Apple Earnings 2016-12-31

Apple Earnings 2016-12-31

AAPL 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 a10-qq1201712312016.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36743

Apple Inc.

(Exact name of Registrant as specified in its charter)




California		94-2404110
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Infinite Loop Cupertino, California		95014
(Address of principal executive offices)		(Zip Code)

(408) 996-1010

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

5,246,540,000 shares of common stock, par value $0.00001 per share, issued and outstanding as of January 20, 2017

Apple Inc.

Form 10-Q

For the Fiscal Quarter Ended December 31, 2016

TABLE OF CONTENTS



		Page
Part I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

Part II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

PART I — FINANCIAL INFORMATION

Item 1.
Financial Statements

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except number of shares which are reflected in thousands and per share amounts)



	Three Months Ended
	December 31, 2016		December 26, 2015
Net sales	$	78,351	$	75,872
Cost of sales	48,175		45,449
Gross margin	30,176		30,423

Operating expenses:
Research and development	2,871		2,404
Selling, general and administrative	3,946		3,848
Total operating expenses	6,817		6,252

Operating income	23,359		24,171
Other income/(expense), net	821		402
Income before provision for income taxes	24,180		24,573
Provision for income taxes	6,289		6,212
Net income	$	17,891	$	18,361

Earnings per share:
Basic	$	3.38	$	3.30
Diluted	$	3.36	$	3.28

Shares used in computing earnings per share:
Basic	5,298,661		5,558,930
Diluted	5,327,995		5,594,127

Cash dividends declared per share	$	0.57	$	0.52

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)



	Three Months Ended
	December 31, 2016			December 26, 2015
Net income	$	17,891		$	18,361
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax effects of $76 and $19, respectively	(375		)	(102		)

Change in unrealized gains/losses on derivative instruments:
Change in fair value of derivatives, net of tax benefit/(expense) of $(228) and $(38), respectively	1,468			287
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(211) and $66, respectively	306			(445		)
Total change in unrealized gains/losses on derivative instruments, net of tax	1,774			(158		)

Change in unrealized gains/losses on marketable securities:
Change in fair value of marketable securities, net of tax benefit/(expense) of $989 and $508, respectively	(1,808		)	(922		)
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(11) and $(26), respectively	20			47
Total change in unrealized gains/losses on marketable securities, net of tax	(1,788		)	(875		)

Total other comprehensive income/(loss)	(389		)	(1,135		)
Total comprehensive income	$	17,502		$	17,226

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except number of shares which are reflected in thousands and par value)



	December 31, 2016		September 24, 2016
ASSETS:
Current assets:
Cash and cash equivalents	$	16,371	$	20,484
Short-term marketable securities	44,081		46,671
Accounts receivable, less an allowance of $53 in each period	14,057		15,754
Inventories	2,712		2,132
Vendor non-trade receivables	13,920		13,545
Other current assets	12,191		8,283
Total current assets	103,332		106,869

Long-term marketable securities	185,638		170,430
Property, plant and equipment, net	26,510		27,010
Goodwill	5,423		5,414
Acquired intangible assets, net	2,848		3,206
Other non-current assets	7,390		8,757
Total assets	$	331,141	$	321,686

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	38,510	$	37,294
Accrued expenses	23,739		22,027
Deferred revenue	7,889		8,080
Commercial paper	10,493		8,105
Current portion of long-term debt	3,499		3,500
Total current liabilities	84,130		79,006

Deferred revenue, non-current	3,163		2,930
Long-term debt	73,557		75,427
Other non-current liabilities	37,901		36,074
Total liabilities	198,751		193,437

Commitments and contingencies

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,255,423 and 5,336,166 shares issued and outstanding, respectively	32,144		31,251
Retained earnings	100,001		96,364
Accumulated other comprehensive income/(loss)	245		634
Total shareholders’ equity	132,390		128,249
Total liabilities and shareholders’ equity	$	331,141	$	321,686

