Apple (AAPL) 10-K risk factor changes: FY2018 vs FY2017

Global and regional economic conditions could materially adversely affect the [removed: Company.][added: Company’s business, results of operations, financial condition and growth.]

[removed: The] [added: In addition, a majority of the] Company’s [added: supply chain, and its manufacturing and assembly activities, are located outside the U.S. As a result, the Company’s] operations and performance depend significantly on global and regional economic conditions.

These and other economic factors could materially adversely affect [removed: demand for] the Company’s [removed: products] [added: business, results of operations, financial condition] and [removed: services.][added: growth.]

The Company’s products and services [removed: compete] [added: are offered] in highly competitive global markets characterized by aggressive price competition and resulting downward pressure on gross margins, frequent introduction of new [removed: products,] [added: products and services,] short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption of technological [removed: and product] advancements by competitors and price sensitivity on the part of [removed: consumers.][added: consumers and businesses.]

The Company currently holds a significant number of patents and copyrights and has [removed: registered and/or has] [added: registered, and] applied to [removed: register] [added: register,] numerous patents, trademarks and service marks.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 8

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 [removed: relationships; and the Company has a minority market share in the global smartphone market.][added: relationships.]

Additionally, the Company faces significant competition as competitors [removed: 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.

[removed: Because some current and potential] [added: Certain] competitors [added: may] have [removed: substantial resources and/or] [added: the resources,] experience [removed: and a lower] [added: or] cost [removed: structure, they may be able] [added: structures] to provide products [removed: and services] at little or no profit or even at a loss.

The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve [removed: iOS] [added: its products] and [removed: iOS devices] [added: services] in order to maintain their functional and design advantages.

In [removed: the market for personal computers and accessories, the Company faces a significant number of competitors, many] [added: addition, some] of [removed: which] [added: the Company’s competitors] have broader product lines, lower-priced products and a larger installed [removed: customer base.][added: base of active devices.]

[removed: An] [added: In addition, an] increasing number of internet-enabled devices that include software applications and are [removed: smaller and] [added: smaller,] simpler [added: and cheaper] than traditional personal computers compete [removed: for market share] with [added: some of] the Company’s existing products.

To remain competitive and stimulate customer demand, the Company must successfully manage frequent [removed: product] introductions and [removed: transitions.][added: transitions of products and services.]

Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and [added: services and] successfully manage the transition to these new and upgraded [removed: products.][added: products and services.]

The success of new product [added: and service] introductions depends on a number of factors including, but not limited to, timely and successful [removed: 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 [added: and services] may have quality or other defects or [removed: deficiencies in the early stages of introduction.][added: deficiencies.]

Accordingly, the Company cannot determine in advance the ultimate effect of new product [added: and service] introductions and transitions.

The Company depends on the performance of [removed: distributors, carriers] [added: carriers, wholesalers, retailers] and other resellers.

The Company distributes its products through cellular network carriers, wholesalers, [removed: national and regional] retailers and [removed: value-added] resellers, many of whom distribute products from competing manufacturers.

Some carriers providing cellular network service for iPhone [removed: subsidize] [added: offer financing, installment payment plans or subsidies for] users’ purchases of the device.

There is no assurance that such [removed: subsidies] [added: offers] 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.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 9

The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated [removed: demand] [added: demand,] or [added: for which cost exceeds] net realizable [removed: value and accrues necessary cancellation fee reserves for orders of excess products and components.][added: value.]

The Company [removed: also] reviews [removed: its] long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the [removed: carrying amount of an asset] [added: assets] may not be recoverable.

If the Company determines that [added: an] impairment has occurred, it records a write-down equal to the amount by which the carrying value of the asset exceeds its fair value.

Although the Company believes its [removed: provisions related to] inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently [removed: adequate,] [added: recoverable,] no assurance can be given that the Company will not incur [removed: additional related] [added: write-downs, fees, impairments and other] charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company competes.

The Company [removed: must order] [added: orders] components for its products and [removed: build] [added: builds] inventory in advance of product announcements and shipments.

Manufacturing purchase obligations [removed: typically] cover [added: the Company’s] forecasted component and manufacturing [removed: requirements] [added: requirements, typically] for periods up to 150 days.

Because the Company currently obtains [added: certain] 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 [removed: fluctuations.][added: fluctuations that could materially adversely affect the Company’s financial condition and operating results.]

[removed: A number of] [added: Component] suppliers [removed: of components] may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components on commercially reasonable terms.

The effects of global or regional economic conditions on the Company’s suppliers, described in “Global and regional economic conditions could materially adversely affect the [removed: Company”] [added: Company’s business, results of operations, financial condition and growth”] above, also could affect the Company’s ability to obtain components.

Therefore, the Company remains subject to significant risks of supply shortages and price [removed: increases.][added: increases that could materially adversely affect its financial condition and operating results.]

Continued availability of these components at acceptable prices, or at all, may be affected for any number of reasons, including if [removed: those] suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

[removed: The] [added: If the Company’s] supply of components for a new or existing product [removed: could be] [added: were] delayed or constrained, or [removed: a key manufacturing vendor could delay] [added: if an outsourcing partner delayed] shipments of completed products to the [removed: Company.][added: Company, the Company’s financial condition and operating results could be materially adversely affected.]

Substantially all of the Company’s manufacturing is performed in whole or in part by [removed: a few] outsourcing partners located primarily in Asia.

[removed: It is uncertain what effect such] [added: Such] diminished control [removed: will] [added: may] have [added: an adverse effect] on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions.

The Company relies on [removed: sole-sourced] [added: single-sourced] outsourcing partners in the U.S., Asia and Europe to supply and manufacture many [removed: critical] components, and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the Company’s hardware products.

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 [removed: actions or] [added: actions,] economic, business, labor, environmental, public [removed: health,] [added: health] or political [removed: issues.][added: issues, or international trade disputes.]

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 [removed: net realizable value] [added: recoverability] of [removed: these assets] [added: manufacturing process equipment or prepayments] could be negatively impacted.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 10

The Company has international operations with sales outside the U.S. representing a majority of the Company’s total net sales.

Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for the Company’s products and services.

In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.

In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners.

Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.

A downturn in the economic environment could also lead to increased credit and collectibility risk on the Company’s trade receivables; the failure of derivative counterparties and other financial institutions; limitations on the Company’s ability to issue new debt; reduced liquidity; and declines in the fair value of the Company’s financial instruments.

There can be no assurance that these investments will achieve expected returns, and the Company may not be able to develop and market new products and services successfully.

The Company has a minority market share in the global smartphone, tablet and personal computer markets.

Some of the markets in which the Company competes, including the market for personal computers, have from time to time experienced little to no growth or contracted.

The Company’s services also face substantial competition, including from companies that have significant resources and experience and have established service offerings with large customer bases.

The Company also accrues necessary cancellation fee reserves for orders of excess products and components.

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.

A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations.

Component defects could make the Company’s products unsafe and create a risk of environmental or property damage and personal injury.

These risks may increase as the Company’s products are introduced into specialized applications, including healthcare.

As a result, the Company’s services may not perform as anticipated and may not meet customer expectations.

Failure to do so could result in widespread technical and performance issues affecting the Company’s products and services.

In addition, the Company may be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines.

Quality problems could also adversely affect the experience for users of the Company’s products and services, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products and services, delay in new product and services introductions and lost revenue.

The Company sells and delivers third-party applications for its products through the App Store, Mac App Store and TV App Store.

The Company retains a commission from sales through these platforms.

If developers reduce their use of these platforms to distribute their applications and offer in-app purchases to customers, then the volume of sales, and the commission that the Company earns on those sales, would decrease.

The Company’s retail operations are subject to many factors that pose risks and uncertainties and could adversely impact the Company’s financial condition and operating results, including macro-economic factors that could have an adverse effect on general retail activity.

International trade disputes could result in tariffs and other protectionist measures that could adversely affect the Company’s business.

Tariffs could increase the cost of the Company’s products and the components and raw materials that go into making them.

These increased costs could adversely impact the gross margin that the Company earns on its products.

Tariffs could also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand.

Countries may also adopt other protectionist measures that could limit the Company’s ability to offer its products and services.

Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.

Many of the Company’s operations and facilities as well as critical business operations of the Company’s suppliers and contract manufacturers are in locations that are prone to earthquakes and other natural disasters.

Global climate change could result in certain types of natural disasters occurring more frequently or with more intense effects.

Because the Company relies on single or limited sources for the supply and manufacture of many critical components, a business interruption affecting such sources would exacerbate any negative consequences to the Company.

The Company’s operations are also subject to the risks of industrial accidents at its suppliers and contract manufacturers.

