| | 2016 | | 2015 |
| Land and buildings | $ | 10,185 |
| | $ | 6,956 |
|
| Machinery, equipment and internal-use software | 44,543 |
| | 37,038 |
|
| Leasehold improvements | 6,517 |
| | 5,263 |
|
| Gross property, plant and equipment | 61,245 |
| | 49,257 |
|
| Accumulated depreciation and amortization | (34,235 | ) | | (26,786 | ) |
| Total property, plant and equipment, net | $ | 27,010 |
| | $ | 22,471 |
|
Other Non-Current Liabilities
| | | | | | | | |
| | | 2014 | | | 2013 | |
Deferred tax liabilities | | $ | 20,259 | | | $ | 16,489 | |
Other non-current liabilities | | | 4,567 | | | | 3,719 | |
| | | | | | | | |
Total other non-current liabilities | | $ | 24,826 | | | $ | 20,208 | |
| | | | | | | | |
|
| | | | | | | |
| | 2016 | | 2015 |
| Deferred tax liabilities | $ | 26,019 |
| | $ | 24,062 |
|
| Other non-current liabilities | 10,055 |
| | 9,365 |
|
| Total other non-current liabilities | $ | 36,074 |
| | $ | 33,427 |
|
Other
Income and ExpenseIncome/(Expense), Net
The following table shows the detail of other
incomeincome/(expense), net for 2016, 2015 and
expense for 2014
2013 and 2012 (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Interest and dividend income | | $ | 1,795 | | | $ | 1,616 | | | $ | 1,088 | |
Interest expense | | | (384 | ) | | | (136 | ) | | | 0 | |
Other expense, net | | | (431 | ) | | | (324 | ) | | | (566 | ) |
| | | | | | | | | | | | |
Total other income/(expense), net | | $ | 980 | | | $ | 1,156 | | | $ | 522 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Interest and dividend income | | $ | 3,999 |
| | $ | 2,921 |
| | $ | 1,795 |
|
| Interest expense | | (1,456 | ) | | (733 | ) | | (384 | ) |
| Other expense, net | | (1,195 | ) | | (903 | ) | | (431 | ) |
| Total other income/(expense), net | | $ | 1,348 |
| | $ | 1,285 |
| | $ | 980 |
|
Note 4 –
Goodwill and OtherAcquired Intangible Assets
On July 31, 2014, the Company completed the acquisitions of Beats Music, LLC, which offers a subscription streaming music service, and Beats Electronics, LLC, which makes Beats® headphones, speakers and audio software (collectively, “Beats”).
The
total purchase price consideration for these acquisitions was $2.6 billion, which consisted primarily of cash, of which $2.2 billion was allocated to goodwill, $636 million toCompany’s acquired intangible assets
with definite useful lives primarily consist of patents and
$258 million to net liabilities assumed. Concurrent with the close of the acquisition, the Company repaid $295 million of existing Beats outstanding debt to third-party creditors. In conjunction with the Beats acquisitions, the Company issued approximately 5.1 million shares of its common stock to certain former equity holders of Beats. The restricted stock was valued at approximately $485 million based on the Company’s common stock on the acquisition date. The majority of these shares, valued at approximately $417 million, will vest over time based on continued employment with Apple.The Company also completed various other business acquisitions during 2014 for an aggregate cash consideration, net of cash acquired, of $957 million, of which $828 million was allocated to goodwill, $257 million to acquired intangible assets and $128 million to net liabilities assumed.
The Company completed various business acquisitions during 2013 for an aggregate cash consideration, net of cash acquired, of $496 million, of which $419 million was allocated to goodwill, $179 million to acquired intangible assets and $102 million to net liabilities assumed.
The Company’s gross carrying amount of goodwill was $4.6 billion and $1.6 billion as of September 27, 2014 and September 28, 2013, respectively. The Company did not have any goodwill impairments during 2014, 2013 or 2012.
licenses. The following table summarizes the components of gross and net acquired intangible asset balances as of September 27, 201424, 2016 and September 28, 201326, 2015 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2014 | | | 2013 | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | |
Definite-lived and amortizable acquired intangible assets | | $ | 7,127 | | | $ | (3,085 | ) | | $ | 4,042 | | | $ | 6,081 | | | $ | (2,002 | ) | | $ | 4,079 | |
Indefinite-lived and non-amortizable acquired intangible assets | | | 100 | | | | 0 | | | | 100 | | | | 100 | | | | 0 | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total acquired intangible assets | | $ | 7,227 | | | $ | (3,085 | ) | | $ | 4,142 | | | $ | 6,181 | | | $ | (2,002 | ) | | $ | 4,179 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Definite-lived and amortizable acquired intangible assets | $ | 8,912 |
| | $ | (5,806 | ) | | $ | 3,106 |
| | $ | 8,125 |
| | $ | (4,332 | ) | | $ | 3,793 |
|
| Indefinite-lived and non-amortizable acquired intangible assets | 100 |
| | — |
| | 100 |
| | 100 |
| | — |
| | 100 |
|
| Total acquired intangible assets | $ | 9,012 |
|
| $ | (5,806 | ) |
| $ | 3,206 |
|
| $ | 8,225 |
|
| $ | (4,332 | ) |
| $ | 3,893 |
|
Amortization expense related to acquired intangible assets was
$1.5 billion, $1.3 billion and $1.1 billion
$960 millionin 2016, 2015 and
$605 million in 2014,
2013 and 2012, respectively. As of September
27, 2014,24, 2016, the remaining weighted-average amortization period for acquired intangible assets is
3.83.4 years. The expected annual amortization expense related to acquired intangible assets as of September
27, 2014,24, 2016, is as follows (in millions):
| | | | |
2015 | | $ | 1,204 | |
2016 | | | 1,083 | |
2017 | | | 825 | |
2018 | | | 592 | |
2019 | | | 175 | |
Thereafter | | | 163 | |
| | | | |
Total | | $ | 4,042 | |
| | | | |
|
| | | |
| 2017 | $ | 1,197 |
|
| 2018 | 902 |
|
| 2019 | 449 |
|
| 2020 | 255 |
|
| 2021 | 175 |
|
| Thereafter | 128 |
|
| Total | $ | 3,106 |
|
The provision for income taxes for
2014, 20132016, 2015 and
2012,2014, consisted of the following (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Federal: | | | | | | | | | | | | |
Current | | $ | 8,624 | | | $ | 9,334 | | | $ | 7,240 | |
Deferred | | | 3,183 | | | | 1,878 | | | | 5,018 | |
| | | | | | | | | | | | |
| | | 11,807 | | | | 11,212 | | | | 12,258 | |
| | | | | | | | | | | | |
State: | | | | | | | | | | | | |
Current | | | 855 | | | | 1,084 | | | | 1,182 | |
Deferred | | | (178 | ) | | | (311 | ) | | | (123 | ) |
| | | | | | | | | | | | |
| | | 677 | | | | 773 | | | | 1,059 | |
| | | | | | | | | | | | |
Foreign: | | | | | | | | | | | | |
Current | | | 2,147 | | | | 1,559 | | | | 1,203 | |
Deferred | | | (658 | ) | | | (426 | ) | | | (490 | ) |
| | | | | | | | | | | | |
| | | 1,489 | | | | 1,133 | | | | 713 | |
| | | | | | | | | | | | |
Provision for income taxes | | $ | 13,973 | | | $ | 13,118 | | | $ | 14,030 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Federal: | | | | | |
| Current | $ | 7,652 |
| | $ | 11,730 |
| | $ | 8,624 |
|
| Deferred | 5,043 |
| | 3,408 |
| | 3,183 |
|
| | 12,695 |
|
| 15,138 |
|
| 11,807 |
|
| State: | | | | | |
| Current | 990 |
| | 1,265 |
| | 855 |
|
| Deferred | (138 | ) | | (220 | ) | | (178 | ) |
| | 852 |
|
| 1,045 |
|
| 677 |
|
| Foreign: | | | | | |
| Current | 2,105 |
| | 4,744 |
| | 2,147 |
|
| Deferred | 33 |
| | (1,806 | ) | | (658 | ) |
| | 2,138 |
|
| 2,938 |
|
| 1,489 |
|
| Provision for income taxes | $ | 15,685 |
|
| $ | 19,121 |
|
| $ | 13,973 |
|
The foreign provision for income taxes is based on foreign pre-tax earnings of
$41.1 billion, $47.6 billion and $33.6 billion
$30.5 billionin 2016, 2015 and
$36.8 billion in 2014,
2013 and 2012, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings that the Company does not intend to be indefinitely reinvested outside the U.S. Substantially all of the Company’s undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. were generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%. As of September
27, 2014,24, 2016, U.S. income taxes have not been provided on a cumulative total of
$69.7$109.8 billion of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be
approximately $23.3$35.9 billion.
As of September
27, 201424, 2016 and September
28, 2013, $137.126, 2015, $216.0 billion and
$111.3$186.9 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S.
dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (35% in
2014, 20132016, 2015 and
2012)2014) to income before provision for income taxes for
2014, 20132016, 2015 and
2012,2014, is as follows (dollars in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Computed expected tax | | $ | 18,719 | | | $ | 17,554 | | | $ | 19,517 | |
State taxes, net of federal effect | | | 469 | | | | 508 | | | | 677 | |
Indefinitely invested earnings of foreign subsidiaries | | | (4,744 | ) | | | (4,614 | ) | | | (5,895 | ) |
Research and development credit, net | | | (88 | ) | | | (287 | ) | | | (103 | ) |
Domestic production activities deduction | | | (495 | ) | | | (308 | ) | | | (328 | ) |
Other | | | 112 | | | | 265 | | | | 162 | |
| | | | | | | | | | | | |
Provision for income taxes | | $ | 13,973 | | | $ | 13,118 | | | $ | 14,030 | |
| | | | | | | | | | | | |
Effective tax rate | | | 26.1% | | | | 26.2% | | | | 25.2% | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Computed expected tax | $ | 21,480 |
| | $ | 25,380 |
| | $ | 18,719 |
|
| State taxes, net of federal effect | 553 |
| | 680 |
| | 469 |
|
| Indefinitely invested earnings of foreign subsidiaries | (5,582 | ) | | (6,470 | ) | | (4,744 | ) |
| Domestic production activities deduction | (382 | ) | | (426 | ) | | (495 | ) |
| Research and development credit, net | (371 | ) | | (171 | ) | | (88 | ) |
| Other | (13 | ) | | 128 |
| | 112 |
|
| Provision for income taxes | $ | 15,685 |
|
| $ | 19,121 |
|
| $ | 13,973 |
|
| Effective tax rate | 25.6 | % | | 26.4 | % | | 26.1 | % |
The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards.
For stock options, the Company receives an income tax benefit calculated as the tax effect of the difference between the fair market value of the stock issued at the time of the exercise and the exercise price. For RSUs, the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value. The Company had net excess tax benefits from equity awards of
$379 million, $748 million and $706 million
$643 millionin 2016, 2015 and
$1.4 billion in 2014,
2013 and 2012, respectively, which were reflected as increases to common stock.