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



	Three Months Ended
	December 31, 2016			December 26, 2015
Cash and cash equivalents, beginning of the period	$	20,484		$	21,120

Operating activities:
Net income	17,891			18,361
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization	2,987			2,954
Share-based compensation expense	1,256			1,078
Deferred income tax expense	1,452			1,592
Other	(274		)	110
Changes in operating assets and liabilities:
Accounts receivable, net	1,697			3,896
Inventories	(580		)	(102		)
Vendor non-trade receivables	(375		)	1,826
Other current and non-current assets	(1,446		)	(1,058		)
Accounts payable	2,460			(852		)
Deferred revenue	42			(29		)
Other current and non-current liabilities	1,946			(313		)
Cash generated by operating activities	27,056			27,463

Investing activities:
Purchases of marketable securities	(54,272		)	(47,836		)
Proceeds from maturities of marketable securities	6,525			3,514
Proceeds from sales of marketable securities	32,166			28,262
Payments made in connection with business acquisitions, net	(17		)	(86		)
Payments for acquisition of property, plant and equipment	(3,334		)	(3,612		)
Payments for acquisition of intangible assets	(86		)	(394		)
Payments for strategic investments	—			(126		)
Other	(104		)	(172		)
Cash used in investing activities	(19,122		)	(20,450		)

Financing activities:
Proceeds from issuance of common stock	—			1
Excess tax benefits from equity awards	178			224
Payments for taxes related to net share settlement of equity awards	(629		)	(597		)
Payments for dividends and dividend equivalents	(3,130		)	(2,969		)
Repurchases of common stock	(10,851		)	(6,863		)
Change in commercial paper, net	2,385			(1,240		)
Cash used in financing activities	(12,047		)	(11,444		)

Increase/(Decrease) in cash and cash equivalents	(4,113		)	(4,431		)
Cash and cash equivalents, end of the period	$	16,371		$	16,689

Supplemental cash flow disclosure:
Cash paid for income taxes, net	$	3,510		$	3,398
Cash paid for interest	$	497		$	396

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone^®, iPad^®, Mac^®, iPod^®, Apple Watch^®, Apple TV^®, a portfolio of consumer and professional software applications, iOS, macOS™, watchOS^® and tvOS™ operating systems, iCloud^®, Apple Pay^® and a variety of accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store^®, App Store^®, Mac App Store, TV App Store, iBooks Store™ and Apple Music^® (collectively “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 value-added resellers. In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.

Basis of Presentation and Preparation

The accompanying condensed consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company's annual consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 24, 2016 (the “2016 Form 10-K”).

The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’s fiscal year 2017 will include 53 weeks and ends on September 30, 2017 and its fiscal year 2016 included 52 weeks and ended on September 24, 2016. A 14th week has been included in the first quarter of 2017, as is done every five or six years, to realign fiscal quarters with calendar quarters. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan, unvested restricted stock and unvested restricted stock units (“RSUs”). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table shows the computation of basic and diluted earnings per share for the three months ended December 31, 2016 and December 26, 2015 (net income in millions and shares in thousands):



	Three Months Ended
	December 31, 2016		December 26, 2015
Numerator:
Net income	$	17,891	$	18,361

Denominator:
Weighted-average shares outstanding	5,298,661		5,558,930
Effect of dilutive securities	29,334		35,197
Weighted-average diluted shares	5,327,995		5,594,127

Basic earnings per share	$	3.38	$	3.30
Diluted earnings per share	$	3.36	$	3.28

Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share.