Apple Inc. | 2018 Form 10-K | 16

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 changes in fuel and other energy costs, conditions in the real estate and mortgage markets, unemployment, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior.

In the event of financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, 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.

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.

Some of the Company’s competitors have greater experience, product breadth and distribution channels than the Company.

The Company is the only authorized maker of hardware using 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.

Historically, consolidation in this market has resulted in larger competitors.

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.

Failure to do so could result in lost revenue, significant warranty and other expenses and harm to the Company’s reputation.

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.

Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties.

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.

The Company’s software, accessories, and service and support contracts generally have higher gross margins than certain of the Company’s other products.

The Company’s direct sales generally have higher associated gross margins than its indirect sales through its channel partners.

Given the global nature of its business, the Company has both domestic and international investments.

The Company designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, [removed: accessories, networking solutions] [added: accessories] and third-party digital content and applications.

The Company’s products and services include iPhone, iPad, Mac, Apple Watch, [added: AirPods,] Apple TV, [added: HomePod,] a portfolio of consumer and professional software applications, iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a variety of [added: other] 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, [removed: iBooks] [added: Book] Store and Apple Music (collectively “Digital Content and 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 [removed: value-added] resellers.

In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various [removed: accessories] [added: accessories,] through its retail and online stores.

The Company’s fiscal year is the [removed: 52] [added: 52-] or 53-week period that ends on the last Saturday of September.

The Company’s fiscal [added: years 2018 and 2016 spanned 52 weeks each, whereas fiscal] year 2017 included 53 [removed: weeks and ended on September 30, 2017.][added: weeks.]

The year-over-year increase in net sales reflected growth in each of the geographic [removed: operating] [added: reportable] segments, with the exception of Greater China.

The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on net sales during [removed: 2017 compared to 2016.][added: 2017.]

In May 2017, the Company announced an increase to its capital return program by raising the [removed: expected] total size of the program from $250 billion to $300 [removed: billion through March 2019.][added: billion.]

[removed: Additionally, the] [added: The] Company issued $24.0 billion of U.S. [removed: dollar-denominated] [added: dollar–denominated] term debt, €2.5 billion of euro-denominated term debt and C$2.5 billion of Canadian [removed: dollar-denominated] [added: dollar–denominated] term debt during 2017.

Fiscal [removed: 2016] [added: 2018] Highlights

During [removed: 2016,] [added: 2018,] the Company spent [removed: $29.0] [added: $73.1] billion to repurchase shares of its common stock and paid dividends and dividend equivalents of [removed: $12.2] [added: $13.7] billion.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 22

The following table shows net sales by [removed: operating] [added: reportable] segment and net sales and unit sales by product for [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] (dollars in millions and units in thousands):

| | [removed: 2017] [added: 2018] | | | | Change | | | [removed: 2016] [added: 2017] | | | | Change | | | [removed: 2015] [added: 2016] | | |

| Net Sales by [removed: Operating] [added: Reportable] Segment: | | | | | | | | | | | | | | | | | |

| Americas | $ | [removed: 96,600] [added: 112,093] | | | [removed: 12] [added: 16] | % | | $ | [removed: 86,613] [added: 96,600] | | | [removed: (8] [added: 12] | [removed: )%] [added: %] | | $ | [removed: 93,864] [added: 86,613] | |

| Europe | [removed: 54,938] [added: 62,420] | | | | [removed: 10] [added: 14] | % | | [removed: 49,952] [added: 54,938] | | | | [removed: (1] [added: 10] | [removed: )%] [added: %] | | [removed: 50,337] [added: 49,952] | | |

| Greater China | [removed: 44,764] [added: 51,942] | | | | [removed: (8] [added: 16] | [removed: )%] [added: %] | | [removed: 48,492] [added: 44,764] | | | | [removed: (17] [added: (8] | )% | | [removed: 58,715] [added: 48,492] | | |

| Japan | [removed: 17,733] [added: 21,733] | | | | [removed: 5] [added: 23] | % | | [removed: 16,928] [added: 17,733] | | | | [removed: 8] [added: 5] | % | | [removed: 15,706] [added: 16,928] | | |

| Rest of Asia Pacific | [removed: 15,199] [added: 17,407] | | | | [removed: 11] [added: 15] | % | | [removed: 13,654] [added: 15,199] | | | | [removed: (10] [added: 11] | [removed: )%] [added: %] | | [removed: 15,093] [added: 13,654] | | |

| Total net sales | $ | [removed: 229,234] [added: 265,595] | | | [removed: 6] [added: 16] | % | | $ | [removed: 215,639] [added: 229,234] | | | [removed: (8] [added: 6] | [removed: )%] [added: %] | | $ | [removed: 233,715] [added: 215,639] | |

| iPhone (1) | $ | [removed: 141,319] [added: 166,699] | | | [removed: 3] [added: 18] | % | | $ | [removed: 136,700] [added: 141,319] | | | [removed: (12] [added: 3] | [removed: )%] [added: %] | | $ | [removed: 155,041] [added: 136,700] | |

| iPad (1) | [removed: 19,222] [added: 18,805] | | | | [removed: (7] [added: (2] | )% | | [removed: 20,628] [added: 19,222] | | | | [removed: (11] [added: (7] | )% | | [removed: 23,227] [added: 20,628] | | |

| Mac (1) | [removed: 25,850] [added: 25,484] | | | | [removed: 13] [added: (1] | [removed: %] [added: )%] | | [removed: 22,831] [added: 25,850] | | | | [removed: (10] [added: 13] | [removed: )%] [added: %] | | [removed: 25,471] [added: 22,831] | | |

| Services (2) | [removed: 29,980] [added: 37,190] | | | | [removed: 23] [added: 24] | % | | [removed: 24,348] [added: 29,980] | | | | [removed: 22] [added: 23] | % | | [removed: 19,909] [added: 24,348] | | |

| Other Products (1)(3) | [removed: 12,863] [added: 17,417] | | | | [removed: 16] [added: 35] | % | | [removed: 11,132] [added: 12,863] | | | | [removed: 11] [added: 16] | % | | [removed: 10,067] [added: 11,132] | | |

| iPhone | [removed: 216,756] [added: 217,722] | | | | [removed: 2] [added: —] | % | | [removed: 211,884] [added: 216,756] | | | | [removed: (8] [added: 2] | [removed: )%] [added: %] | | [removed: 231,218] [added: 211,884] | | |

| iPad | [removed: 43,753] [added: 43,535] | | | | [removed: (4] [added: —] | [removed: )%] [added: %] | | [removed: 45,590] [added: 43,753] | | | | [removed: (17] [added: (4] | )% | | [removed: 54,856] [added: 45,590] | | |

| Mac | [removed: 19,251] [added: 18,209] | | | | [removed: 4] [added: (5] | [removed: %] [added: )%] | | [removed: 18,484] [added: 19,251] | | | | [removed: (10] [added: 4] | [removed: )%] [added: %] | | [removed: 20,587] [added: 18,484] | | |

| (2) | Includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services. Services net sales in [added: 2018 included a favorable one-time item of $236 million in connection with] the [removed: fourth quarter] [added: final resolution] of [added: various lawsuits. Services net sales in] 2017 included a favorable one-time adjustment of $640 million due to a change in estimate based on the availability of additional supporting information. |

| (3) | Includes sales of [added: AirPods,] Apple TV, Apple Watch, Beats products, [added: HomePod,] iPod touch and [added: other] Apple-branded and third-party accessories. |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 23

The following table presents iPhone net sales and unit sales information for [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] (dollars in millions and units in thousands):

| Net sales | $ | [removed: 141,319] [added: 166,699] | | | [removed: 3] [added: 18] | % | | $ | [removed: 136,700] [added: 141,319] | | | [removed: (12] [added: 3] | [removed: )%] [added: %] | | $ | [removed: 155,041] [added: 136,700] | |

| Percentage of total net sales | [removed: 62] [added: 63] | | % | | | | | [removed: 63] [added: 62] | | % | | | | | [removed: 66] [added: 63] | | % |

| Unit sales | [removed: 216,756] [added: 217,722] | | | | [removed: 2] [added: —] | % | | [removed: 211,884] [added: 216,756] | | | | [removed: (8] [added: 2] | [removed: )%] [added: %] | | [removed: 231,218] [added: 211,884] | | |

The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on iPhone net sales during [removed: 2017 compared to 2016.][added: 2017.]

The following table presents iPad net sales and unit sales information for [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] (dollars in millions and units in thousands):

Net sales increased 16% or $36.4 billion during 2018 compared to 2017, driven by higher net sales of iPhone, Services and Other Products.

Net sales increased year-over-year in each of the geographic reportable segments.