As of September
27, 201424, 2016 and September
28, 2013,26, 2015, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
| | | | | | | | |
| | | 2014 | | | 2013 | |
Deferred tax assets: | | | | | | | | |
Accrued liabilities and other reserves | | $ | 2,761 | | | $ | 1,892 | |
Deferred revenue | | | 1,787 | | | | 1,475 | |
Basis of capital assets and investments | | | 898 | | | | 1,020 | |
Share-based compensation | | | 454 | | | | 458 | |
Other | | | 644 | | | | 1,029 | |
| | | | | | | | |
Total deferred tax assets | | | 6,544 | | | | 5,874 | |
Less valuation allowance | | | 0 | | | | 0 | |
| | | | | | | | |
Deferred tax assets, net of valuation allowance | | | 6,544 | | | | 5,874 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Unremitted earnings of foreign subsidiaries | | | 21,544 | | | | 18,044 | |
Other | | | 120 | | | | 112 | |
| | | | | | | | |
Total deferred tax liabilities | | | 21,664 | | | | 18,156 | |
| | | | | | | | |
Net deferred tax liabilities | | $ | (15,120 | ) | | $ | (12,282 | ) |
| | | | | | | | |
|
| | | | | | | |
| | 2016 | | 2015 |
| Deferred tax assets: | | | |
| Accrued liabilities and other reserves | $ | 4,135 |
| | $ | 4,205 |
|
| Basis of capital assets | 2,107 |
| | 2,238 |
|
| Deferred revenue | 1,717 |
| | 1,941 |
|
| Deferred cost sharing | 667 |
| | 667 |
|
| Share-based compensation | 601 |
| | 575 |
|
| Unrealized losses | — |
| | 564 |
|
| Other | 788 |
| | 721 |
|
| Total deferred tax assets, net of valuation allowance of $0 | 10,015 |
| | 10,911 |
|
| Deferred tax liabilities: | | | |
| Unremitted earnings of foreign subsidiaries | 31,436 |
| | 26,868 |
|
| Other | 485 |
| | 303 |
|
| Total deferred tax liabilities | 31,921 |
| | 27,171 |
|
| Net deferred tax liabilities | $ | (21,906 | ) |
| $ | (16,260 | ) |
Deferred tax assets and liabilities reflect the effects of tax losses, credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets.
As of September
27, 2014,24, 2016, the total amount of gross unrecognized tax benefits was
$4.0$7.7 billion, of which
$1.4$2.8 billion, if recognized, would affect the Company’s effective tax rate. As of September
28, 2013,26, 2015, the total amount of gross unrecognized tax benefits was
$2.7$6.9 billion, of which
$1.4$2.5 billion, if recognized, would affect the Company’s effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for
2014, 20132016, 2015 and
2012,2014, is as follows (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Beginning Balance | | $ | 2,714 | | | $ | 2,062 | | | $ | 1,375 | |
Increases related to tax positions taken during a prior year | | | 1,295 | | | | 745 | | | | 340 | |
Decreases related to tax positions taken during a prior year | | | (280 | ) | | | (118 | ) | | | (107 | ) |
Increases related to tax positions taken during the current year | | | 882 | | | | 626 | | | | 467 | |
Decreases related to settlements with taxing authorities | | | (574 | ) | | | (592 | ) | | | (3 | ) |
Decreases related to expiration of statute of limitations | | | (4 | ) | | | (9 | ) | | | (10 | ) |
| | | | | | | | | | | | |
Ending Balance | | $ | 4,033 | | | $ | 2,714 | | | $ | 2,062 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Beginning Balance | $ | 6,900 |
| | $ | 4,033 |
| | $ | 2,714 |
|
| Increases related to tax positions taken during a prior year | 1,121 |
| | 2,056 |
| | 1,295 |
|
| Decreases related to tax positions taken during a prior year | (257 | ) | | (345 | ) | | (280 | ) |
| Increases related to tax positions taken during the current year | 1,578 |
| | 1,278 |
| | 882 |
|
| Decreases related to settlements with taxing authorities | (1,618 | ) | | (109 | ) | | (574 | ) |
| Decreases related to expiration of statute of limitations | — |
| | (13 | ) | | (4 | ) |
| Ending Balance | $ | 7,724 |
| | $ | 6,900 |
| | $ | 4,033 |
|
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September
27, 201424, 2016 and September
28, 2013,26, 2015, the total amount of gross interest and penalties accrued was
$630 million$1.0 billion and
$590 million,$1.3 billion, respectively, which is classified as non-current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense in
2016, 2015 and 2014
2013of $295 million, $709 million and
2012 of $40 million,
$189 million and $140 million, respectively.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. During the
fiscal year ended September 27, 2014,fourth quarter of 2016, the Company reached a partial settlement with the U.S. Internal Revenue Service
(“IRS”(the “IRS”)
concludedon its
reviewexamination of
the years 2004 through 2009, which resulted in the Company reducing its gross unrecognized tax benefits by $570 million and recognizing a tax benefit of $166 million. The IRS is currently examining the years 2010 through 2012. In
connection with this settlement, the Company recognized a tax benefit in the fourth quarter of 2016 that was not significant to its consolidated financial statements. All years prior to 2013 are closed, except for the years 2010 through 2012 relating to R&D tax credits. In addition, the Company is
also subject to audits by state, local and foreign tax authorities. In major states and major foreign jurisdictions, the years subsequent to
1996 and 2002, respectively,2003 generally remain open and could be subject to examination by the taxing authorities.
Management
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with
management’sits expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is not certain, the Company
does not believebelieves it is reasonably possible that its
gross unrecognized tax benefits
would materially changecould decrease (whether by payment, release or a combination of both) in the next 12
months.months by up to $850 million.
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"). The State Aid Decision orders Ireland to calculate and recover additional taxes from the Company for the period June 2003 through September 2014. Irish legislative changes, effective as of the beginning of 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and intends to appeal to the General Court of the Court of Justice of the European Union. Ireland has also announced its intention to appeal the State Aid Decision. 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. Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, pending conclusion of all appeals. The Company believes that any incremental Irish corporate income taxes potentially due would be creditable against U.S. taxes.
Commercial Paper
In April 2014, the Board of Directors authorized the
The Company
to issueissues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company
intends to useuses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September
27, 2014,24, 2016 and September 26, 2015, the Company had
$6.3$8.1 billion and $8.5 billion of Commercial Paper outstanding,
respectively, with
a weighted-average interest rate of 0.12% and maturities generally less than nine months.
The weighted-average interest rate of the Company’s Commercial Paper was 0.45% as of September 24, 2016 and 0.14% as of September 26, 2015.
The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for
20142016 and 2015 (in millions):
| | | | |
Maturities less than 90 days: | | | | |
Proceeds from (repayments of) commercial paper, net | | $ | 1,865 | |
Maturities greater than 90 days: | | | | |
Proceeds from commercial paper | | | 4,771 | |
Repayments of commercial paper | | | (330 | ) |
| | | | |
Maturities greater than 90 days, net | | | 4,441 | |
| | | | |
Total proceeds from issuance of commercial paper, net | | $ | 6,306 | |
| | | | |
|
| | | | | | | |
| | 2016 | | 2015 |
| Maturities less than 90 days: | | | |
| Proceeds from (repayments of) commercial paper, net | $ | (869 | ) | | $ | 5,293 |
|
| | | | |
| Maturities greater than 90 days: | | | |
| Proceeds from commercial paper | 3,632 |
| | 3,851 |
|
| Repayments of commercial paper | (3,160 | ) | | (6,953 | ) |
| Maturities greater than 90 days, net | 472 |
|
| (3,102 | ) |
| Total change in commercial paper, net | $ | (397 | ) |
| $ | 2,191 |
|
Long-Term Debt
In the third quarter
As of
2014 and 2013,September 24, 2016, the Company
issued $12.0 billion and $17.0 billion of long-term debt, respectively. The debt issuances includedhad outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of
$29.0$78.4 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the
U.S. dollar-denominated and Australian dollar-denominated floating-rate notes,
and semi-annually for the
U.S. dollar-denominated, Australian dollar-denominated, British pound-denominated and Japanese yen-denominated fixed-rate notes and annually for the euro-denominated and Swiss franc-denominated fixed-rate notes.