Note 2 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables show the Company’s cash and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term marketable securities as of December 31, 2016 and September 24, 2016 (in millions):



	December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
Cash	$	9,359	$	—	$	—		$	9,359	$	9,359	$	—	$	—

Level 1 ⁽¹⁾:
Money market funds	4,640		—		—			4,640		4,640		—		—
Mutual funds	1,004		—		(137		)	867		—		867		—
Subtotal	5,644		—		(137		)	5,507		4,640		867		—

Level 2 ⁽²⁾:
U.S. Treasury securities	48,431		47		(333		)	48,145		1,022		13,074		34,049
U.S. agency securities	4,284		4		(10		)	4,278		404		1,999		1,875
Non-U.S. government securities	7,574		79		(136		)	7,517		—		408		7,109
Certificates of deposit and time deposits	5,893		—		—			5,893		334		4,089		1,470
Commercial paper	3,750		—		—			3,750		536		3,214		—
Corporate securities	140,697		469		(737		)	140,429		76		20,283		120,070
Municipal securities	955		—		(9		)	946		—		111		835
Mortgage- and asset-backed securities	20,486		23		(243		)	20,266		—		36		20,230
Subtotal	232,070		622		(1,468		)	231,224		2,372		43,214		185,638

Total	$	247,073	$	622	$	(1,605	)	$	246,090	$	16,371	$	44,081	$	185,638



	September 24, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
Cash	$	8,601	$	—	$	—		$	8,601	$	8,601	$	—	$	—

Level 1 ⁽¹⁾:
Money market funds	3,666		—		—			3,666		3,666		—		—
Mutual funds	1,407		—		(146		)	1,261		—		1,261		—
Subtotal	5,073		—		(146		)	4,927		3,666		1,261		—

Level 2 ⁽²⁾:
U.S. Treasury securities	41,697		319		(4		)	42,012		1,527		13,492		26,993
U.S. agency securities	7,543		16		—			7,559		2,762		2,441		2,356
Non-U.S. government securities	7,609		259		(27		)	7,841		110		818		6,913
Certificates of deposit and time deposits	6,598		—		—			6,598		1,108		3,897		1,593
Commercial paper	7,433		—		—			7,433		2,468		4,965		—
Corporate securities	131,166		1,409		(206		)	132,369		242		19,599		112,528
Municipal securities	956		5		—			961		—		167		794
Mortgage- and asset-backed securities	19,134		178		(28		)	19,284		—		31		19,253
Subtotal	222,136		2,186		(265		)	224,057		8,217		45,410		170,430

Total	$	235,810	$	2,186	$	(411	)	$	237,585	$	20,484	$	46,671	$	170,430


(1)	Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.


(2)	Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The maturities of the Company’s long-term marketable securities generally range from one to five years.

The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of December 31, 2016, the Company does not consider any of its investments to be other-than-temporarily impaired.

Derivative Financial Instruments

The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.

To help protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar and who sell in local currencies may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

To help protect the net investment in a foreign operation from adverse changes in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency-denominated debt, as economic hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.

The Company may also enter into non-designated foreign currency contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities denominated in non-functional currencies.

The Company may enter into interest rate swaps, options, or other instruments to manage interest rate risk. These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s term debt or investments. The Company designates these instruments as either cash flow or fair value hedges. The Company’s hedged interest rate transactions as of December 31, 2016 are expected to be recognized within 10 years.

Cash Flow Hedges

The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income/(expense), net. Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.

Net Investment Hedges

The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net.

Fair Value Hedges

Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item.

Non-Designated Derivatives

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. As a result, during the three months ended December 31, 2016, the Company recognized gains in net sales, cost of sales and other income/(expense), net of $273 million, $332 million and $508 million, respectively.

The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of December 31, 2016 and September 24, 2016 (in millions):



	December 31, 2016
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets ⁽¹⁾:
Foreign exchange contracts	$	1,453	$	1,104	$	2,557
Interest rate contracts	$	186	$	—	$	186

Derivative liabilities ⁽²⁾:
Foreign exchange contracts	$	977	$	536	$	1,513
Interest rate contracts	$	331	$	—	$	331



	September 24, 2016
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets⁽¹⁾:
Foreign exchange contracts	$	518	$	153	$	671
Interest rate contracts	$	728	$	—	$	728

Derivative liabilities ⁽²⁾:
Foreign exchange contracts	$	935	$	134	$	1,069
Interest rate contracts	$	7	$	—	$	7


(1)	The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Condensed Consolidated Balance Sheets.