In May 2018, the Company announced a new capital return program of $100 billion and raised its quarterly dividend from $0.63 to $0.73 per share beginning in May 2018.

The $210 billion share repurchase program was completed in the third quarter of 2018.

| Total net sales | $ | 265,595 | | | 16 | % | | $ | 229,234 | | | 6 | % | | $ | 215,639 | |

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

iPhone net sales increased during 2018 compared to 2017 due primarily to a different mix of iPhones resulting in higher average selling prices.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

iPad net sales decreased during 2018 compared to 2017 due primarily to a different mix of iPads resulting in lower average selling prices.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on iPad net sales during 2018.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Mac net sales decreased during 2018 compared to 2017 due primarily to lower Mac unit sales, partially offset by a different mix of Macs with higher average selling prices.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on Mac net sales during 2018.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

During 2018, the Company recognized a favorable one-time item of $236 million in connection with the final resolution of various lawsuits.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Americas net sales increased during 2018 compared to 2017 due to higher net sales of iPhone, Services and Other Products.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Europe net sales increased during 2018 compared to 2017 due primarily to higher net sales of iPhone and Services.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on Europe net sales during 2018.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Greater China net sales increased during 2018 compared to 2017 due primarily to higher net sales of iPhone and Services.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on Greater China net sales during 2018.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Japan net sales increased during 2018 compared to 2017 due primarily to higher net sales of iPhone and Services.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

Rest of Asia Pacific net sales increased during 2018 compared to 2017 due primarily to higher net sales of iPhone and Services.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on Rest of Asia Pacific net sales during 2017.

Gross margin increased in 2018 compared to 2017 due primarily to a favorable shift in mix of iPhones with higher average selling prices and higher Services net sales, partially offset by higher product cost structures.

Gross margin percentage decreased year-over-year due primarily to higher product cost structures, partially offset by higher Services net sales.

The strength in foreign currencies relative to the U.S. dollar had a favorable impact on gross margin and gross margin percentage during 2018.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

R&D expense increased during 2017 compared to 2016 due primarily to increases in headcount-related expenses and material costs to support expanded R&D activities.

The year-over-year growth in selling, general and administrative expense in 2018 was driven primarily by increases in in headcount-related expenses, professional services and infrastructure-related costs.

| | 2018 | | | | Change | | | 2017 | | | | Change | | | 2016 | | |

| | 2018 | | | | 2017 | | | | 2016 | | |

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law.

The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income.

By operation of law, the Company applied a blended U.S. statutory federal income tax rate of 24.5% for 2018 (the “2018 blended U.S. tax rate”).

The Act also created a new minimum tax on certain future foreign earnings.

The Company’s fiscal years 2016 and 2015 ended on September 24, 2016 and September 26, 2015, respectively, and spanned 52 weeks each.

Net sales declined 8% or $18.1 billion during 2016 compared to 2015, primarily driven by a year-over-year decrease in iPhone net sales and the effect of weakness in most foreign currencies relative to the U.S. dollar, partially offset by an increase in Services.

In April 2016, the Company announced an increase to its capital return program by raising the expected total size of the program from $200 billion to $250 billion through March 2018.

This included increasing its share repurchase authorization from $140 billion to $175 billion and raising its quarterly dividend from $0.52 to $0.57 per share beginning in May 2016.

Additionally, 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.

iPhone net sales decreased during 2016 compared to 2015.

The Company believes the sales decline was 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 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.

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 average selling price due to a shift in mix to higher-priced iPads.

Mac net sales decreased during 2016 compared to 2015 primarily due to lower year-over-year Mac unit sales, which declined 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.

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.

Americas net sales decreased during 2016 compared to 2015 due primarily to lower net sales of iPhone.

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 and a decrease in net sales of Mac, largely offset by an increase in iPhone unit sales and Services.

Greater China net sales decreased during 2016 compared to 2015 due primarily to lower net sales of iPhone and the effect of weakness in foreign currencies relative to the U.S. dollar.

Rest of Asia Pacific net sales decreased during 2016 compared to 2015 due primarily to lower net sales of iPhone and the effect of weakness in foreign currencies relative to the U.S. dollar.

Gross margin percentage 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.

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, including gross margins, could be significantly affected by fluctuations in exchange rates.

The 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-related expenses.

The IRS concluded its review of the years 2010 through 2012 during the third quarter of 2017.

All years prior to 2013 are closed, and the IRS is currently examining the years 2013 through 2015.

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 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.

Although Ireland is still computing the recovery amount, the Company expects the amount to be in line with the European Commission’s announced recovery amount of €13 billion, plus interest of €1 billion.

Once the recovery amount is finalized by Ireland, the Company anticipates funding it, including interest, out of foreign cash.

These amounts are expected to be placed into escrow in 2018, where they will remain pending conclusion of all appeals.

Restricted Cash

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows.

Currently, the Company’s restricted cash balance is not significant.

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 modifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards, and classification in the statement of cash flows.

Currently, excess tax benefits or deficiencies from the Company’s equity awards are recorded as additional paid-in capital in its Consolidated Balance Sheets.

Upon adoption, the Company will record any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting periods in which vesting occurs.

As a result, subsequent to adoption the Company’s income tax expense and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards.

The Company will adopt ASU 2016-02 in its first quarter of 2020 utilizing the modified retrospective transition method.

The [removed: Company typically invests in highly-rated securities, and its] [added: Company’s] investment policy generally [added: requires securities to be investment grade and] limits the amount of credit exposure to any one issuer.

The [removed: policy generally requires investments to be investment grade,] [added: Company typically invests in highly rated securities,] with the primary objective of minimizing the potential risk of principal loss.

Based on investment positions as of September [removed: 30, 2017] [added: 29, 2018] and September [removed: 24, 2016,] [added: 30, 2017,] a hypothetical 100 basis point increase in interest rates across all maturities would result in a [removed: $6.0] [added: $4.9] billion and [removed: $4.9] [added: $6.0] billion incremental decline in the fair market value of the portfolio, respectively.

As of September [removed: 30, 2017] [added: 29, 2018] and September [removed: 24, 2016,] [added: 30, 2017,] the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate carrying amount of [removed: $103.7] [added: $102.5] billion and [removed: $78.9] [added: $103.7] billion, respectively.

A 100 basis point increase in market interest rates would cause interest expense on the Company’s debt as of September [removed: 30, 2017] [added: 29, 2018] and September [removed: 24, 2016] [added: 30, 2017] to increase by [removed: $376] [added: $399] million and [removed: $271] [added: $376] million on an annualized 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 [removed: 6,] [added: 5,] “Debt.”

In addition, the Company has entered, and in the future may enter, into foreign currency contracts to partially offset the foreign currency exchange gains and losses on its [removed: foreign-denominated] [added: foreign currency–denominated] debt issuances.

The Company [removed: typically] [added: generally] hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

However, the Company may choose not to hedge certain foreign exchange exposures for a variety of [removed: reasons, including] [added: reasons including,] but not limited [removed: to] [added: to,] accounting considerations [removed: and] [added: or] the prohibitive economic cost of hedging particular exposures.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 36][added: 35]

Based on the results of the model, the Company estimates with 95% confidence, a maximum one-day loss in fair value of [removed: $485] [added: $592] million as of September [removed: 30, 2017] [added: 29, 2018] compared to a maximum one-day loss in fair value of [removed: $434] [added: $485] million as of September [removed: 24, 2016.][added: 30, 2017.]

Because the Company uses foreign currency instruments for hedging purposes, the [removed: loss] [added: losses] 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 [removed: portfolio] [added: portfolio, debt] and derivative positions may differ materially from the sensitivity analyses performed as of September [removed: 30, 2017] [added: 29, 2018] due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchange rates and the Company’s actual exposures and positions.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 37][added: 36]

The Company designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, [removed: accessories, networking solutions] [added: accessories] and third-party digital content and applications.

The Company’s products and services include iPhone®, iPad®, Mac®, Apple Watch®, [added: AirPods®,] Apple TV®, [added: HomePod™,] a portfolio of consumer and professional software applications, iOS, macOS®, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of [added: other] 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, [removed: iBooks Store®] [added: Book Store] and Apple Music® (collectively “Digital Content and 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 [removed: value-added] resellers.

In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various [removed: accessories] [added: accessories,] through its retail and online stores.

The Company’s fiscal year is the [removed: 52] [added: 52-] or 53-week period that ends on the last Saturday of September.

As part of its strategy, the Company continues to expand its platform for the discovery and delivery of digital content and applications through its Digital Content and Services, which allows customers to discover and download [added: or stream] digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a Mac or Windows personal computer or through iPhone, iPad and iPod touch® devices (“iOS devices”), Apple [removed: TV and] [added: TV,] Apple [removed: Watch.][added: Watch and HomePod.]