The following table provides a summary of the Company’s
long-termterm debt as of September
27, 201424, 2016 and September
28, 2013: | | | | | | | | | | | | | | | | |
| | | 2014 | | | 2013 | |
| | | Amount
(in millions) | | | Effective
Interest
Rate | | | Amount
(in millions) | | | Effective
Interest
Rate | |
Floating-rate notes due 2016 | | $ | 1,000 | | | | 0.51% | | | $ | 1,000 | | | | 0.51% | |
Floating-rate notes due 2017 | | | 1,000 | | | | 0.31% | | | | 0 | | | | 0 | |
Floating-rate notes due 2018 | | | 2,000 | | | | 1.10% | | | | 2,000 | | | | 1.10% | |
Floating-rate notes due 2019 | | | 1,000 | | | | 0.54% | | | | 0 | | | | 0 | |
Fixed-rate 0.45% notes due 2016 | | | 1,500 | | | | 0.51% | | | | 1,500 | | | | 0.51% | |
Fixed-rate 1.05% notes due 2017 | | | 1,500 | | | | 0.30% | | | | 0 | | | | 0 | |
Fixed-rate 1.00% notes due 2018 | | | 4,000 | | | | 1.08% | | | | 4,000 | | | | 1.08% | |
Fixed-rate 2.10% notes due 2019 | | | 2,000 | | | | 0.53% | | | | 0 | | | | 0 | |
Fixed-rate 2.85% notes due 2021 | | | 3,000 | | | | 0.79% | | | | 0 | | | | 0 | |
Fixed-rate 2.40% notes due 2023 | | | 5,500 | | | | 2.44% | | | | 5,500 | | | | 2.44% | |
Fixed-rate 3.45% notes due 2024 | | | 2,500 | | | | 0.90% | | | | 0 | | | | 0 | |
Fixed-rate 3.85% notes due 2043 | | | 3,000 | | | | 3.91% | | | | 3,000 | | | | 3.91% | |
Fixed-rate 4.45% notes due 2044 | | | 1,000 | | | | 4.48% | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total borrowings | | | 29,000 | | | | | | | | 17,000 | | | | | |
| | | | | | | | | | | | | | | | |
Unamortized discount | | | (52 | ) | | | | | | | (40 | ) | | | | |
Hedge accounting fair value adjustments | | | 39 | | | | | | | | 0 | | | | | |
| | | | | | | | | | | | | | | | |
Total long-term debt | | $ | 28,987 | | | | | | | $ | 16,960 | | | | | |
| | | | | | | | | | | | | | | | |
The Company has entered, and may enter26, 2015:
|
| | | | | | | | | | | | | | | |
| | Maturities | | 2016 | | 2015 |
| | Amount (in millions) | | Effective Interest Rate | | Amount (in millions) | | Effective Interest Rate |
| 2013 debt issuance of $17.0 billion: | | | | | | | | | |
| Floating-rate notes | 2018 | | $ | 2,000 |
| | 1.10% |
| | $ | 3,000 |
| | 0.51% - 1.10% |
|
| Fixed-rate 1.000% - 3.850% notes | 2018 - 2043 | | 12,500 |
| | 1.08% - 3.91% |
| | 14,000 |
| | 0.51% - 3.91% |
|
| | | | | | | | | | |
| 2014 debt issuance of $12.0 billion: | | | | | | | | | |
| Floating-rate notes | 2017 - 2019 | | 2,000 |
| | 0.86% - 1.09% |
| | 2,000 |
| | 0.37% - 0.60% |
|
| Fixed-rate 1.050% - 4.450% notes | 2017 - 2044 | | 10,000 |
| | 0.85% - 4.48% |
| | 10,000 |
| | 0.37% - 4.48% |
|
| | | | | | | | | | |
| 2015 debt issuances of $27.3 billion: | | | | | | | | | |
| Floating-rate notes | 2017 - 2020 | | 1,781 |
| | 0.87% - 1.87% |
| | 1,743 |
| | 0.36% - 1.87% |
|
| Fixed-rate 0.350% - 4.375% notes | 2017 - 2045 | | 25,144 |
| | 0.28% - 4.51% |
| | 24,958 |
| | 0.28% - 4.51% |
|
| | | | | | | | | | |
| Second quarter 2016 debt issuance of $15.5 billion: | | | | | | | | | |
| Floating-rate notes | 2019 | | 500 |
| | 1.64 | % | | — |
| | — |
|
| Floating-rate notes | 2021 | | 500 |
| | 1.95 | % | | — |
| | — |
|
| Fixed-rate 1.300% notes | 2018 | | 500 |
| | 1.32 | % | | — |
| | — |
|
| Fixed-rate 1.700% notes | 2019 | | 1,000 |
| | 1.71 | % | | — |
| | — |
|
| Fixed-rate 2.250% notes | 2021 | | 3,000 |
| | 1.91 | % | | — |
| | — |
|
| Fixed-rate 2.850% notes | 2023 | | 1,500 |
| | 2.58 | % | | — |
| | — |
|
| Fixed-rate 3.250% notes | 2026 | | 3,250 |
| | 2.51 | % | | — |
| | — |
|
| Fixed-rate 4.500% notes | 2036 | | 1,250 |
| | 4.54 | % | | — |
| | — |
|
| Fixed-rate 4.650% notes | 2046 | | 4,000 |
| | 4.58 | % | | — |
| | — |
|
| | | |
| | | |
| | |
| Third quarter 2016 Australian dollar-denominated debt issuance of A$1.4 billion: | | | | | | | | | |
| Fixed-rate 2.650% notes | 2020 | | 493 |
| | 1.92 | % | | — |
| | — |
|
| Fixed-rate 3.350% notes | 2024 | | 342 |
| | 2.61 | % | | — |
| | — |
|
| Fixed-rate 3.600% notes | 2026 | | 247 |
| | 2.84 | % | | — |
| | — |
|
| | | |
| | | |
| | |
| Third quarter 2016 debt issuance of $1.4 billion: | | | | | | | | | |
| Fixed-rate 4.150% notes | 2046 | | 1,377 |
| | 4.15 | % | | — |
| | — |
|
| | | | | | | | | | |
| Fourth quarter 2016 debt issuance of $7.0 billion: | | | | | | | | | |
| Floating-rate notes | 2019 | | 350 |
| | 0.91 | % | | — |
| | — |
|
| Fixed-rate 1.100% notes | 2019 | | 1,150 |
| | 1.13 | % | | — |
| | — |
|
| Fixed-rate 1.550% notes | 2021 | | 1,250 |
| | 1.40 | % | | — |
| | — |
|
| Fixed-rate 2.450% notes | 2026 | | 2,250 |
| | 2.15 | % | | — |
| | — |
|
| Fixed-rate 3.850% notes | 2046 | | 2,000 |
| | 3.86 | % | | — |
| | — |
|
| Total term debt | | | 78,384 |
| | | | 55,701 |
| | |
| | | | | | | | | | |
| Unamortized premium/(discount) and issuance costs, net | | | (174 | ) | | | | (248 | ) | | |
| Hedge accounting fair value adjustments | | | 717 |
| | | | 376 |
| | |
| Less: Current portion of long-term debt, net | | | (3,500 | ) | | | | (2,500 | ) | | |
| Total long-term debt | | | $ | 75,427 |
| | | | $ | 53,329 |
| | |
To manage foreign currency risk associated with the Australian dollar-denominated notes issued in the future,third quarter of 2016, the Company entered into interest ratecurrency swaps with an aggregate notional amount of $1.0 billion, which effectively converted these notes to U.S. dollar-denominated notes.
To manage interest rate risk on the Notes. Such swaps allowU.S. dollar-denominated fixed-rate notes issued in the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments. In the thirdsecond quarter of 2014,2016 and maturing in 2021, 2023 and 2026, the Company entered into interest rate swaps with an aggregate notional amount of $9.0 billion, which effectively converted$5.0 billion. To manage interest rate risk on the U.S. dollar-denominated fixed-rate notes due 2017, 2019,issued in the fourth quarter of 2016 and maturing in 2021 and 2024 into floating-rate notes. In the third quarter of 2013,2026, the Company entered into interest rate swaps with an aggregate notional amount of $3.0 billion, which$1.8 billion. These interest rate swaps effectively converted a portion of the floating-rateU.S. dollar-denominated fixed-rate notes dueto floating interest rate notes.
As of September 24, 2016,
and 2018 into fixed-rate notes.¥195.5 billion of the Japanese yen-denominated notes was designated as a hedge of the foreign currency exposure of its net investment in a foreign operation. The foreign currency transaction gain or loss on the Japanese yen-denominated debt designated as a hedge is recorded in OCI as a part of the cumulative translation adjustment. As of September 24, 2016, the carrying value of the debt designated as a net investment hedge was $1.9 billion. For further discussion regarding the Company’s use of derivative instruments see the Derivative Financial Instruments section of Note 2, “Financial Instruments.”
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount and, if applicable, adjustments related to hedging. The Company recognized $381$1.4 billion, $722 million and $136$381 million of interest expense on its long-termterm debt for the years ended September 27,2016, 2015 and 2014, and September 28, 2013, respectively.
The
Company did not have any long-term debt in 2012.Futurefuture principal payments for the Company’s Notes as of September 27, 2014,24, 2016 are as follows (in millions):
| | | | |
2015 | | $ | 0 | |
2016 | | | 2,500 | |
2017 | | | 2,500 | |
2018 | | | 6,000 | |
2019 | | | 3,000 | |
Thereafter | | | 15,000 | |
| | | | |
Total | | $ | 29,000 | |
| | | | |
|
| | | |
| 2017 | $ | 3,500 |
|
| 2018 | 6,500 |
|
| 2019 | 6,834 |
|
| 2020 | 6,454 |
|
| 2021 | 7,750 |
|
| Thereafter | 47,346 |
|
| Total term debt | $ | 78,384 |
|
As of September 27, 201424, 2016 and September 28, 2013,26, 2015, the fair value of the Company’s Notes, based on Level 2 inputs, was $28.5$81.7 billion and $15.9$54.9 billion, respectively.
Note 7 – Shareholders’ Equity
Preferred and Common Stock
During the second quarter of 2014, the Company’s shareholders approved amendments (the “Amendments”) to the Company’s Restated Articles of Incorporation. The Amendments included the elimination of the Board of Directors’ authority to issue preferred stock and established a par value for the Company’s common stock of $0.00001 per share.
The Company declared and paid cash dividends per
common share during the periods presented as follows:
| | | | | | | | |
| | | Dividends
Per Share | | | Amount
(in millions) | |
| 2014: | | | | | | | | |
Fourth quarter | | $ | 0.47 | | | $ | 2,807 | |
Third quarter | | | 0.47 | | | | 2,830 | |
Second quarter | | | 0.44 | | | | 2,655 | |
First quarter | | | 0.44 | | | | 2,739 | |
| | | | | | | | |
Total | | $ | 1.82 | | | $ | 11,031 | |
| | | | | | | | |
| | |
| 2013: | | | | | | | | |
Fourth quarter | | $ | 0.44 | | | $ | 2,763 | |
Third quarter | | | 0.44 | | | | 2,789 | |
Second quarter | | | 0.38 | | | | 2,490 | |
First quarter | | | 0.38 | | | | 2,486 | |
| | | | | | | | |
Total | | $ | 1.64 | | | $ | 10,528 | |
| | | | | | | | |
The Company paid cash dividends of $0.38 per share, totaling $2.5 billion, during the fourth quarter of 2012.
|
| | | | | | | |
| | Dividends Per Share | | Amount (in millions) |
| 2016: | | | |
| Fourth quarter | $ | 0.57 |
| | $ | 3,071 |
|
| Third quarter | 0.57 |
| | 3,117 |
|
| Second quarter | 0.52 |
| | 2,879 |
|
| First quarter | 0.52 |
| | 2,898 |
|
| Total cash dividends declared and paid | $ | 2.18 |
| | $ | 11,965 |
|
| 2015: | | | |
| Fourth quarter | $ | 0.52 |
| | $ | 2,950 |
|
| Third quarter | 0.52 |
| | 2,997 |
|
| Second quarter | 0.47 |
| | 2,734 |
|
| First quarter | 0.47 |
| | 2,750 |
|
| Total cash dividends declared and paid | $ | 1.98 |
| | $ | 11,431 |
|
Future dividends are subject to declaration by the Board of Directors.
In
2012,April 2016, the
Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock beginning in 2013. The Company’s Board of Directors increased the share repurchase authorization
from $140 billion to
$60 billion in April 2013 and to $90 billion in April 2014. As of September 27, 2014, $67.9$175 billion of the
$90Company’s common stock, of which $133 billion had been
utilized.utilized as of September 24, 2016. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The Company has entered,
and in the future may enter, into
four accelerated share repurchase arrangements (“ASRs”) with financial
institutions beginning in August 2012.institutions. In exchange for up-front payments, the financial institutions deliver shares of the Company’s common stock during the purchase periods of each ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share,
will beis determined at the end of the applicable purchase period of each ASR based on the volume weighted-average price of the Company’s common stock during that period. The shares received are retired in the periods they are delivered, and the
up-front payments are accounted for as a reduction to shareholders’ equity in the Company’s Consolidated Balance
SheetSheets in the periods the payments are made. The Company reflects the ASRs as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to its own common stock. The ASRs met all of the applicable criteria for equity classification, and therefore were not accounted for as derivative instruments.