(2)	The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Condensed Consolidated Statements of Operations for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016			December 26, 2015
Gains/(Losses) recognized in OCI – effective portion:
Cash flow hedges:
Foreign exchange contracts	$	1,727		$	326
Interest rate contracts	7			8
Total	$	1,734		$	334

Net investment hedges:
Foreign exchange contracts	$	—		$	—
Foreign currency debt	122			10
Total	$	122		$	10

Gains/(Losses) reclassified from AOCI into net income – effective portion:
Cash flow hedges:
Foreign exchange contracts	$	(511	)	$	515
Interest rate contracts	(1		)	(4		)
Total	$	(512	)	$	511

Gains/(Losses) on derivative instruments:
Fair value hedges:
Interest rate contracts	$	(872	)	$	(111	)

Gains/(Losses) related to hedged items:
Fair value hedges:
Interest rate contracts	$	872		$	111

The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of December 31, 2016 and September 24, 2016 (in millions):



	December 31, 2016				September 24, 2016
	Notional Amount		Credit Risk Amount		Notional Amount		Credit Risk Amount
Instruments designated as accounting hedges:
Foreign exchange contracts	$	40,526	$	1,453	$	44,678	$	518
Interest rate contracts	$	24,500	$	186	$	24,500	$	728

Instruments not designated as accounting hedges:
Foreign exchange contracts	$	57,144	$	1,104	$	54,305	$	153

The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Condensed Consolidated Balance Sheets. The net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $1.1 billion as of December 31, 2016 and $163 million as of September 24, 2016, which were recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of December 31, 2016 and September 24, 2016, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $2.7 billion and $1.5 billion, respectively, resulting in a net derivative liability of $222 million and a net derivative asset of $160 million, respectively.

Accounts Receivable

Trade Receivables

The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, value-added resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.

As of December 31, 2016 and September 24, 2016, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 11% and 10%, respectively. The Company’s cellular network carriers accounted for 55% and 63% of trade receivables as of December 31, 2016 and September 24, 2016, respectively.

Vendor Non-Trade Receivables

The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. Vendor non-trade receivables from three of the Company’s vendors accounted for 49%, 14% and 13% of total vendor non-trade receivables as of December 31, 2016, and two of the Company’s vendors accounted for 47% and 21% of total vendor non-trade receivables as of September 24, 2016.

Note 3 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s condensed consolidated financial statement details as of December 31, 2016 and September 24, 2016 (in millions):

Property, Plant and Equipment, Net



	December 31, 2016			September 24, 2016
Land and buildings	$	10,932		$	10,185
Machinery, equipment and internal-use software	45,309			44,543
Leasehold improvements	6,518			6,517
Gross property, plant and equipment	62,759			61,245
Accumulated depreciation and amortization	(36,249		)	(34,235		)
Total property, plant and equipment, net	$	26,510		$	27,010

Other Non-Current Liabilities



	December 31, 2016		September 24, 2016
Deferred tax liabilities	$	26,948	$	26,019
Other non-current liabilities	10,953		10,055
Total other non-current liabilities	$	37,901	$	36,074

Other Income/(Expense), Net

The following table shows the detail of other income/(expense), net for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016			December 26, 2015
Interest and dividend income	$	1,224		$	941
Interest expense	(525		)	(276		)
Other income/(expense), net	122			(263		)
Total other income/(expense), net	$	821		$	402

Note 4 – Acquired Intangible Assets

The Company’s acquired intangible assets with definite useful lives primarily consist of patents and licenses. The following table summarizes the components of gross and net acquired intangible asset balances as of December 31, 2016 and September 24, 2016 (in millions):