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 1

iPhone includes Siri®, [removed: a voice-activated] [added: an] intelligent assistant, and Apple [removed: Pay and] [added: Pay,] Touch ID® [added: and Face ID®] on qualifying devices.

The Company’s line of smartphones also includes iPhone [removed: 7, 7] [added: 8, 8] Plus, [removed: 6s, 6s Plus] [added: 7] and [removed: SE] [added: 7 Plus] models.

iPhone works with the iTunes Store, App Store, [removed: iBooks] [added: Book] Store and Apple Music for purchasing, organizing and playing digital content and apps.

iPad is the Company’s line of multi-purpose tablets based on its iOS operating system, which includes iPad Pro®, iPad and iPad [removed: mini™.][added: mini®.]

iPad works with the iTunes Store, App Store, [removed: iBooks] [added: Book] Store and Apple Music for purchasing, organizing and playing digital content and apps.

Mac includes Siri and [added: supports] Apple [removed: Pay] [added: Pay,] and also includes Touch ID on qualifying devices.

The Company’s desktop computers include [removed: iMac®, 21.5”] [added: iMac® 21.5-inch,] iMac [added: 21.5-inch] with Retina® 4K display, [removed: 27”] iMac [added: 27-inch] with Retina 5K display, [added: iMac Pro®,] Mac Pro® and Mac mini®.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 2

The iTunes Store, available for iOS devices, Mac and Windows personal computers and Apple TV, allows customers to purchase and download [added: or stream] music and TV shows, rent or purchase movies and download free podcasts.

The [removed: iBooks] [added: Book] Store, available for iOS devices and Mac computers, features e-books from major and independent publishers.

iCloud services include iCloud Drive®, iCloud [removed: Photo Library,] [added: Photos,] Family Sharing, Find My iPhone, iPad or Mac, Find My Friends, Notes, iCloud Keychain® and iCloud Backup for iOS devices.

These include assistance that is built into software products, electronic product manuals, online support including comprehensive product information as well as technical assistance, [added: AppleCare \+ (“AC+”) and] the AppleCare® Protection Plan [removed: (“APP”) and AppleCare+ (“AC+”).][added: (“APP”).]

[removed: APP and] AC+ [added: and APP] are fee-based services that extend the coverage of phone support eligibility and hardware [removed: warranty] repairs.

[removed: APP and] AC+ [removed: offer] [added: offers] additional coverage [removed: under some circumstances] for instances of accidental damage and [removed: are] [added: is] available in certain countries for certain products.

[removed: The] [added: In December 2017, the] Company [removed: expects to release] [added: released] an update to iOS 11 and watchOS 4 [added: introducing Apple Pay Cash] in [removed: fall 2017 that will allow] [added: the U.S., allowing] peer-to-peer payments using Apple Pay.

[removed: In December 2016,] [added: AirPods are] the [removed: Company released AirPods®, new] [added: Company’s] wireless headphones that interact with Siri.

Apple TV allows streaming digital content from Mac and Windows personal computers through Home [removed: Share] [added: Sharing] and from compatible Mac and iOS devices through AirPlay®.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 3

Apple Watch is a personal electronic device that combines the watchOS user interface and technologies created specifically for a smaller device, including the Digital [removed: Crown™,] [added: 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 [removed: in new ways] from their wrist, track their health and fitness through activity and workout apps, and includes Siri and Apple Pay.

The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers and [removed: value-added] resellers.

During [removed: 2017,] [added: 2018,] the Company’s net sales through its direct and indirect distribution channels accounted for [removed: 28%] [added: 29%] and [removed: 72%,] [added: 71%,] respectively, of total net sales.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 4

No single customer accounted for more than 10% of net sales in [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015.][added: 2016.]

Principal competitive factors important to the Company include price, product [added: and service] features (including security features), relative price and performance, product [added: and service] quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support and corporate reputation.

These markets are characterized by aggressive price competition, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological [removed: and product] advancements by competitors and price sensitivity on the part of consumers and businesses.

Although most components essential to the Company’s business are generally available from multiple sources, [removed: a few] [added: certain] components are currently obtained from single or limited sources.

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 [added: commodity] pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.

Continued availability of these components at acceptable prices, or at all, may be affected if [removed: those] suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 5

Substantially all of the Company’s hardware products are [removed: currently] manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.

Certain of these outsourcing partners are [removed: the sole-sourced] [added: single-sourced] suppliers of components and manufacturers for many of the Company’s products.

In September 2018, the Company introduced three new iPhones.

iPhone Xs and Xs Max feature a Super Retina™ OLED display, an all-screen stainless steel and glass design, faster processors and enhanced cameras, and were available beginning in September 2018.

iPhone XR features a Liquid Retina™ LCD display in an all-screen aluminum and glass design, and was available beginning in October 2018.

In March 2018, the Company released a new 9.7-inch iPad with Apple Pencil® compatibility.

In October 2018, the Company introduced a new version of iPad Pro as well as a new Apple Pencil and Smart Keyboard Folio™.

The new 11-inch and 12.9-inch iPad Pro models feature a Liquid Retina LCD display in an all-screen aluminum and glass design and integrate Face ID.

In October 2018, the Company introduced a new MacBook Air featuring a Retina display and Touch ID, and a new Mac mini with upgraded performance.

In September 2018, the Company released iOS 12, which includes improved performance and responsiveness, new augmented reality capabilities and expressive communication features, and introduces Siri Shortcuts, enabling Siri to intelligently pair with third-party apps.

macOS Mojave, released in September 2018, is the 15th major release of macOS and makes apps such as News, Stocks, Voice Memos and Home available on the Mac for the first time.

macOS Mojave also adds desktop and Finder® enhancements, such as Dark Mode, and introduces a full redesign of the Mac App Store.

In September 2018, the Company released watchOS 5, which helps users stay healthy and connected with new features including Activity Sharing competitions, auto-workout detection, advanced running features, Walkie-Talkie, Apple Podcasts and third-party apps on the Siri watch face.

In September 2018, the Company released tvOS 12, which supports enhanced sound quality and provides additional 4K high dynamic range (“HDR”) content.

Additionally, AC+ with theft and loss protection is available for iPhone in the U.S.

The Company offers Apple TV and Apple TV 4K®, which supports 4K and HDR content.

In September 2018, the Company introduced Apple Watch Series 4, with a new design including a larger display and thinner case, and featuring new health monitoring capabilities.

Other

The Company also sells AirPods, Beats® products, HomePod, iPod touch and other Apple-branded and third-party accessories.

In February 2018, the Company released HomePod, a high-fidelity wireless smart speaker that interacts with Siri and Apple Music.

The Company’s services also face substantial competition, including from companies that have significant resources and experience and have established service offerings with large customer bases.

The Company competes with business models that provide content to users for free.

The Company also competes with illegitimate means to obtain third-party digital content and applications.

The Company periodically provides other information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com.

This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders.

Business Organization

The Company manages its business primarily on a geographic basis.

The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.

Americas includes both North and South America.

Europe includes European countries, as well as India, the Middle East and Africa.

Greater China includes China, Hong Kong and Taiwan.

Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.

Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.

Further information regarding the Company’s reportable 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.”

In September 2017, the Company introduced iPhone 8 and 8 Plus, featuring a new glass and aluminum design, enhanced cameras and speakers, wireless charging and augmented reality optimization.

Additionally, in September 2017, the Company announced iPhone X, featuring an all-glass design with a Super Retina™ OLED display and facial recognition.

iPhone 8 and 8 Plus were available starting in September 2017, and iPhone X is expected to be available in November 2017.

In June 2017, the Company released a new 10.5-inch iPad Pro and an updated 12.9-inch iPad Pro with more advanced displays and enhanced performance.

In June 2017, the Company announced the new iMac Pro™, which is expected to be available in December 2017.

In September 2017, the Company released iOS 11, which includes new iPad features, new capabilities to improve images in Photos and Camera, enhanced Siri functionality and a redesigned App Store.

iOS 11 also introduces ARKit, an augmented reality framework for developers.

macOS High Sierra, released in September 2017, is the 14th major release of macOS and incorporates new storage, video and graphics technologies, and includes improvements to Photos, Safari® and Mail.

In September 2017, the Company released watchOS 4, which adds a proactive Siri watch face that displays the information users need most throughout the day, personalized activity coaching and a new music experience.

watchOS 4 also includes an enhanced Workout app and introduces GymKit™, a technology platform that offers users connected workouts with cardio equipment.