The following table
presentsshows the Company’s
ASRs: | | | | | | | | | | | | | | | | |
| | | Purchase
Period End
Date | | | Number of
Shares
(in thousands) | | | Average
Repurchase
Price Per
Share | | | ASR
Amount
(in millions) | |
August 2014 ASR | | | | (1) | | | 59,924 | (1) | | | | (1) | | $ | 9,000 | |
January 2014 ASR | | | | (1) | | | 134,247 | (1) | | | | (1) | | $ | 12,000 | |
April 2013 ASR | | | March 2014 | | | | 172,548 | (2) | | $ | 69.55 | | | $ | 12,000 | |
August 2012 ASR | | | April 2013 | | | | 28,544 | | | $ | 68.31 | | | $ | 1,950 | |
|
| | | | | | | | | | | | |
| | Purchase Period End Date | | Number of Shares (in thousands) | | Average Repurchase Price Per Share | | ASR Amount (in millions) |
| August 2016 ASR | November 2016 | | 22,468 |
| (1) | (1) |
| | $ | 3,000 |
|
| May 2016 ASR | August 2016 | | 60,452 |
| (2) | $ | 99.25 |
| | $ | 6,000 |
|
| November 2015 ASR | April 2016 | | 29,122 |
| | $ | 103.02 |
| | $ | 3,000 |
|
| May 2015 ASR | July 2015 | | 48,293 |
| | $ | 124.24 |
| | $ | 6,000 |
|
| August 2014 ASR | February 2015 | | 81,525 |
| | $ | 110.40 |
| | $ | 9,000 |
|
| January 2014 ASR | December 2014 | | 134,247 |
| | $ | 89.39 |
| | $ | 12,000 |
|
| |
| (1) | “Number of Shares” represents those shares delivered in advancethe beginning of settlementthe purchase period and does not represent the final number of shares to be delivered under the ASRs.ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, will be determined at the end of the applicable purchase period based on the volume weighted-averagevolume-weighted average price of the Company’s common stock during that period. The August 2014 ASR and January 20142016 ASR purchase periodsperiod will end in or before February 2015November 2016. |
| |
| (2) | Includes 48.2 million shares delivered and December 2014, respectively. | |
| (2) | Includes 8.0retired at the beginning of the purchase period, which began in the third quarter of 2016, and 12.3 million shares that were delivered and retired at the end of the purchase period, which concluded in the secondfourth quarter of 2014.
| 2016. |
Additionally, the Company repurchased shares of its common stock in the open market, which were retired upon repurchase, during the periods presented as follows:
| | | | | | | | | | | | |
| | | Number of
Shares
(in thousands) | | | Average
Repurchase
Price Per
Share | | | Amount
(in millions) | |
| 2014: | | | | | | | | | | | | |
Fourth quarter | | | 81,255 | | | $ | 98.46 | | | $ | 8,000 | |
Third quarter | | | 58,661 | | | $ | 85.23 | | | | 5,000 | |
Second quarter | | | 79,749 | | | $ | 75.24 | | | | 6,000 | |
First quarter | | | 66,847 | | | $ | 74.79 | | | | 5,000 | |
| | | | | | | | | | | | |
Total | | | 286,512 | | | | | | | $ | 24,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2013: | | | | | | | | | | | | |
Fourth quarter | | | 73,064 | | | $ | 68.43 | | | $ | 5,000 | |
Third quarter | | | 62,676 | | | $ | 63.82 | | | | 4,000 | |
Second quarter | | | 0 | | | $ | 0 | | | | 0 | |
First quarter | | | 0 | | | $ | 0 | | | | 0 | |
| | | | | | | | | | | | |
Total | | | 135,740 | | | | | | | $ | 9,000 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | |
| | Number of Shares (in thousands) | | Average Repurchase Price Per Share | | Amount (in millions) |
| 2016: | | | | | |
| Fourth quarter | 28,579 |
| | $ | 104.97 |
| | $ | 3,000 |
|
| Third quarter | 41,238 |
| | $ | 97.00 |
| | 4,000 |
|
| Second quarter | 71,766 |
| | $ | 97.54 |
| | 7,000 |
|
| First quarter | 25,984 |
| | $ | 115.45 |
| | 3,000 |
|
| Total open market common stock repurchases | 167,567 |
| | | | $ | 17,000 |
|
| 2015: | | | | | |
| Fourth quarter | 121,802 |
| | $ | 115.15 |
| | $ | 14,026 |
|
| Third quarter | 31,231 |
| | $ | 128.08 |
| | 4,000 |
|
| Second quarter | 56,400 |
| | $ | 124.11 |
| | 7,000 |
|
| First quarter | 45,704 |
| | $ | 109.40 |
| | 5,000 |
|
| Total open market common stock repurchases | 255,137 |
| | | | $ | 30,026 |
|
Note 8 – Comprehensive Income
Comprehensive income consists of two components, net income and OCI. OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable securities classified as available-for-sale.
The following table shows the
grosspre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line item, for
20142016 and 2015 (in millions):
| | | | | | |
Comprehensive Income Components | | Financial Statement Line Item | | 2014 | |
Unrecognized gains/losses on derivative instruments: | | | | | | |
Foreign exchange contracts | | Revenue | | $ | 449 | |
| | Cost of sales | | | (295 | ) |
| | Other income/expense, net | | | 15 | |
Interest rate contracts | | Other income/expense, net | | | 16 | |
| | | | | | |
| | | | | 185 | |
Unrealized gains/losses on marketable securities | | Other income/expense, net | | | (205 | ) |
| | | | | | |
Total amounts reclassified from AOCI | | $ | (20 | ) |
| | | | | | |
|
| | | | | | | | | | |
| Comprehensive Income Components | | Financial Statement Line Item | | 2016 | | 2015 |
| Unrealized (gains)/losses on derivative instruments: | | | | | | |
| Foreign exchange contracts | | Revenue | | $ | (865 | ) | | $ | (2,432 | ) |
| | | Cost of sales | | (130 | ) | | (2,168 | ) |
| | | Other income/(expense), net | | 111 |
| | 456 |
|
| Interest rate contracts | | Other income/(expense), net | | 12 |
| | 17 |
|
| | | | | (872 | ) | | (4,127 | ) |
| Unrealized (gains)/losses on marketable securities | | Other income/(expense), net | | 87 |
| | 91 |
|
| Total amounts reclassified from AOCI | | | | $ | (785 | ) | | $ | (4,036 | ) |
The following table shows the changes in AOCI by component for
20142016 and 2015 (in millions):
| | | | | | | | | | | | | | | | |
| | | Cumulative
Foreign
Currency
Translation | | | Unrecognized
Gains/Losses
on Derivative
Instruments | | | Unrealized
Gains
/Losses on
Marketable
Securities | | | Total | |
Balance at September 28, 2013 | | $ | (105 | ) | | $ | (175 | ) | | $ | (191 | ) | | $ | (471 | ) |
| | | | | | | | | | | | | | | | |
Other comprehensive income/(loss) before reclassifications | | | (187 | ) | | | 1,687 | | | | 438 | | | | 1,938 | |
Amounts reclassified from AOCI | | | 0 | | | | 185 | | | | (205 | ) | | | (20 | ) |
Tax effect | | | 50 | | | | (333 | ) | | | (82 | ) | | | (365 | ) |
| | | | | | | | | | | | | | | | |
Other comprehensive income/(loss) | | | (137 | ) | | | 1,539 | | | | 151 | | | | 1,553 | |
| | | | | | | | | | | | | | | | |
Balance at September 27, 2014 | | $ | (242 | ) | | $ | 1,364 | | | $ | (40 | ) | | $ | 1,082 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Cumulative Foreign Currency Translation | | Unrealized Gains/Losses on Derivative Instruments | | Unrealized Gains/Losses on Marketable Securities | | Total |
| Balance at September 27, 2014 | $ | (242 | ) | | $ | 1,364 |
| | $ | (40 | ) | | $ | 1,082 |
|
| Other comprehensive income/(loss) before reclassifications | (612 | ) | | 3,346 |
| | (747 | ) | | 1,987 |
|
| Amounts reclassified from AOCI | — |
| | (4,127 | ) | | 91 |
| | (4,036 | ) |
| Tax effect | 201 |
| | 189 |
| | 232 |
| | 622 |
|
| Other comprehensive income/(loss) | (411 | ) |
| (592 | ) |
| (424 | ) |
| (1,427 | ) |
| Balance at September 26, 2015 | (653 | ) | | 772 |
| | (464 | ) | | (345 | ) |
| Other comprehensive income/(loss) before reclassifications | 67 |
| | 14 |
| | 2,445 |
| | 2,526 |
|
| Amounts reclassified from AOCI | — |
| | (872 | ) | | 87 |
| | (785 | ) |
| Tax effect | 8 |
| | 124 |
| | (894 | ) | | (762 | ) |
| Other comprehensive income/(loss) | 75 |
|
| (734 | ) |
| 1,638 |
|
| 979 |
|
| Balance at September 24, 2016 | $ | (578 | ) |
| $ | 38 |
|
| $ | 1,174 |
|
| $ | 634 |
|
Note 9 – Benefit Plans
Stock Plans
In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”). The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of RSUs, stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. Each share issued with respect to RSUs granted under the 2014 Plan reduces the number of shares available for grant under the plan by two shares. RSUs cancelled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs cancelled or shares withheld. Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. Upon approval of the 2014 Plan, the Company reserved 385 million shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan. Shares subject to outstanding awards under the 2003 Plan that expire, are cancelled or otherwise terminate, or are withheld to satisfy tax withholding obligations with respect to RSUs, will also be available for awards under the 2014 Plan. As of September
27, 2014,24, 2016, approximately
492.6386.4 million shares were reserved for future issuance under the 2014 Plan.
The 2003 Plan is a shareholder approved plan that provided for broad-based equity grants to employees, including executive officers. The 2003 Plan permitted the granting of incentive stock options, nonstatutory stock options, RSUs, stock appreciation rights, stock purchase rights and performance-based awards. Options granted under the 2003 Plan generally expire seven to ten years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual, semi-annual or quarterly vesting. RSUs granted under the 2003 Plan generally vest over two to four years, based on continued employment and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. All RSUs, other than RSUs held by the Chief Executive Officer, granted under the 2003 Plan have DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. In the second quarter of 2014, the Company terminated the authority to grant new awards under the 2003 Plan.
The 1997 Director Stock Plan (the “Director Plan”) is a shareholder approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants without shareholder approval. Each share issued with respect to RSUs granted under the Director Plan reduces the number of shares available for grant under the plan by two shares. The Director Plan expires November 9, 2019. All RSUs granted under the Director Plan are entitled to DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. As of September
27, 2014,24, 2016, approximately
1.21.1 million shares were reserved for future issuance under the Director Plan.
Rule 10b5-1 Trading Plans
During the
fourth quarter of 2014,three months ended September 24, 2016, Section 16 officers Timothy D. Cook,
Angela Ahrendts, Luca Maestri, Daniel Riccio, Philip
W. Schiller
D. Bruce Sewell and Jeffrey
E. Williams had equity trading plans in place in accordance with
Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s employee and director equity plans.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder approved plan under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year. As of September
27, 2014,24, 2016, approximately
7.647.0 million shares were reserved for future issuance under the Purchase Plan.