	December 31, 2016							September 24, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived and amortizable acquired intangible assets	$	7,472	$	(4,724	)	$	2,748	$	8,912	$	(5,806	)	$	3,106
Indefinite-lived and non-amortizable acquired intangible assets	100		—			100		100		—			100
Total acquired intangible assets	$	7,572	$	(4,724	)	$	2,848	$	9,012	$	(5,806	)	$	3,206

Note 5 – Income Taxes

As of December 31, 2016, the Company recorded gross unrecognized tax benefits of $8.5 billion, of which $3.0 billion, if recognized, would affect the Company’s effective tax rate. As of September 24, 2016, the total amount of gross unrecognized tax benefits was $7.7 billion, of which $2.8 billion, if recognized, would have affected the Company’s effective tax rate. The Company’s total gross unrecognized tax benefits are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets. The Company had $1.2 billion and $1.0 billion of gross interest and penalties accrued as of December 31, 2016 and September 24, 2016, respectively, which are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (whether by payment, release or a combination of both) in the next 12 months by as much as $1.1 billion.

On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision orders Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. While the European Commission announced a recovery amount of up to €13 billion, plus interest, the actual amount of additional taxes subject to recovery is to be calculated by Ireland in accordance with the European Commission's guidance. Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, where it will remain pending conclusion of all appeals. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes.

Note 6 – Debt

Commercial Paper

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of December 31, 2016 and September 24, 2016, the Company had $10.5 billion and $8.1 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 0.61% as of December 31, 2016 and 0.45% as of September 24, 2016.

The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016			December 26, 2015
Maturities less than 90 days:
Proceeds from/(Repayments of) commercial paper, net	$	1,550		$	(393	)

Maturities greater than 90 days:
Proceeds from commercial paper	2,544			492
Repayments of commercial paper	(1,709		)	(1,339		)
Proceeds from/(Repayments of) commercial paper, net	835			(847		)

Total change in commercial paper, net	$	2,385		$	(1,240	)

Long-Term Debt

As of December 31, 2016, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $77.4 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar-denominated and Australian dollar-denominated floating-rate notes, semi-annually for the U.S. dollar-denominated, Australian dollar-denominated, British pound-denominated and Japanese yen-denominated fixed-rate notes and annually for the euro-denominated and Swiss franc-denominated fixed-rate notes. The following table provides a summary of the Company’s term debt as of December 31, 2016 and September 24, 2016:



	Maturities	December 31, 2016				September 24, 2016
	Maturities	Amount (in millions)			Effective Interest Rate	Amount (in millions)			Effective Interest Rate
2013 debt issuance of $17.0 billion:
Floating-rate notes	2018	$	2,000		1.10%	$	2,000		1.10%
Fixed-rate 1.000% - 3.850% notes	2018 - 2043	12,500			1.08% - 3.91%	12,500			1.08% - 3.91%

2014 debt issuance of $12.0 billion:
Floating-rate notes	2017 - 2019	2,000			0.95% - 1.18%	2,000			0.86% - 1.09%
Fixed-rate 1.050% - 4.450% notes	2017 - 2044	10,000			0.95% - 4.48%	10,000			0.85% - 4.48%

2015 debt issuances of $27.3 billion:
Floating-rate notes	2017 - 2020	1,753			0.95% - 1.87%	1,781			0.87% - 1.87%
Fixed-rate 0.350% - 4.375% notes	2017 - 2045	24,225			0.28% - 4.51%	25,144			0.28% - 4.51%

2016 debt issuances of $24.9 billion:
Floating-rate notes	2019 - 2021	1,350			1.02% - 2.05%	1,350			0.91% - 1.95%
Fixed-rate 1.100% - 4.650% notes	2018 - 2046	23,550			1.13% - 4.78%	23,609			1.13% - 4.58%
Total term debt		77,378				78,384

Unamortized premium/(discount) and issuance costs, net		(166		)		(174		)
Hedge accounting fair value adjustments		(156		)		717
Less: Current portion of long-term debt		(3,499		)		(3,500		)
Total long-term debt		$	73,557			$	75,427