Application Software

The Company’s application software includes iWork® and various other software, including Final Cut Pro®, Logic Pro® X and FileMaker® Pro.

iWork is the Company’s integrated productivity suite included with all Mac computers and is designed to help users create, present and publish documents through Pages®, presentations through Keynote® and spreadsheets through Numbers®.

The Company also has Multi-Touch™ versions of iWork applications designed specifically for use on iOS devices, which are available as free downloads for all new iOS devices.

Accessories

The Company sells a variety of Apple-branded and third-party accessories, including Beats® products, headphones, displays, storage devices, and various other connectivity and computing products and supplies.

Additionally, in June 2017, the Company announced the HomePod™ wireless speaker and in September 2017, announced AirPower™, a new wireless charging accessory, which are expected to be available in December 2017 and calendar year 2018, respectively.

In September 2017, the Company introduced Apple TV 4K, which supports 4K and High Dynamic Range content, providing customers with enhanced picture quality.

In September 2017, the Company introduced Apple Watch Series 3, featuring health and fitness enhancements and built-in cellular capability on qualifying devices.

iPod touch

iPod touch, based on the Company’s iOS operating system, is a flash memory-based digital music and media player that works with the iTunes Store, App Store, iBooks Store and Apple Music for purchasing and playing digital content and apps.

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.

Total R&D expense was $11.6 billion, $10.0 billion and $8.1 billion in 2017, 2016 and 2015, respectively.

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.”

The supply and manufacture of a number of components is performed by sole-sourced outsourcing partners in the U.S., Asia and Europe.

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.”

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.

[removed: In] [added: Except as described in Part II, Item 8 of this Form 10-K in] the [added: Notes to Consolidated Financial Statements in Note 9, “Commitments and Contingencies” under the heading “Contingencies,” in the] opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims.

[removed: Therefore, although management considers the likelihood of such an outcome to be remote, if] [added: If] one or more [removed: of these] legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s [removed: consolidated] financial [removed: statements] [added: condition and operating results] for that reporting period could be materially adversely affected.

[removed: See] [added: Refer to] 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 [removed: 2017] [added: 2018] that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.

The outcome of litigation is inherently uncertain.

However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty.

For the fiscal year ended September [removed: 30, 2017][added: 29, 2018]

[removed: ][added: ]

Indicate by check mark whether the Registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: 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 Registrant was required to submit and post such files).

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [added: a] smaller reporting company, or an emerging growth company.

| Non-accelerated filer | | ☐ [removed: (Do not check if a smaller reporting company)] | | Smaller reporting company | | ☐ |

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of March [removed: 31, 2017,] [added: 30, 2018,] the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately [removed: $747,509,000,000.][added: $828,880,000,000.]

[removed: 5,134,312,000] [added: 4,745,398,000] shares of common stock were issued and outstanding as of October [removed: 20, 2017.][added: 26, 2018.]

Portions of the Registrant’s definitive proxy statement relating to its [removed: 2018] [added: 2019] annual meeting of shareholders (the [removed: “2018] [added: “2019] Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

The [removed: 2018] [added: 2019] 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.

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10-K 1 a10-k20189292018.htm 10-K

| One Apple Park Way Cupertino, California | | 95014 |

For the Fiscal Year Ended September 29, 2018

| | | |

| [Part I](#s3BB848FCD8905781B453DFFF0861164B) | | |

| [Part II](#s3B8BC521410054958D1841FAD29D8B76) | | |

| [Part IV](#sA641B38724A3501FB5FD0FE0A4D259EF) | | |

10-K 1 a10-k20179302017.htm 10-K

| 1 Infinite Loop Cupertino, California | | 95014 |

| [Part I](#s8CD194F4F7235E7CBD23B83A8FE8BFBC) | | |

| [Part II](#sC636D99EC3A8510FA69160A37750BD36) | | |

| [Part IV](#s1AC69328AE8C59F0BFFB3DE1C6C80485) | | |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 16][added: 17]

As of September [removed: 30, 2017,] [added: 29, 2018,] the Company owned [removed: 13.4] [added: 16.5] million square feet and leased [removed: 23.0] [added: 24.3] million square feet of building space, primarily in the U.S. Additionally, the Company owned a total of [removed: 4,928] [added: 7,376] acres of land, primarily in the U.S.

As of September [removed: 30, 2017,] [added: 29, 2018,] the Company owned facilities and land for corporate functions, R&D and data centers at various locations throughout the U.S. 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 [removed: operating] [added: reportable] 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 [removed: products.][added: products and services.]

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 17][added: 18]

As of October [removed: 20, 2017,] [added: 26, 2018,] there were [removed: 25,333] [added: 23,712] shareholders of record.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 18][added: 19]

Share repurchase activity during the three months ended September [removed: 30, 2017] [added: 29, 2018] was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):

| July [removed: 2, 2017] [added: 1, 2018] to August [removed: 5, 2017:] [added: 4, 2018:] | | | | | | | | | | | | | | |

| Open market and privately negotiated purchases | | [removed: 10,076] [added: 26,859] | | | $ | [removed: 148.87] [added: 192.50] | | | [removed: 10,076] [added: 26,859] | | | | | |

| August [removed: 6, 2017] [added: 5, 2018] to September [removed: 2, 2017:] [added: 1, 2018:] | | | | | | | | | | | | | | |

| Open market and privately negotiated purchases | | [removed: 9,684] [added: 36,575] | | | $ | [removed: 160.06] [added: 214.07] | | | [removed: 9,684] [added: 36,575] | | | | | |

| Open market and privately negotiated purchases | | [removed: 9,313] [added: 29,029] | | | $ | [removed: 155.69] [added: 222.07] | | | [removed: 9,313] [added: 29,029] | | | | | |

| (1) | [removed: In] [added: On] May [removed: 2017,] [added: 1, 2018,] the [removed: Company’s] [added: Company announced the] Board of Directors [removed: increased the Company’s share] [added: had authorized a program to] repurchase [removed: authorization from $175 billion] [added: up] to [removed: $210] [added: $100] billion of the Company’s common stock, of which [removed: $166] [added: $29.0] billion had been utilized as of September [removed: 30, 2017.] [added: 29, 2018.] The remaining [removed: $44] [added: $71.0] billion in the table represents the amount available to repurchase shares under the authorized repurchase program as of September [removed: 30, 2017.] [added: 29, 2018.] The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under [removed: the] [added: this] 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. |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 19][added: 20]

The following graph shows a comparison of cumulative total shareholder return, calculated on a [removed: dividend reinvested] [added: 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 for the five years ended September [removed: 30, 2017.][added: 29, 2018.]

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 as of the market close on September [removed: 28, 2012.][added: 27, 2013.]

[removed: ][added: ]

| * | $100 invested on [removed: 9/28/12] [added: September 27, 2013] 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. |

| | | September [removed: 2012 | | | | September] 2013 | | | | September 2014 | | | | September 2015 | | | | September 2016 | | | | September 2017 | | | [added: | September 2018 | | |]

| Dow Jones U.S. Technology Supersector Index | | $ | 100 | | | $ | [removed: 105] [added: 130] | | | $ | [removed: 137] [added: 130] | | | $ | [removed: 137] [added: 159] | | | $ | [removed: 167] [added: 203] | | | $ | [removed: 214] [added: 266] | |

| September 2, 2018 to September 29, 2018: | | | | | | | | | | | | | | |

| Total | | 92,463 | | | | | | | | | | $ | 70,970 | |

Copyright© 2018 Standard & Poor’s, a division of S&P Global.

Copyright© 2018 S&P Dow Jones Indices LLC, a division of S&P Global.

All rights reserved.

| Apple Inc. | | $ | 100 | | | $ | 149 | | | $ | 173 | | | $ | 174 | | | $ | 242 | | | $ | 359 | |

| S&P 500 Index | | $ | 100 | | | $ | 120 | | | $ | 119 | | | $ | 137 | | | $ | 163 | | | $ | 192 | |

| S&P Information Technology Index | | $ | 100 | | | $ | 129 | | | $ | 132 | | | $ | 162 | | | $ | 209 | | | $ | 275 | |

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.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |

| 2017 price range per share | $164.94 – $142.41 | | $156.65 – $140.06 | | $144.50 – $114.76 | | $118.69 – $104.08 |

| 2016 price range per share | $116.18 – $91.50 | | $112.39 – $89.47 | | $109.43 – $92.39 | | $123.82 – $105.57 |

Dividends

The Company paid a total of $12.6 billion and $12.0 billion in dividends during 2017 and 2016, respectively, and expects to pay quarterly dividends of $0.63 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.

| May 2017 ASR | | 4,510 | | | (2) | | | | 4,510 | | | | | |

| August 2017 ASR | | 15,069 | | (3) | (3) | | | | 15,069 | | (3) | | | |

| September 3, 2017 to September 30, 2017: | | | | | | | | | | | | | | |

| Total | | 48,652 | | | | | | | | | | $ | 44,023 | |

| | |

| --- | --- |

| (2) | In May 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) to purchase up to $3.0 billion of the Company’s common stock. In August 2017, the purchase period for this ASR ended and an additional 4.5 million shares were delivered and retired. In total, 20.1 million shares were delivered under this ASR at an average repurchase price of $149.20. |

| (3) | In August 2017, the Company entered into a new ASR to purchase up to $3.0 billion of the Company’s common stock. In exchange for an up-front payment of $3.0 billion, the financial institution party to the arrangement committed to deliver shares to the Company during the ASR’s purchase period, which will end in November 2017. 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. |

Copyright© 2017 S&P, a division of McGraw Hill Financial.