The Company’s 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($
17,50018,000 for calendar year
2014)2016). The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum 6% of the employee’s eligible earnings.
The Company’s matching contributions to the 401(k) Plan were $163 million, $135 million and $114 million in 2014, 2013 and 2012, respectively.
A summary of the Company’s RSU activity and related information for
2014, 20132016, 2015 and
2012,2014, is as follows:
| | | | | | | | | | | | |
| | | Number of
RSUs
(in thousands) | | | Weighted-Average
Grant Date Fair
Value Per Share | | | Aggregate
Intrinsic Value
(in millions) | |
Balance at September 24, 2011 | | | 101,122 | | | $ | 33.07 | | | | | |
RSUs granted | | | 54,597 | | | $ | 61.62 | | | | | |
RSUs vested | | | (44,137 | ) | | $ | 29.32 | | | | | |
RSUs cancelled | | | (6,545 | ) | | $ | 36.57 | | | | | |
| | | | | | | | | | | | |
Balance at September 29, 2012 | | | 105,037 | | | $ | 49.27 | | | | | |
RSUs granted | | | 39,415 | | | $ | 78.23 | | | | | |
RSUs vested | | | (42,291 | ) | | $ | 45.96 | | | | | |
RSUs cancelled | | | (8,877 | ) | | $ | 57.31 | | | | | |
| | | | | | | | | | | | |
Balance at September 28, 2013 | | | 93,284 | | | $ | 62.24 | | | | | |
RSUs granted | | | 59,269 | | | $ | 74.54 | | | | | |
RSUs vested | | | (43,111 | ) | | $ | 57.29 | | | | | |
RSUs cancelled | | | (5,620 | ) | | $ | 68.47 | | | | | |
| | | | | | | | | | | | |
Balance at September 27, 2014 | | | 103,822 | | | $ | 70.98 | | | $ | 10,460 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | |
| | Number of RSUs (in thousands) | | Weighted-Average Grant Date Fair Value Per Share | | Aggregate Intrinsic Value (in millions) |
| Balance at September 28, 2013 | 93,284 |
| | $ | 62.24 |
| | |
| RSUs granted | 59,269 |
| | $ | 74.54 |
| | |
| RSUs vested | (43,111 | ) | | $ | 57.29 |
| | |
| RSUs cancelled | (5,620 | ) | | $ | 68.47 |
| | |
| Balance at September 27, 2014 | 103,822 |
| | $ | 70.98 |
| | |
| RSUs granted | 45,587 |
| | $ | 105.51 |
| | |
| RSUs vested | (41,684 | ) | | $ | 71.32 |
| | |
| RSUs cancelled | (6,258 | ) | | $ | 80.34 |
| | |
| Balance at September 26, 2015 | 101,467 |
| | $ | 85.77 |
| | |
| RSUs granted | 49,468 |
| | $ | 109.28 |
| | |
| RSUs vested | (46,313 | ) | | $ | 84.44 |
| | |
| RSUs cancelled | (5,533 | ) | | $ | 96.48 |
| | |
| Balance at September 24, 2016 | 99,089 |
| | $ | 97.54 |
| | $ | 11,168 |
|
The fair value as of the respective vesting dates of RSUs was
$5.1 billion, $4.8 billion and $3.4 billion
$3.1 billionfor 2016, 2015 and
$3.3 billion for 2014,
2013 and 2012, respectively. The majority of RSUs that vested in
2014, 20132016, 2015 and
20122014 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately
15.9 million, 14.1 million and 15.6 million
15.5 millionfor 2016, 2015 and
16.1 million for 2014,
2013 and 2012, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were
$1.2$1.7 billion,
$1.1$1.6 billion and $1.2 billion in
2014, 20132016, 2015 and
2012,2014, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. These net-share settlements had the effect of share repurchases by the Company as they reduced
and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.
Stock Options
The Company had 6.6 million stock options outstanding as of September 27, 2014, with a weighted-average exercise price per share of $21.99 and weighted-average remaining contractual term of 1.4 years, substantially all of which are exercisable. The aggregate intrinsic value of the stock options outstanding as of September 27, 2014 was $520 million, which represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding. Total intrinsic value of options at time of exercise was $1.5 billion, $1.0 billion and $2.3 billion for 2014, 2013 and 2012, respectively.
The following table shows a summary of the share-based compensation expense included in the Consolidated Statements of Operations for
2014, 20132016, 2015 and
20122014 (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Cost of sales | | $ | 450 | | | $ | 350 | | | $ | 265 | |
Research and development | | | 1,216 | | | | 917 | | | | 668 | |
Selling, general and administrative | | | 1,197 | | | | 986 | | | | 807 | |
| | | | | | | | | | | | |
Total share-based compensation expense | | $ | 2,863 | | | $ | 2,253 | | | $ | 1,740 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cost of sales | $ | 769 |
| | $ | 575 |
| | $ | 450 |
|
| Research and development | 1,889 |
| | 1,536 |
| | 1,216 |
|
| Selling, general and administrative | 1,552 |
| | 1,475 |
| | 1,197 |
|
| Total share-based compensation expense | $ | 4,210 |
|
| $ | 3,586 |
|
| $ | 2,863 |
|
The income tax benefit related to share-based compensation expense was $1.4 billion, $1.2 billion and $1.0 billion $816 millionfor 2016, 2015 and $567 million for 2014, 2013 and 2012, respectively. As of September 27, 2014,24, 2016, the total unrecognized compensation cost related to outstanding stock options, RSUs and restricted stock was $6.3$7.5 billion, which the Company expects to recognize over a weighted-average period of 2.92.6 years.
Note 10 – Commitments and Contingencies
Accrued Warranty and Indemnification
The Company offers a basic limited parts and labor warranty on its hardware products. The basic warranty period for hardware products is typically one year from the date of purchase by the end-user. The Company also offers a90-day basic warranty for its service parts used to repair the Company’s hardware products. The Company provides currently for the estimated cost that may be incurred under its basic limited product warranties at the time related revenue is recognized. Factors considered in determining appropriate accruals for product warranty obligations include the size of the installed base of products subject to warranty protection, historical and projected warranty claim rates, historical and projected cost-per-claim and knowledge of specific product failures that are outside of the Company’s typical experience. The Company assesses the adequacy of its pre-existing warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates.
The following table shows changes in the Company’s accrued warranties and related costs for
2014, 20132016, 2015 and
20122014 (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Beginning accrued warranty and related costs | | $ | 2,967 | | | $ | 1,638 | | | $ | 1,240 | |
Cost of warranty claims | | | (3,760 | ) | | | (3,703 | ) | | | (1,786 | ) |
Accruals for product warranty | | | 4,952 | | | | 5,032 | | | | 2,184 | |
| | | | | | | | | | | | |
Ending accrued warranty and related costs | | $ | 4,159 | | | $ | 2,967 | | | $ | 1,638 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Beginning accrued warranty and related costs | $ | 4,780 |
| | $ | 4,159 |
| | $ | 2,967 |
|
| Cost of warranty claims | (4,663 | ) | | (4,401 | ) | | (3,760 | ) |
| Accruals for product warranty | 3,585 |
| | 5,022 |
| | 4,952 |
|
| Ending accrued warranty and related costs | $ | 3,702 |
|
| $ | 4,780 |
|
| $ | 4,159 |
|
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. 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. However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party. 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.
The Company
did not recordoffers an iPhone Upgrade Program, which is available to customers who purchase a
qualifying iPhone in the U.S., the U.K. and mainland China. 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. The Company accounts for the trade-in right as a guarantee liability
for infringement costs relatedand recognizes arrangement revenue net of the fair value of such right with subsequent changes to
indemnification as of September 27, 2014 or September 28, 2013.the guarantee liability recognized within revenue.
The Company has entered into indemnification agreements with its directors and executive officers. 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. 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. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such
obligations, and payments made under these agreements historically have not been material.obligations.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, a number of components are currently obtained from single or limited sources. In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers concentrated on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s
manufacturing purchase
commitmentsobligations typically cover its requirements for periods up to 150 days.
Other Off-Balance Sheet Commitments
The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off-balance sheet financing arrangements. The major facility leases are typically for terms not exceeding 10 years and generally contain multi-year renewal options. Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of September 27, 2014,24, 2016, the Company’s total future minimum lease payments under noncancelable operating leases were $5.0 billion, of which $3.6 billion related to$7.6 billion. The Company's retail store and other facility leases are typically for retail space.terms not exceeding
10 years and generally contain multi-year renewal options. Rent expense under all operating leases, including both cancelable and noncancelable leases, was
$939 million, $794 million and $717 million
$645 millionin 2016, 2015 and
$488 million in 2014,
2013 and 2012, respectively. Future minimum lease payments under noncancelable operating leases having remaining terms in excess of one year as of September
27, 2014,24, 2016, are as follows (in millions):
| | | | |
2015 | | $ | 662 | |
2016 | | | 676 | |
2017 | | | 645 | |
2018 | | | 593 | |
2019 | | | 534 | |
Thereafter | | | 1,877 | |
| | | | |
Total | | $ | 4,987 | |
| | | | |
Other Commitments
The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts and open orders based on projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of September 27, 2014, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase commitments of $24.5 billion.
In addition to the off-balance sheet commitments mentioned above, the Company had outstanding obligations of $3.4 billion as of September 27, 2014, which consisted mainly of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to advertising, R&D, Internet and telecommunications services and other obligations.
|
| | | |
| 2017 | $ | 929 |
|
| 2018 | 919 |
|
| 2019 | 915 |
|
| 2020 | 889 |
|
| 2021 | 836 |
|
| Thereafter | 3,139 |
|
| Total | $ | 7,627 |
|
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully
adjudicated.adjudicated, as further discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors” and in Part I, Item 3 of this Form 10-K under the heading “Legal Proceedings.” 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.contingencies for asserted legal and other claims. However, the outcome of litigation is inherently uncertain. 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 materially adversely affected.
Apple Inc. v. Samsung Electronics Co.,
Ltd,Ltd., et al.
On August 24, 2012, a jury returned a verdict awarding the Company $1.05 billion in its lawsuit against Samsung Electronics Co.,
LtdLtd. and affiliated parties in the United States District Court, Northern District of California, San Jose Division. On March 6, 2014, the District Court entered final judgment in favor of the Company in the amount of approximately $930 million.
BecauseOn May 18, 2015, the
award is now subject to appeal, the Company has not recognized the award in its results of operations.VirnetX, Inc. v. Apple Inc. et al.