As of December 31, 2016 and September 24, 2016, ¥90.4 billion and ¥195.5 billion, respectively, of Japanese yen-denominated notes were designated as a hedge of the foreign currency exposure of the Company's net investment in a foreign operation. The foreign currency transaction gain or loss on the Japanese yen-denominated debt designated as a hedge is recorded in OCI as a part of the cumulative translation adjustment. As of December 31, 2016 and September 24, 2016, the carrying value of the debt designated as a net investment hedge was $767 million and $1.9 billion, respectively. For further discussion regarding the Company’s use of derivative instruments see the Derivative Financial Instruments section of Note 2, “Financial Instruments.”

The effective interest rates for the Notes include the interest on the Notes, amortization of the discount and, if applicable, adjustments related to hedging. The Company recognized $509 million and $271 million of interest expense on its term debt for the three months ended December 31, 2016 and December 26, 2015, respectively.

As of December 31, 2016 and September 24, 2016, the fair value of the Company’s Notes, based on Level 2 inputs, was $77.7 billion and $81.7 billion, respectively.

Note 7 – Shareholders’ Equity

Dividends

The Company declared and paid cash dividends per share during the periods presented as follows:



	Dividends Per Share		Amount (in millions)
2017:
First quarter	$	0.57	$	3,042

2016:
Fourth quarter	$	0.57	$	3,071
Third quarter	0.57		3,117
Second quarter	0.52		2,879
First quarter	0.52		2,898
Total cash dividends declared and paid	$	2.18	$	11,965

Future dividends are subject to declaration by the Board of Directors.

Share Repurchase Program

In April 2016, the Company’s Board of Directors increased the share repurchase authorization from $140 billion to $175 billion of the Company’s common stock, of which $144 billion had been utilized as of December 31, 2016. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Company has entered, and in the future may enter, into accelerated share repurchase arrangements (“ASRs”) with financial institutions. In exchange for up-front payments, the financial institutions deliver shares of the Company’s common stock during the purchase periods of each ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, is determined at the end of the applicable purchase period of each ASR based on the volume-weighted average price of the Company’s common stock during that period. The shares received are retired in the periods they are delivered, and the up-front payments are accounted for as a reduction to shareholders’ equity in the Company’s Condensed Consolidated Balance Sheets in the periods the payments are made. The Company reflects the ASRs as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to its own common stock. The ASRs met all of the applicable criteria for equity classification, and therefore were not accounted for as derivative instruments.

The following table shows the Company’s ASR activity and related information during the three months ended December 31, 2016 and the year ended September 24, 2016:



	Purchase Period End Date	Number of Shares (in thousands)		Average Repurchase Price Per Share		ASR Amount (in millions)
November 2016 ASR	February 2017	44,814	⁽¹⁾	⁽¹⁾		$	6,000
August 2016 ASR	November 2016	26,850	⁽²⁾	$	111.73	$	3,000
May 2016 ASR	August 2016	60,452		$	99.25	$	6,000
November 2015 ASR	April 2016	29,122		$	103.02	$	3,000

(1)

“Number of Shares” represents those shares delivered in the beginning of the purchase period and does not represent the final number of shares to be delivered under the ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, will be determined at the end of the purchase period based on the volume-weighted average price of the Company’s common stock during that period. The November 2016 ASR purchase period will end in February 2017.


(2)	Includes 22.5 million shares delivered and retired at the beginning of the purchase period, which began in the fourth quarter of 2016 and 4.4 million shares delivered and retired at the end of the purchase period, which concluded in the first quarter of 2017.