Copyright© 2017 Dow Jones & Co. All rights reserved.

| Apple Inc. | | $ | 100 | | | $ | 74 | | | $ | 111 | | | $ | 128 | | | $ | 129 | | | $ | 179 | |

| S&P 500 Index | | $ | 100 | | | $ | 119 | | | $ | 143 | | | $ | 142 | | | $ | 164 | | | $ | 194 | |

| S&P Information Technology Index | | $ | 100 | | | $ | 107 | | | $ | 138 | | | $ | 141 | | | $ | 173 | | | $ | 223 | |

Apple Inc. | 2017 Form 10-K | 20

The information set forth below for the five years ended September [removed: 30, 2017,] [added: 29, 2018,] 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).

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Net sales | $ | [removed: 229,234] [added: 265,595] | | | $ | [removed: 215,639] [added: 229,234] | | | $ | [removed: 233,715] [added: 215,639] | | | $ | [removed: 182,795] [added: 233,715] | | | $ | [removed: 170,910] [added: 182,795] | |

| Net income | $ | [removed: 48,351] [added: 59,531] | | | $ | [removed: 45,687] [added: 48,351] | | | $ | [removed: 53,394] [added: 45,687] | | | $ | [removed: 39,510] [added: 53,394] | | | $ | [removed: 37,037] [added: 39,510] | |

| Basic | $ | [removed: 9.27] [added: 12.01] | | | $ | [removed: 8.35] [added: 9.27] | | | $ | [removed: 9.28] [added: 8.35] | | | $ | [removed: 6.49] [added: 9.28] | | | $ | [removed: 5.72] [added: 6.49] | |

| Diluted | $ | [removed: 9.21] [added: 11.91] | | | $ | [removed: 8.31] [added: 9.21] | | | $ | [removed: 9.22] [added: 8.31] | | | $ | [removed: 6.45] [added: 9.22] | | | $ | [removed: 5.68] [added: 6.45] | |

| Cash dividends declared per share | $ | [removed: 2.40] [added: 2.72] | | | $ | [removed: 2.18] [added: 2.40] | | | $ | [removed: 1.98] [added: 2.18] | | | $ | [removed: 1.82] [added: 1.98] | | | $ | [removed: 1.64] [added: 1.82] | |

| Basic | [removed: 5,217,242] [added: 4,955,377] | | | | [removed: 5,470,820] [added: 5,217,242] | | | | [removed: 5,753,421] [added: 5,470,820] | | | | [removed: 6,085,572] [added: 5,753,421] | | | | [removed: 6,477,320] [added: 6,085,572] | | |

| Diluted | [removed: 5,251,692] [added: 5,000,109] | | | | [removed: 5,500,281] [added: 5,251,692] | | | | [removed: 5,793,069] [added: 5,500,281] | | | | [removed: 6,122,663] [added: 5,793,069] | | | | [removed: 6,521,634] [added: 6,122,663] | | |

| Total cash, cash equivalents and marketable securities | $ | [removed: 268,895] [added: 237,100] | | | $ | [removed: 237,585] [added: 268,895] | | | $ | [removed: 205,666] [added: 237,585] | | | $ | [removed: 155,239] [added: 205,666] | | | $ | [removed: 146,761] [added: 155,239] | |

| Total assets | $ | [removed: 375,319] [added: 365,725] | | | $ | [removed: 321,686] [added: 375,319] | | | $ | [removed: 290,345] [added: 321,686] | | | $ | [removed: 231,839] [added: 290,345] | | | $ | [removed: 207,000] [added: 231,839] | |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | 21

| Non-current portion of term debt | $ | 93,735 | | | $ | 97,207 | | | $ | 75,427 | | | $ | 53,329 | | | $ | 28,987 | |

| Other non-current liabilities | $ | 45,180 | | | $ | 40,415 | | | $ | 36,074 | | | $ | 33,427 | | | $ | 24,826 | |

| Commercial paper | $ | 11,977 | | | $ | 8,105 | | | $ | 8,499 | | | $ | 6,308 | | | $ | — | |

| Total term debt (1) | $ | 103,703 | | | $ | 78,927 | | | $ | 55,829 | | | $ | 28,987 | | | $ | 16,960 | |

| Other long-term obligations (2) | $ | 40,415 | | | $ | 36,074 | | | $ | 33,427 | | | $ | 24,826 | | | $ | 20,208 | |

| Total liabilities | $ | 241,272 | | | $ | 193,437 | | | $ | 170,990 | | | $ | 120,292 | | | $ | 83,451 | |

| Total shareholders’ equity | $ | 134,047 | | | $ | 128,249 | | | $ | 119,355 | | | $ | 111,547 | | | $ | 123,549 | |

| | |

| --- | --- |

| (1) | Includes current and long-term portion of term debt. |

| (2) | Excludes non-current deferred revenue. |

| [Consolidated Statements of Operations for the years ended September [removed: 30, 2017,] [added: 29, 2018,] September [removed: 24, 2016] [added: 30, 2017] and September [removed: 26, 2015](#s7C6CCB264A425ACBB17DAE95539ED18A)] [added: 24, 2016](#s7699811054DB54C4A592D6E5B5BD32B7)] | | [removed: [39](#s7C6CCB264A425ACBB17DAE95539ED18A)] [added: [38](#s7699811054DB54C4A592D6E5B5BD32B7)] |

| [Consolidated Statements of Comprehensive Income for the years ended September [removed: 30, 2017,] [added: 29, 2018,] September [removed: 24, 2016] [added: 30, 2017] and September [removed: 26, 2015](#s36812B06546955C98502CC5CBCD663E9)] [added: 24, 2016](#s2983BBBD222758FE894E9D07D76E7F49)] | | [removed: [40](#s36812B06546955C98502CC5CBCD663E9)] [added: [39](#s2983BBBD222758FE894E9D07D76E7F49)] |

| [Consolidated Balance Sheets as of September [removed: 30, 2017] [added: 29, 2018] and September [removed: 24, 2016](#s6F48F6DFDEFA5E9DB0C330DFE0382F68)] [added: 30, 2017](#s89D18B6BECA751588D8AD93C418ED353)] | | [removed: [41](#s6F48F6DFDEFA5E9DB0C330DFE0382F68)] [added: [40](#s89D18B6BECA751588D8AD93C418ED353)] |

| [Consolidated Statements of Shareholders’ Equity for the years ended September [removed: 30, 2017,] [added: 29, 2018,] September [removed: 24, 2016] [added: 30, 2017] and September [removed: 26, 2015](#sED2B65808C0252559DDC9DE433461F4C)] [added: 24, 2016](#s2371694182255298AFA942F140F18B7D)] | | [removed: [42](#sED2B65808C0252559DDC9DE433461F4C)] [added: [41](#s2371694182255298AFA942F140F18B7D)] |

| [Consolidated Statements of Cash Flows for the years ended September [added: 29, 2018, September] 30, [removed: 2017,] [added: 2017 and] September 24, [removed: 2016 and](#s810B9BAF644354B187045E082E52F5E8) [September 26, 2015](#s810B9BAF644354B187045E082E52F5E8)] [added: 2016](#sE585273B2EE25A9DB55C6483D0E8E225)] | | [removed: [43](#s810B9BAF644354B187045E082E52F5E8)] [added: [42](#sE585273B2EE25A9DB55C6483D0E8E225)] |

| [Notes to Consolidated Financial [removed: Statements](#sA11BC034230A5F68B4D421BD4B676F5C)] [added: Statements](#s9CFA4FAD42005CE09BB5A2A0F2FA386A)] | | [removed: [44](#sA11BC034230A5F68B4D421BD4B676F5C)] [added: [43](#s9CFA4FAD42005CE09BB5A2A0F2FA386A)] |