On August 11, 2010, VirnetX, Inc. filed an action against the Company alleging that certain of its products infringed on four patents relating to network communications technology. On November 6, 2012, a jury returned a verdict against the Company, and awarded damages of $368 million. On September 16, 2014, theU.S. Court of Appeals for the Federal Circuit affirmed the District Court’s decision in part, and reversed in part, the decision of the District Court. As a result, the Court of Appeals ordered entry of final judgment on damages in the amount of approximately $548 million, with the District Court to determine supplemental damages and vacatedinterest, as well as damages owed for products subject to the damages award. Thereversal in part. Samsung paid $548 million to the Company in December 2015, which was included in net sales in the Condensed Consolidated Statement of Operations. Because the case remains subject to further proceedings, the Company has been remandednot recognized any further amounts in its results of operations. On October 11, 2016, the United States Supreme Court heard arguments in Samsung’s request for further proceedings.
appeal related to the $548 million in damages.Note 11 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable
operating segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments consist of the Americas, Europe, Greater China, Japan
and Rest of Asia
Pacific and Retail operations.Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and
those Asian countries
other than those countriesnot included in the Company’s other
reportable operating segments.
The results ofAlthough the
Company’s geographicreportable operating segments
do not include results of the Retail segment. Each operating segment providesprovide similar hardware and software products and similar
services.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. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
The Company evaluates the performance of its
reportable operating segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers
while Retail segment net sales are based onand sales through the Company’s retail
stores.stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the
reportable operating segments. Costs excluded from segment operating income include various corporate expenses such as R&D, corporate marketing expenses,
certain share-based compensation
expense,expenses, income taxes, various nonrecurring charges
and other separately managed general and administrative
costs and certain manufacturing period expenses.costs. The Company does not include intercompany transfers between segments for management reporting purposes.
Segment assets include receivables and inventories, and for the Retail segment also includes capital assets. Segment assets exclude corporate assets, such as cash and cash equivalents, short-term and long-term marketable securities, vendor non-trade receivables, other long-term investments, manufacturing and corporate facilities, product tooling and manufacturing process equipment, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets. Except for the Retail segment, capital asset purchases for long-lived assets are not reported to management by segment and therefore are excluded from the geographic segment assets and instead included in corporate assets. Cash payments for capital asset purchases by the Retail segment were $484 million, $495 million and $858 million for 2014, 2013 and 2012, respectively. The Company’s total depreciation and amortization was $7.9 billion, $6.8 billion and $3.3 billion in 2014, 2013 and 2012, respectively, of which $441 million, $382 million and $319 million was related to the Retail segment in the respective years. Depreciation and amortization on segment assets included in the geographic segments was not significant.
As the Company continues to expand its business, management believes collaboration across its online, Retail and indirect channels is integral to better serve its customers and optimize its financial results. Beginning in the first quarter of 2015, management will be assessing business performance and making decisions on a geographic basis, including the results of its retail stores in each respective geographic segment. Accordingly, the Company will be changing its reportable segments to align with the way the business is managed. The Company’s reportable operating segments will consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific operations, and the Retail segment will no longer be classified as a separate reportable segment. The historical segment data for prior periods will be reclassified to reflect this change beginning in the Quarterly Report on Form 10-Q for the quarter ending December 27, 2014.
The following table shows information by
reportable operating segment for
2014, 20132016, 2015 and
20122014 (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Americas: | | | | | | | | | | | | |
Net sales | | $ | 65,232 | | | $ | 62,739 | | | $ | 57,512 | |
Operating income | | $ | 24,316 | | | $ | 22,817 | | | $ | 23,414 | |
| | | | | | | | | | | | |
Europe: | | | | | | | | | | | | |
Net sales | | $ | 40,929 | | | $ | 37,883 | | | $ | 36,323 | |
Operating income | | $ | 14,771 | | | $ | 13,025 | | | $ | 14,869 | |
| | | |
Greater China: | | | | | | | | | | | | |
Net sales | | $ | 29,846 | | | $ | 25,417 | | | $ | 22,533 | |
Operating income | | $ | 11,016 | | | $ | 8,541 | | | $ | 9,843 | |
| | | | | | | | | | | | |
Japan: | | | | | | | | | | | | |
Net sales | | $ | 14,982 | | | $ | 13,462 | | | $ | 10,571 | |
Operating income | | $ | 7,183 | | | $ | 6,819 | | | $ | 5,861 | |
| | | |
Rest of Asia Pacific: | | | | | | | | | | | | |
Net sales | | $ | 10,344 | | | $ | 11,181 | | | $ | 10,741 | |
Operating income | | $ | 3,636 | | | $ | 3,753 | | | $ | 4,253 | |
| | | | | | | | | | | | |
Retail: | | | | | | | | | | | | |
Net sales | | $ | 21,462 | | | $ | 20,228 | | | $ | 18,828 | |
Operating income | | $ | 4,575 | | | $ | 4,025 | | | $ | 4,613 | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Americas: | | | | | |
| Net sales | $ | 86,613 |
| | $ | 93,864 |
| | $ | 80,095 |
|
| Operating income | $ | 28,172 |
| | $ | 31,186 |
| | $ | 26,158 |
|
| | | | | | |
| Europe: | | | | | |
| Net sales | $ | 49,952 |
| | $ | 50,337 |
| | $ | 44,285 |
|
| Operating income | $ | 15,348 |
| | $ | 16,527 |
| | $ | 14,434 |
|
| | | | | | |
| Greater China: | | | | | |
| Net sales | $ | 48,492 |
| | $ | 58,715 |
| | $ | 31,853 |
|
| Operating income | $ | 18,835 |
| | $ | 23,002 |
| | $ | 11,039 |
|
| | | | | | |
| Japan: | | | | | |
| Net sales | $ | 16,928 |
| | $ | 15,706 |
| | $ | 15,314 |
|
| Operating income | $ | 7,165 |
| | $ | 7,617 |
| | $ | 6,904 |
|
| | | | | | |
| Rest of Asia Pacific: | | | | | |
| Net sales | $ | 13,654 |
| | $ | 15,093 |
| | $ | 11,248 |
|
| Operating income | $ | 4,781 |
| | $ | 5,518 |
| | $ | 3,674 |
|
A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for
2014, 20132016, 2015 and
2012,2014 is as follows (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Segment operating income | | $ | 65,497 | | | $ | 58,980 | | | $ | 62,853 | |
Research and development expense (1) | | | (4,825 | ) | | | (3,558 | ) | | | (2,713 | ) |
Share-based compensation expense | | | (2,863 | ) | | | (2,253 | ) | | | (1,740 | ) |
Other corporate expenses, net | | | (5,306 | ) | | | (4,170 | ) | | | (3,159 | ) |
| | | | | | | | | | | | |
Total operating income | | $ | 52,503 | | | $ | 48,999 | | | $ | 55,241 | |
| | | | | | | | | | | | |
| (1) | Amount excludes research and development share-based compensation expense.
| |
The following table shows total assets by segment and reconciliation to the Consolidated Balance Sheets as of September 27, 2014 and September 28, 2013 (in millions):
| | | | | | | | |
| | | 2014 | | | 2013 | |
Segment assets: | | | | | | | | |
Americas | | $ | 9,352 | | | $ | 5,653 | |
Europe | | | 4,631 | | | | 3,134 | |
Greater China | | | 3,172 | | | | 2,943 | |
Japan | | | 3,106 | | | | 2,932 | |
Rest of Asia Pacific | | | 908 | | | | 923 | |
Retail | | | 3,626 | | | | 3,329 | |
| | | | | | | | |
Total segment assets | | | 24,795 | | | | 18,914 | |
Corporate assets | | | 207,044 | | | | 188,086 | |
| | | | | | | | |
Total assets | | $ | 231,839 | | | $ | 207,000 | |
| | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Segment operating income | $ | 74,301 |
| | $ | 83,850 |
| | $ | 62,209 |
|
| Research and development expense | (10,045 | ) | | (8,067 | ) | | (6,041 | ) |
| Other corporate expenses, net | (4,232 | ) | | (4,553 | ) | | (3,665 | ) |
| Total operating income | $ | 60,024 |
| | $ | 71,230 |
| | $ | 52,503 |
|
The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in
2014, 20132016, 2015 and
2012.2014. There was no single customer that accounted for more than 10% of net sales in
2014, 20132016, 2015 or
2012.2014. Net sales for
2014, 20132016, 2015 and
20122014 and long-lived assets as of September
27, 201424, 2016 and September
28, 201326, 2015 are as follows (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Net sales: | | | | | | | | | | | | |
U.S. | | $ | 68,909 | | | $ | 66,197 | | | $ | 60,949 | |
China (1) | | | 30,638 | | | | 25,946 | | | | 22,797 | |
Other countries | | | 83,248 | | | | 78,767 | | | | 72,762 | |
| | | | | | | | | | | | |
Total net sales | | $ | 182,795 | | | $ | 170,910 | | | $ | 156,508 | |
| | | | | | | | | | | | |
| | | |
| | | 2014 | | | 2013 | | | | |
Long-lived assets: | | | | | | | | | | | | |
U.S. | | $ | 9,108 | | | $ | 7,399 | | | | | |
China (1) | | | 9,477 | | | | 7,403 | | | | | |
Other countries | | | 2,917 | | | | 2,786 | | | | | |
| | | | | | | | | | | | |
Total long-lived assets | | $ | 21,502 | | | $ | 17,588 | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net sales: | | | | | |
| U.S. | $ | 75,667 |
| | $ | 81,732 |
| | $ | 68,909 |
|
China (1) | 46,349 |
| | 56,547 |
| | 30,638 |
|
| Other countries | 93,623 |
| | 95,436 |
| | 83,248 |
|
| Total net sales | $ | 215,639 |
|
| $ | 233,715 |
|
| $ | 182,795 |
|
|
| | | | | | | |
| | 2016 | | 2015 |