| [Selected Quarterly Financial Information [removed: (Unaudited)](#s7563175644E55FF4B2CE4FD251E84096)] [added: (Unaudited)](#s06C8ABB5ED3D51CFB48E40BC455B7FD8)] | | [removed: [68](#s7563175644E55FF4B2CE4FD251E84096)] [added: [64](#s06C8ABB5ED3D51CFB48E40BC455B7FD8)] |

| [Reports of [removed: Ernst & Young LLP,] Independent Registered Public Accounting [removed: Firm](#s9C59935312A252DFABD5E9F24743E098)] [added: Firm](#s537D63A68FF15409819E4272AB310E76)] | | [removed: [70](#s9C59935312A252DFABD5E9F24743E098)] [added: [65](#s537D63A68FF15409819E4272AB310E76)] |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 38][added: 37]

| | September [removed: 30, 2017] [added: 29, 2018] | | | | September [removed: 24, 2016] [added: 30, 2017] | | | | September [removed: 26, 2015] [added: 24, 2016] | | |

| Net sales | $ | [removed: 229,234] [added: 265,595] | | | $ | [removed: 215,639] [added: 229,234] | | | $ | [removed: 233,715] [added: 215,639] | |

| Cost of sales | [removed: 141,048] [added: 163,756] | | | | [removed: 131,376] [added: 141,048] | | | | [removed: 140,089] [added: 131,376] | | |

| Gross margin | [removed: 88,186] [added: 101,839] | | | | [removed: 84,263] [added: 88,186] | | | | [removed: 93,626] [added: 84,263] | | |

| Research and development | [removed: 11,581] [added: 14,236] | | | | [removed: 10,045] [added: 11,581] | | | | [removed: 8,067] [added: 10,045] | | |

| Selling, general and administrative | [removed: 15,261] [added: 16,705] | | | | [removed: 14,194] [added: 15,261] | | | | [removed: 14,329] [added: 14,194] | | |

| Total operating expenses | [removed: 26,842] [added: 30,941] | | | | [removed: 24,239] [added: 26,842] | | | | [removed: 22,396] [added: 24,239] | | |

| Operating income | [removed: 61,344] [added: 70,898] | | | | [removed: 60,024] [added: 61,344] | | | | [removed: 71,230] [added: 60,024] | | |

| Other income/(expense), net | [removed: 2,745] [added: 2,005] | | | | [removed: 1,348] [added: 2,745] | | | | [removed: 1,285] [added: 1,348] | | |

| Income before provision for income taxes | [removed: 64,089] [added: 72,903] | | | | [removed: 61,372] [added: 64,089] | | | | [removed: 72,515] [added: 61,372] | | |

| Provision for income taxes | [removed: 15,738] [added: 13,372] | | | | [removed: 15,685] [added: 15,738] | | | | [removed: 19,121] [added: 15,685] | | |

| Net income | $ | [removed: 48,351] [added: 59,531] | | | $ | [removed: 45,687] [added: 48,351] | | | $ | [removed: 53,394] [added: 45,687] | |

| Basic | $ | [removed: 9.27] [added: 12.01] | | | $ | [removed: 8.35] [added: 9.27] | | | $ | [removed: 9.28] [added: 8.35] | |

| Diluted | $ | [removed: 9.21] [added: 11.91] | | | $ | [removed: 8.31] [added: 9.21] | | | $ | [removed: 9.22] [added: 8.31] | |

| Basic | [removed: 5,217,242] [added: 4,955,377] | | | | [removed: 5,470,820] [added: 5,217,242] | | | | [removed: 5,753,421] [added: 5,470,820] | | |

| Diluted | [removed: 5,251,692] [added: 5,000,109] | | | | [removed: 5,500,281] [added: 5,251,692] | | | | [removed: 5,793,069] [added: 5,500,281] | | |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 39][added: 38]

| Change in foreign currency translation, net of tax effects of [removed: $(77), $8] [added: $(1), $(77)] and [removed: $201,] [added: $8,] respectively | [removed: 224] [added: (525] | | [added: )] | | [removed: 75] [added: 224] | | | | [removed: (411] [added: 75] | | [removed: )] |

| Change in fair value of derivatives, net of tax benefit/(expense) of [removed: $(478), $(7)] [added: $(149), $(478)] and [removed: $(441),] [added: $(7),] respectively | [removed: 1,315] [added: 523] | | | | [removed: 7] [added: 1,315] | | | | [removed: 2,905] [added: 7] | | |

| Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of [removed: $475, $131] [added: $(104), $475] and [removed: $630,] [added: $131,] respectively | [removed: (1,477] [added: 382] | | [removed: )] | | [removed: (741] [added: (1,477] | | ) | | [removed: (3,497] [added: (741] | | ) |

| Total change in unrealized gains/losses on derivative instruments, net of tax | [removed: (162] [added: 905] | | [removed: )] | | [removed: (734] [added: (162] | | ) | | [removed: (592] [added: (734] | | ) |

| Change in fair value of marketable securities, net of tax benefit/(expense) of [removed: $425, $(863)] [added: $1,156, $425] and [removed: $264,] [added: $(863),] respectively | [removed: (782] [added: (3,407] | | ) | | [removed: 1,582] [added: (782] | | [added: )] | | [removed: (483] [added: 1,582] | | [removed: )] |

| Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of [removed: $35, $(31)] [added: $21, $35] and [removed: $(32),] [added: $(31),] respectively | [removed: (64] [added: 1] | | [removed: )] | | [removed: 56] [added: (64] | | [added: )] | | [removed: 59] [added: 56] | | |

| Total change in unrealized gains/losses on marketable securities, net of tax | [removed: (846] [added: (3,406] | | ) | | [removed: 1,638] [added: (846] | | [added: )] | | [removed: (424] [added: 1,638] | | [removed: )] |

| Total other comprehensive income/(loss) | [removed: (784] [added: (3,026] | | ) | | [removed: 979] [added: (784] | | [added: )] | | [removed: (1,427] [added: 979] | | [removed: )] |

| Total comprehensive income | $ | [removed: 47,567] [added: 56,505] | | | $ | [removed: 46,666] [added: 47,567] | | | $ | [removed: 51,967] [added: 46,666] | |

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 40][added: 39]

| | September [added: 29, 2018 | | | | September] 30, 2017 | | | | September 24, 2016 | | |

| Cash and cash equivalents | $ | [removed: 20,289] [added: 25,913] | | | $ | [removed: 20,484] [added: 20,289] | |

| [removed: Short-term marketable] [added: Marketable] securities | [removed: 53,892] [added: 40,388] | | | | [removed: 46,671] [added: 53,892] | | |

| Inventories | [removed: 4,855] [added: 3,956] | | | | [removed: 2,132] [added: 4,855] | | |

| | September 29, 2018 | | | | September 30, 2017 | | |

| Accounts receivable, net | 23,186 | | | | 17,874 | | |

| Non-current assets: | | | | | | | |

| Total non-current assets | 234,386 | | | | 246,674 | | |

| Accounts payable | $ | 55,888 | | | $ | 44,242 | |

| Other current liabilities | 32,687 | | | | 30,551 | | |

| Term debt | 8,784 | | | | 6,496 | | |

| Non-current liabilities: | | | | | | | |

| Total non-current liabilities | 141,712 | | | | 140,458 | | |

| Cumulative effect of change in accounting principle | — | | | — | | | | 278 | | | | (278 | | ) | | — | | |

| Repurchase of common stock | (405,549 | ) | | — | | | | (73,056 | | ) | | — | | | | (73,056 | | ) |

| Balances as of September 29, 2018 | 4,754,986 | | | $ | 40,201 | | | $ | 70,400 | | | $ | (3,454 | ) | | $ | 107,147 | |

| | September 29, 2018 | | | | September 30, 2017 | | | | September 24, 2016 | | |

| Net income | 59,531 | | | | 48,351 | | | | 45,687 | | |

| Accounts payable | 9,175 | | | | 8,966 | | | | 2,117 | | |

| Purchases of non-marketable securities | (1,871 | | ) | | (521 | | ) | | (1,388 | | ) |

| Proceeds from non-marketable securities | 353 | | | | 126 | | | | — | | |

| Other | (745 | | ) | | (124 | | ) | | (924 | | ) |

The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest.

During the first quarter of 2018, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which modified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows.

Historically, excess tax benefits or deficiencies from the Company’s equity awards were recorded as additional paid-in capital in its Consolidated Balance Sheets and were classified as a financing activity in its Consolidated Statements of Cash Flows.

Beginning in 2018, the Company records any excess tax benefits or deficiencies from its equity awards as part of the provision for income taxes in its Consolidated Statements of Operations in the reporting periods in which equity vesting occurs.