| Long-lived assets: | | | |
| U.S. | $ | 16,364 |
| | $ | 12,022 |
|
China (1) | 7,807 |
| | 8,722 |
|
| Other countries | 2,839 |
| | 3,040 |
|
| Total long-lived assets | $ | 27,010 |
| | $ | 23,784 |
|
| |
| (1) | China includes Hong Kong. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure. | |
Information regarding net
Net sales by product for
2016, 2015 and 2014
2013 and 2012, isare as follows (in millions):
| | | | | | | | | | | | |
| | | 2014 | | | 2013 | | | 2012 | |
Net Sales by Product: | | | | | | | | | | | | |
iPhone (1) | | $ | 101,991 | | | $ | 91,279 | | | $ | 78,692 | |
iPad (1) | | | 30,283 | | | | 31,980 | | | | 30,945 | |
Mac (1) | | | 24,079 | | | | 21,483 | | | | 23,221 | |
iPod (1) | | | 2,286 | | | | 4,411 | | | | 5,615 | |
iTunes, Software and Services (2) | | | 18,063 | | | | 16,051 | | | | 12,890 | |
Accessories (3) | | | 6,093 | | | | 5,706 | | | | 5,145 | |
| | | | | | | | | | | | |
Total net sales | | $ | 182,795 | | | $ | 170,910 | | | $ | 156,508 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
iPhone (1) | $ | 136,700 |
| | $ | 155,041 |
| | $ | 101,991 |
|
iPad (1) | 20,628 |
| | 23,227 |
| | 30,283 |
|
Mac (1) | 22,831 |
| | 25,471 |
| | 24,079 |
|
Services (2) | 24,348 |
| | 19,909 |
| | 18,063 |
|
Other Products (1)(3) | 11,132 |
| | 10,067 |
| | 8,379 |
|
| Total net sales | $ | 215,639 |
|
| $ | 233,715 |
|
| $ | 182,795 |
|
| |
| (1) | Includes deferrals and amortization of related non-software services and software upgrade rights. | rights and non-software services. |
| |
| (2) | Includes revenue from the iTunes Store, the App Store, the Mac App Store, theTV App Store, iBooks Store, Apple Music, AppleCare, Apple Pay, licensing and other services. | |
| |
| (3) | Includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories for iPhone, iPad, Mac and iPod. | accessories. |
Note 12 – Selected Quarterly Financial Information (Unaudited)
The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of
20142016 and
20132015 (in millions, except per share amounts):
| | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | Third Quarter | | | Second Quarter | | | First Quarter | |
2014: | | | | | | | | | | | | | | | | |
Net sales | | $ | 42,123 | | | $ | 37,432 | | | $ | 45,646 | | | $ | 57,594 | |
Gross margin | | $ | 16,009 | | | $ | 14,735 | | | $ | 17,947 | | | $ | 21,846 | |
Net income | | $ | 8,467 | | | $ | 7,748 | | | $ | 10,223 | | | $ | 13,072 | |
| | | | |
Earnings per share (1): | | | | | | | | | | | | | | | | |
Basic | | $ | 1.43 | | | $ | 1.29 | | | $ | 1.67 | | | $ | 2.08 | |
Diluted | | $ | 1.42 | | | $ | 1.28 | | | $ | 1.66 | | | $ | 2.07 | |
| | | | | | | | | | | | | | | | |
2013: | | | | |
Net sales | | $ | 37,472 | | | $ | 35,323 | | | $ | 43,603 | | | $ | 54,512 | |
Gross margin | | $ | 13,871 | | | $ | 13,024 | | | $ | 16,349 | | | $ | 21,060 | |
Net income | | $ | 7,512 | | | $ | 6,900 | | | $ | 9,547 | | | $ | 13,078 | |
| | | | | | | | | | | | | | | | |
Earnings per share (1): | | | | | | | | | | | | | | | | |
Basic | | $ | 1.19 | | | $ | 1.07 | | | $ | 1.45 | | | $ | 1.99 | |
Diluted | | $ | 1.18 | | | $ | 1.07 | | | $ | 1.44 | | | $ | 1.97 | |
|
| | | | | | | | | | | | | | | |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| 2016: | | | | | | | |
| Net sales | $ | 46,852 |
| | $ | 42,358 |
| | $ | 50,557 |
| | $ | 75,872 |
|
| Gross margin | $ | 17,813 |
| | $ | 16,106 |
| | $ | 19,921 |
| | $ | 30,423 |
|
| Net income | $ | 9,014 |
| | $ | 7,796 |
| | $ | 10,516 |
| | $ | 18,361 |
|
| | | | | | | | |
Earnings per share (1): | | | | | | | |
| Basic | $ | 1.68 |
| | $ | 1.43 |
| | $ | 1.91 |
| | $ | 3.30 |
|
| Diluted | $ | 1.67 |
| | $ | 1.42 |
| | $ | 1.90 |
| | $ | 3.28 |
|
|
| | | | | | | | | | | | | | | |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| 2015: | | | | | | | |
| Net sales | $ | 51,501 |
| | $ | 49,605 |
| | $ | 58,010 |
| | $ | 74,599 |
|
| Gross margin | $ | 20,548 |
| | $ | 19,681 |
| | $ | 23,656 |
| | $ | 29,741 |
|
| Net income | $ | 11,124 |
| | $ | 10,677 |
| | $ | 13,569 |
| | $ | 18,024 |
|
| | | | | | | | |
Earnings per share (1): | | | | | | | |
| Basic | $ | 1.97 |
| | $ | 1.86 |
| | $ | 2.34 |
| | $ | 3.08 |
|
| Diluted | $ | 1.96 |
| | $ | 1.85 |
| | $ | 2.33 |
| | $ | 3.06 |
|
| |
| (1) | Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share. | |
REPORT OF ERNST
Report of Ernst &
YOUNGYoung LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMIndependent Registered Public Accounting Firm
The Board of Directors and Shareholders of Apple Inc.
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September
27, 201424, 2016 and September
28, 2013,26, 2015, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September
27, 2014.24, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apple Inc. at September
27, 201424, 2016 and September
28, 2013,26, 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September
27, 2014,24, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Apple Inc.’s internal control over financial reporting as of September 27, 2014,24, 2016, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) and our report dated October 27, 201426, 2016 expressed an unqualified opinion thereon.
San Jose, California
October 26, 2016
Report of Ernst & Young LLP,
San Jose, California
October 27, 2014
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Apple Inc.
We have audited Apple Inc.’s internal control over financial reporting as of September 27, 2014,24, 2016, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (“the COSO criteria”). Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September
27, 2014,24, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
20142016 consolidated financial statements of Apple Inc. and our report dated October
27, 201426, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| |
| Item 9A. | 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 defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act
of 1934, as amended (the “Exchange Act”) were effective as of September
27, 201424, 2016 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange CommissionSEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:
| |
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; |
| |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and |
| |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992(2013 framework). Based on the Company’s assessment, management has concluded that its internal control over financial reporting was effective as of September
27, 201424, 2016 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of
2014,2016, 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 materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
| Item 9B. | Other Information |
| |
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item is set forth under the headings “Directors,
Corporate Governance and Executive
Officers and Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance”Officers” in the Company’s
20152017 Proxy Statement to be filed with the
U.S. Securities and Exchange Commission (the “SEC”)SEC within 120 days after September
27, 201424, 2016 in connection with the solicitation of proxies for the Company’s
20152017 annual meeting of shareholders and is incorporated herein by reference.
The Company has a code of ethics, “Business Conduct: The way we do business worldwide,” that applies to all employees, including the Company’s principal executive officer, principal financial officer, and principal accounting officer, as well as to the members of the Board of Directors of the Company. The code is available at investor.apple.com/corporate-governance.cfm. The Company intends to disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
| |
| Item 11. | Executive Compensation |
The information required by this Item is set forth under the heading “Executive Compensation” and under the subheadings “Board Oversight of Risk Management,” “Compensation
of Directors,” “Director Compensation-2014” and “Compensation Committee Interlocks and Insider
Participation”Participation,” “Compensation of Directors” and “Director Compensation-2016” under the heading “Directors,
Corporate Governance and Executive
Officers and Corporate Governance”Officers” in the Company’s
20152017 Proxy Statement to be filed with the SEC within 120 days after September
27, 201424, 2016 and is incorporated herein by reference.
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item is set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s
20152017 Proxy Statement to be filed with the SEC within 120 days after September
27, 201424, 2016 and is incorporated herein by reference.
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is set forth under the
headingsubheadings “Board Committees”, “Review, Approval or Ratification of Transactions with Related Persons” and
under the subheading “Board Committees”“Transactions with Related Persons” under the heading “Directors,
Corporate Governance and Executive
Officers and Corporate Governance”Officers” in the Company’s
20152017 Proxy Statement to be filed with the SEC within 120 days after September
27, 201424, 2016 and is incorporated herein by reference.
| |
| Item 14. | Principal Accounting Fees and Services |
The information required by this Item is set forth under the subheadings “Fees Paid to Auditors” and “Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm” under the proposal “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s
20152017 Proxy Statement to be filed with the SEC within 120 days after September
27, 201424, 2016 and is incorporated herein by reference.
| |
| Item 15. | Exhibits, Financial Statement Schedules |
| |
| (a) | Documents filed as part of this report |
(1) | All financial statements
|
| |
| (1) | All financial statements |
|
| | |
Index to Consolidated Financial Statements | | Page | |
| | | 45 | |
| | | 46 | |
| | | 47 | |
| | | 48 | |
| | | 49 | |
| | | 50 | |
| | | 80 | |
| | | 81 | |
| |
| (2) | Financial Statement Schedules |
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 notes thereto included in this Form 10-K.