The Company elected to apply the cash flow classification requirements related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to cash generated by operating activities in the Consolidated Statements of Cash Flows of $627 million and $407 million for 2017 and 2016, respectively.

| Net income | $ | 59,531 | | | $ | 48,351 | | | $ | 45,687 | |

During 2018, non-cash investing activities involving property, plant and equipment resulted in a net increase to accounts payable and other current liabilities of $3.4 billion.

| Cash | $ | 11,575 | | | $ | — | | | $ | — | | | $ | 11,575 | | | $ | 11,575 | | | $ | — | | | $ | — | |

| Mutual funds | 799 | | | | — | | | | (116 | | ) | | 683 | | | | — | | | | 683 | | | | — | | |

| Subtotal | 8,882 | | | | — | | | | (116 | | ) | | 8,766 | | | | 8,083 | | | | 683 | | | | — | | |

| U.S. Treasury securities | 47,296 | | | | — | | | | (1,202 | | ) | | 46,094 | | | | 1,613 | | | | 7,606 | | | | 36,875 | | |

| U.S. agency securities | 4,127 | | | | — | | | | (48 | | ) | | 4,079 | | | | 1,732 | | | | 360 | | | | 1,987 | | |

| Non-U.S. government securities | 21,601 | | | | 49 | | | | (250 | | ) | | 21,400 | | | | — | | | | 3,355 | | | | 18,045 | | |

| Certificates of deposit and time deposits | 3,074 | | | | — | | | | — | | | | 3,074 | | | | 1,247 | | | | 1,330 | | | | 497 | | |

| Commercial paper | 2,573 | | | | — | | | | — | | | | 2,573 | | | | 1,663 | | | | 910 | | | | — | | |

| Corporate securities | 123,001 | | | | 152 | | | | (2,038 | | ) | | 121,115 | | | | — | | | | 25,162 | | | | 95,953 | | |

| Municipal securities | 946 | | | | — | | | | (12 | | ) | | 934 | | | | — | | | | 178 | | | | 756 | | |

| Mortgage- and asset-backed securities | 18,105 | | | | 8 | | | | (623 | | ) | | 17,490 | | | | — | | | | 804 | | | | 16,686 | | |

| Subtotal | 220,723 | | | | 209 | | | | (4,173 | | ) | | 216,759 | | | | 6,255 | | | | 39,705 | | | | 170,799 | | |

| Total (3) | $ | 241,180 | | | $ | 209 | | | $ | (4,289 | ) | | $ | 237,100 | | | $ | 25,913 | | | $ | 40,388 | | | $ | 170,799 | |

| Level 1 (1): | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Level 2 (2): | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | |

| --- | --- | --- |

| Cash dividends declared per share | $ | 2.40 | | | $ | 2.18 | | | $ | 1.98 | |

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| Accounts receivable, less allowances of $58 and $53, respectively | 17,874 | | | | 15,754 | | |

| Goodwill | 5,717 | | | | 5,414 | | |

| Acquired intangible assets, net | 2,298 | | | | 3,206 | | |

| Accounts payable | $ | 49,049 | | | $ | 37,294 | |

| Accrued expenses | 25,744 | | | | 22,027 | | |

| Balances as of September 27, 2014 | 5,866,161 | | | $ | 23,313 | | | $ | 87,152 | | | $ | 1,082 | | | $ | 111,547 | |

| Repurchase of common stock | (325,032 | ) | | — | | | | (36,026 | | ) | | — | | | | (36,026 | | ) |

| Tax benefit from equity awards, including transfer pricing adjustments | — | | | 748 | | | | — | | | | — | | | | 748 | | |

| Accounts payable | 9,618 | | | | 1,837 | | | | 5,001 | | |

| Payments for acquisition of intangible assets | (344 | | ) | | (814 | | ) | | (241 | | ) |

| Payments for strategic investments, net | (395 | | ) | | (1,388 | | ) | | — | | |

| Other | 220 | | | | (110 | | ) | | (26 | | ) |

| Excess tax benefits from equity awards | 627 | | | | 407 | | | | 749 | | |

The Company’s fiscal years 2016 and 2015 ended on September 24, 2016 and September 26, 2015, respectively, and spanned 52 weeks each.

Warranty Costs

The Company generally provides for the estimated cost of hardware and software warranties in the period the related revenue is recognized.

The Company assesses the adequacy of its accrued 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 and as a result software development costs were expensed as incurred.

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 Company’s equity instruments or that may be settled by the issuance of such equity instruments.

Share-based compensation expense for restricted stock units (“RSUs”) and restricted stock is measured based on the closing fair market value of the Company’s common stock on the date of grant.

The Company estimates forfeitures expected to occur and recognizes share-based compensation expense for those equity awards expected to vest.

The Company recognizes share-based compensation expense 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 conditions.

The Company recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’ Equity if an excess 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.

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” 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.

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 Exchange Act were effective as of September [removed: 30, 2017] [added: 29, 2018] 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 SEC 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.

Based on the Company’s assessment, management has concluded that its internal control over financial reporting was effective as of September [removed: 30, 2017] [added: 29, 2018] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of [removed: 2017,] [added: 2018,] 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.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 72][added: 67]

None.

Not applicable.

The information required by this Item is set forth under the headings “Corporate Governance,” “Directors,” “Executive Officers” and “Other Information—Security Ownership of Certain Beneficial Owners and Management” in the Company’s [removed: 2018] [added: 2019] Proxy Statement to be filed with the SEC within 120 days after September [removed: 30, 2017] [added: 29, 2018] in connection with the solicitation of proxies for the Company’s [removed: 2018] [added: 2019] annual meeting of shareholders and is incorporated herein by reference.

The code is available at investor.apple.com/investor-relations/leadership-and-governance/.

The code is available at investor.apple.com/corporate-governance.cfm.

The information required by this Item is set forth under the heading “Executive Compensation,” under the subheadings “Board Oversight of Risk Management” and “Compensation Committee Interlocks and Insider Participation” under the heading “Corporate Governance” and under the subheadings “Compensation of Directors” and “Director [removed: Compensation—2017”] [added: Compensation—2018”] under the heading “Directors” in the Company’s [removed: 2018] [added: 2019] Proxy Statement to be filed with the SEC within 120 days after September [removed: 30, 2017] [added: 29, 2018] and is incorporated herein by reference.

The information required by this Item is set forth under the headings “Other Information—Security Ownership of Certain Beneficial Owners and Management” and “Other Information—Equity Compensation Plan Information” in the Company’s [removed: 2018] [added: 2019] Proxy Statement to be filed with the SEC within 120 days after September [removed: 30, 2017] [added: 29, 2018] and is incorporated herein by reference.

The information required by this Item is set forth under the subheadings “Board Committees”, “Review, Approval, or Ratification of Transactions with Related Persons” and “Transactions with Related Persons” under the heading “Corporate Governance” in the Company’s [removed: 2018] [added: 2019] Proxy Statement to be filed with the SEC within 120 days after September [removed: 30, 2017] [added: 29, 2018] and is incorporated herein by reference.

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 [removed: 2018] [added: 2019] Proxy Statement to be filed with the SEC within 120 days after September [removed: 30, 2017] [added: 29, 2018] and is incorporated herein by reference.

Apple Inc. | [removed: 2017] [added: 2018] Form 10-K | [removed: 73][added: 68]

| [Consolidated Statements of Operations for the years ended September [removed: 30, 2017,] [added: 29, 2018,] September [removed: 24, 2016] [added: 30, 2017] and September [removed: 26, 2015](#s7C6CCB264A425ACBB17DAE95539ED18A)] [added: 24, 2016](#s7699811054DB54C4A592D6E5B5BD32B7)] | | [removed: [39](#s7C6CCB264A425ACBB17DAE95539ED18A)] [added: [38](#s7699811054DB54C4A592D6E5B5BD32B7)] |

| [Consolidated Statements of Comprehensive Income for the years ended September [removed: 30, 2017,] [added: 29, 2018,] September [removed: 24, 2016] [added: 30, 2017] and September [removed: 26, 2015](#s36812B06546955C98502CC5CBCD663E9)] [added: 24, 2016](#s2983BBBD222758FE894E9D07D76E7F49)] | | [removed: [40](#s36812B06546955C98502CC5CBCD663E9)] [added: [39](#s2983BBBD222758FE894E9D07D76E7F49)] |

| [Consolidated Balance Sheets as of September [removed: 30, 2017] [added: 29, 2018] and September [removed: 24, 2016](#s6F48F6DFDEFA5E9DB0C330DFE0382F68)] [added: 30, 2017](#s89D18B6BECA751588D8AD93C418ED353)] | | [removed: [41](#s6F48F6DFDEFA5E9DB0C330DFE0382F68)] [added: [40](#s89D18B6BECA751588D8AD93C418ED353)] |