| |
| (3) | Exhibits required by Item 601 of Regulation S-K |
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page of this Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 27, 201426, 2016
|
| | | | |
APPLE INC. | Apple Inc. |
| | | | |
| By: | | | /s/ Luca Maestri |
| | | | Luca Maestri |
| | | | Chief Financial Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Timothy D. Cook and Luca Maestri, jointly and severally, his or her
attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrantRegistrant and in the capacities and on the dates indicated:
|
| | | | |
Name | | Title | | Date |
| | | | |
/s/ Timothy D. Cook TIMOTHY D. COOK
| | Chief Executive Officer and Director (Principal Executive Officer) | | October 27, 201426, 2016 |
| TIMOTHY D. COOK | | | |
| | | | |
| /s/ Luca Maestri LUCA MAESTRI
| | Senior Vice President, Chief Financial Officer (Principal (Principal Financial and Accounting Officer) | | October 27, 201426, 2016 |
| | |
/s/ Millard S. Drexler
MILLARD S. DREXLER
LUCA MAESTRI | | | |
| | | | |
| /s/ Chris Kondo | | Senior Director of Corporate Accounting (Principal Accounting Officer) | | October 27, 201426, 2016 |
| CHRIS KONDO | | | |
| | | | |
| /s/ James A. Bell | |
Director | | October 26, 2016 |
| JAMES A. BELL | | | |
| | | | |
| /s/ Al Gore AL GORE
| |
Director | | October 27, 201426, 2016 |
| AL GORE | | | |
| | | | |
| /s/ Robert A. Iger ROBERT A. IGER
| |
Director | | October 27, 201426, 2016 |
| ROBERT A. IGER | | | |
| | | | |
| /s/ Andrea Jung ANDREA JUNG
| |
Director | | October 27, 201426, 2016 |
| ANDREA JUNG | | | |
| | | | |
| /s/ Arthur D. Levinson ARTHUR D. LEVINSON
| |
Director | | October 27, 201426, 2016 |
| ARTHUR D. LEVINSON | | | |
| | | | |
| /s/ Ronald D. Sugar RONALD D. SUGAR
| |
Director | | October 27, 201426, 2016 |
| RONALD D. SUGAR | | | |
| | | | |
| /s/ Susan L. Wagner SUSAN L. WAGNER
| |
Director | | October 27, 201426, 2016 |
| SUSAN L. WAGNER | | | |
EXHIBIT INDEX | | | | | | | | |
| | | | | Incorporated by
Reference |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date/ Period End Date |
| | | | |
| 3.1 | | Restated Articles of Incorporation of the Registrant effective as of June 6, 2014. | | 8-K | | 3.1 | | 6/6/14 |
| | | | |
| 3.2 | | Amended and Restated Bylaws of the Registrant effective as of February 28, 2014. | | 8-K | | 3.2 | | 3/5/14 |
| | | | |
| 4.1 | | Form of Common Stock Certificate of the Registrant. | | 10-Q | | 4.1 | | 12/30/06 |
| | | | |
| 4.2 | | Indenture, dated as of April 29, 2013, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee. | | S-3 | | 4.1 | | 4/29/13 |
| | | | |
| 4.3 | | Officer’s Certificate of the Registrant, dated as of May 3, 2013, including forms of global notes representing the Floating Rate Notes due 2016, Floating Rate Notes due 2018, 0.45% Notes due 2016, 1.00% Notes due 2018, 2.40% Notes due 2023 and 3.85% Notes due 2043. | | 8-K | | 4.1 | | 5/3/13 |
| | | | |
| 4.4 | | Officer’s Certificate of the Registrant, dated as of May 6, 2014, including forms of global notes representing the Floating Rate Notes due 2017, Floating Rate Notes due 2019, 1.05% Notes due 2017, 2.10% Notes due 2019, 2.85% Notes due 2021, 3.45% Notes due 2024 and 4.45% Notes due 2044. | | 8-K | | 4.1 | | 5/6/14 |
| | | | |
| 10.1* | | Amended Employee Stock Purchase Plan, effective as of March 8, 2010. | | 10-Q | | 10.1 | | 3/27/10 |
| | | | |
| 10.2* | | Form of Indemnification Agreement between the Registrant and each director and executive officer of the Registrant. | | 10-Q | | 10.2 | | 6/27/09 |
| | | | |
| 10.3* | | 1997 Director Stock Plan, as amended through August 23, 2012. | | 10-Q | | 10.3 | | 12/28/13 |
| | | | |
| 10.4* | | 2003 Employee Stock Plan, as amended through February 25, 2010. | | 8-K | | 10.1 | | 3/1/10 |
| | | | |
| 10.5* | | Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 16, 2010. | | 10-Q | | 10.10 | | 12/25/10 |
| | | | |
| 10.6* | | Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of April 6, 2012. | | 10-Q | | 10.8 | | 3/31/12 |
| | | | |
| 10.7* | | Summary Description of Amendment, effective as of May 24, 2012, to certain Restricted Stock Unit Award Agreements outstanding as of April 5, 2012. | | 10-Q | | 10.8 | | 6/30/12 |
| | | | |
| 10.8* | | 2014 Employee Stock Plan. | | 8-K | | 10.1 | | 3/5/14 |
| | | | |
| 10.9* | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan as of February 28, 2014. | | 8-K | | 10.2 | | 3/5/14 |
| | | | |
| 10.10* | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of February 28, 2014. | | 8-K | | 10.3 | | 3/5/14 |
| | | | |
| 10.11*, ** | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014. | | | | | | |
| | | | |
| 10.12*, ** | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014. | | | | | | |
| | | | |
| 10.13*, ** | | Form of Amendment, effective as of August 26, 2014, to Restricted Stock Unit Award Agreements and Performance Award Agreements outstanding as of August 26, 2014. | | | | | | |
| | | | |
| 12.1** | | Computation of Ratio of Earnings to Fixed Charges. | | | | | | |
| | | | |
| 21.1** | | Subsidiaries of the Registrant. | | | | | | |
|
| | | | | | | | |
| | | Incorporated by Reference |
| Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date/ Period End Date |
| 3.1 | | Restated Articles of Incorporation of the Registrant effective as of June 6, 2014. | | 8-K | | 3.1 | | 6/6/14 |
| 3.2 | | Amended and Restated Bylaws of the Registrant effective as of December 21, 2015. | | 8-K | | 3.2 | | 12/22/15 |
| 4.1 | | Form of Common Stock Certificate of the Registrant. | | 10-Q | | 4.1 | | 12/30/06 |
| 4.2 | | Indenture, dated as of April 29, 2013, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee. | | S-3 | | 4.1 | | 4/29/13 |
| 4.3 | | Officer’s Certificate of the Registrant, dated as of May 3, 2013, including forms of global notes representing the Floating Rate Notes due 2016, Floating Rate Notes due 2018, 0.45% Notes due 2016, 1.00% Notes due 2018, 2.40% Notes due 2023 and 3.85% Notes due 2043. | | 8-K | | 4.1 | | 5/3/13 |
| 4.4 | | Officer’s Certificate of the Registrant, dated as of May 6, 2014, including forms of global notes representing the Floating Rate Notes due 2017, Floating Rate Notes due 2019, 1.05% Notes due 2017, 2.10% Notes due 2019, 2.85% Notes due 2021, 3.45% Notes due 2024 and 4.45% Notes due 2044. | | 8-K | | 4.1 | | 5/6/14 |
| 4.5 | | Officer’s Certificate of the Registrant, dated as of November 10, 2014, including forms of global notes representing the 1.000% Notes due 2022 and 1.625% Notes due 2026. | | 8-K | | 4.1 | | 11/10/14 |
| 4.6 | | Officer’s Certificate of the Registrant, dated as of February 9, 2015, including forms of global notes representing the Floating Rate Notes due 2020, 1.55% Notes due 2020, 2.15% Notes due 2022, 2.50% Notes due 2025 and 3.45% Notes due 2045. | | 8-K | | 4.1 | | 2/9/15 |
| 4.7 | | Officer’s Certificate of the Registrant, dated as of May 13, 2015, including forms of global notes representing the Floating Rate Notes due 2017, Floating Rate Notes due 2020, 0.900% Notes due 2017, 2.000% Notes due 2020, 2.700% Notes due 2022, 3.200% Notes due 2025, and 4.375% Notes due 2045. | | 8-K | | 4.1 | | 5/13/15 |
| 4.8 | | Officer’s Certificate of the Registrant, dated as of June 10, 2015, including forms of global notes representing the 0.35% Notes due 2020. | | 8-K | | 4.1 | | 6/10/15 |
| 4.9 | | Officer’s Certificate of the Registrant, dated as of July 31, 2015, including forms of global notes representing the 3.05% Notes due 2029 and 3.60% Notes due 2042. | | 8-K | | 4.1 | | 7/31/15 |
| 4.10 | | Officer’s Certificate of the Registrant, dated as of September 17, 2015, including forms of global notes representing the 1.375% Notes due 2024 and 2.000% Notes due 2027. | | 8-K | | 4.1 | | 9/17/15 |
| 4.11 | | Officer’s Certificate of the Registrant, dated as of February 23, 2016, including forms of global notes representing the Floating Rate Notes due 2019, Floating Rate Notes due 2021, 1.300% Notes due 2018, 1.700% Notes due 2019, 2.250% Notes due 2021, 2.850% Notes due 2023, 3.250% Notes due 2026, 4.500% Notes due 2036 and 4.650% Notes due 2046. | | 8-K | | 4.1 | | 2/23/16 |
| 4.12 | | Supplement No. 1 to the Officer's Certificate of the Registrant, dated as of March 24, 2016. | | 8-K | | 4.1 | | 3/24/16 |
| 4.13 | | Officer’s Certificate of the Registrant, dated as of June 22, 2016, including form of global note representing 4.150% Notes due 2046. | | 10-Q | | 4.1 | | 6/22/16 |
| 4.14 | | Officer’s Certificate of the Registrant, dated as of August 4, 2016, including forms of global notes representing the Floating Rate Notes due 2019, 1.100% Notes due 2019, 1.550% Notes due 2021, 2.450% Notes due 2026 and 3.850% Notes due 2046. | | 8-K | | 4.1 | | 8/4/16 |
| 10.1* | | Employee Stock Purchase Plan, as amended and restated as of March 10, 2015. | | 8-K | | 10.1 | | 3/13/15 |
| 10.2* | | Form of Indemnification Agreement between the Registrant and each director and executive officer of the Registrant. | | 10-Q | | 10.2 | | 6/27/09 |
| 10.3* | | 1997 Director Stock Plan, as amended through August 23, 2012. | | 10-Q | | 10.3 | | 12/28/13 |
| 10.4* | | 2003 Employee Stock Plan, as amended through February 25, 2010. | | 8-K | | 10.1 | | 3/1/10 |
| 10.5* | | Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 16, 2010. | | 10-Q | | 10.10 | | 12/25/10 |
| 10.6* | | Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of April 6, 2012. | | 10-Q | | 10.8 | | 3/31/12 |
|
| | | | | | | | |
| | | Incorporated by Reference |
| Exhibit Number | | Incorporated by
Reference |
Exhibit Number
Description | | Exhibit DescriptionForm | | FormExhibit | | ExhibitFiling Date/ Period End Date |
| 10.7* | | Filing Date/
Period End
Date
Summary Description of Amendment, effective as of May 24, 2012, to certain Restricted Stock Unit Award Agreements outstanding as of April 5, 2012. | | 10-Q | | 10.8 | | 6/30/12 |
| 10.8* | | 2014 Employee Stock Plan, as amended and restated as of February 26, 2016. | | 8-K | | 10.1 | | 3/1/16 |
| 10.9* | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan as of February 28, 2014. | | 8-K | | 10.2 | | 3/5/14 |
| 10.10* | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of February 28, 2014. | | 8-K | | 10.3 | | 3/5/14 |
| 10.11* | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014. | | 10-K | | 10.1 | | 9/27/14 |
| 10.12* | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014. | | 10-K | | 10.1 | | 9/27/14 |
| 10.13* | | Form of Amendment, effective as of August 26, 2014, to Restricted Stock Unit Award Agreements and Performance Award Agreements outstanding as of August 26, 2014. | | 10-K | | 10.1 | | 9/27/14 |
| 10.14* | | Offer Letter, dated August 1, 2013, from the Registrant to Angela Ahrendts. | | 10-Q | | 10.1 | | 12/27/14 |
| 10.15* | | Form of Restricted Stock Unit Award Agreement under the 1997 Director Stock Plan as of November 17, 2015. | | 10-Q | | 10.15 | | 12/26/15 |
| 10.16* | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of October 5, 2015. | | 10-Q | | 10.16 | | 3/26/16 |
| 10.17* | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of October 5, 2015. | | 10-Q | | 10.17 | | 3/26/16 |
| 10.18*, ** | | Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of October 14, 2016. | | | | | | |
| 10.19*, ** | | Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of October 14, 2016. | | | | | | |
| 12.1** | | Computation of Ratio of Earnings to Fixed Charges. | | | | | | |
| 21.1** | | Subsidiaries of the Registrant. | | | | | | |
| 23.1** | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | | | | | | |
| | | | |
| 24.1** | | Power of Attorney (included on the Signatures page of this Annual Report on Form 10-K). | | | | | | |
| | | | |
| 31.1** | | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. | | | | | | |
| | | | |
| 31.2** | | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. | | | | | | |
| | | | |
| 32.1*** | | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer. | | | | | | |
| | | | |
| 101.INS** | | XBRL Instance Document. | | | | | | |
| | | | |
| 101.SCH** | | XBRL Taxonomy Extension Schema Document. | | | | | | |
| | | | |
| 101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | |
| | | | |
| 101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | |
| | | | |
| 101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document. | | | | | | |
| | | | |
| 101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | |
| |
| * | Indicates management contract or compensatory plan or arrangement. | |
| |
| (1) | Certain instruments defining the rights of holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments. |
Apple Inc. | 20142016 Form 10-K | 8877