Additionally, the Company repurchased shares of its common stock in the open market, which were retired upon repurchase, during the periods presented as follows:



	Number of Shares (in thousands)	Average Repurchase Price Per Share		Amount (in millions)
2017:
First quarter	44,333	$	112.78	$	5,000

2016:
Fourth quarter	28,579	$	104.97	$	3,000
Third quarter	41,238	$	97.00	4,000
Second quarter	71,766	$	97.54	7,000
First quarter	25,984	$	115.45	3,000
Total open market common stock repurchases	167,567			$	17,000

Note 8 – Comprehensive Income

Comprehensive income consists of two components, net income and OCI. OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable securities classified as available-for-sale.

The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, for the three months ended December 31, 2016 and December 26, 2015 (in millions):



		Three Months Ended
Comprehensive Income Components	Financial Statement Line Item	December 31, 2016			December 26, 2015
Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts	Revenue	$	(101	)	$	(329	)
	Cost of sales	13			(306		)
	Other income/(expense), net	604			120
Interest rate contracts	Other income/(expense), net	1			4
		517			(511		)
Unrealized (gains)/losses on marketable securities	Other income/(expense), net	31			73
Total amounts reclassified from AOCI		$	548		$	(438	)

The following table shows the changes in AOCI by component for the three months ended December 31, 2016 (in millions):



	Cumulative Foreign Currency Translation			Unrealized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total
Balance at September 24, 2016	$	(578	)	$	38		$	1,174		$	634
Other comprehensive income/(loss) before reclassifications	(451		)	1,696			(2,797		)	(1,552		)
Amounts reclassified from AOCI	—			517			31			548
Tax effect	76			(439		)	978			615
Other comprehensive income/(loss)	(375		)	1,774			(1,788		)	(389		)
Balance at December 31, 2016	$	(953	)	$	1,812		$	(614	)	$	245

Note 9 – Benefit Plans

Stock Plans

The Company had 316.4 million shares reserved for future issuance under its stock plans as of December 31, 2016. RSUs granted generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. Each share issued with respect to RSUs granted under the Company’s stock plans reduces the number of shares available for grant under the plan by two shares. RSUs cancelled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the plans utilizing a factor of two times the number of RSUs cancelled or shares withheld.

Rule 10b5-1 Trading Plans

During the three months ended December 31, 2016, Section 16 officers Timothy D. Cook, Luca Maestri, Daniel Riccio, Philip Schiller and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s employee and director equity plans.

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the three months ended December 31, 2016 is as follows:



	Number of RSUs (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Aggregate Fair Value (in millions)
Balance at September 24, 2016	99,089		$	97.54
RSUs granted	42,882		$	117.95
RSUs vested	(18,535	)	$	92.65
RSUs cancelled	(1,577	)	$	105.01
Balance at December 31, 2016	121,859		$	105.37	$	14,114

RSUs that vested during the three months ended December 31, 2016 and December 26, 2015 had fair values of $2.2 billion and $2.0 billion, respectively, as of the vesting date.

Share-Based Compensation

The following table shows a summary of the share-based compensation expense included in the Condensed Consolidated Statements of Operations for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016		December 26, 2015
Cost of sales	$	229	$	204
Research and development	589		466
Selling, general and administrative	438		408
Total share-based compensation expense	$	1,256	$	1,078

The income tax benefit related to share-based compensation expense was $465 million and $413 million for the three months ended December 31, 2016 and December 26, 2015, respectively. As of December 31, 2016, the total unrecognized compensation cost related to outstanding RSUs, restricted stock and stock options was $11.0 billion, which the Company expects to recognize over a weighted-average period of 2.9 years.

Note 10 – Commitments and Contingencies

Accrued Warranty and Indemnification

The following table shows changes in the Company’s accrued warranties and related costs for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016			December 26, 2015
Beginning accrued warranty and related costs	$	3,702		$	4,780
Cost of warranty claims	(1,337		)	(1,269		)
Accruals for product warranty	2,333			1,725
Ending accrued warranty and related costs	$	4,698		$	5,236

The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights. Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual property rights.

The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and mainland China. The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right with subsequent changes to the guarantee liability recognized within revenue.

The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations.

Concentrations in the Available Sources of Supply of Materials and Product

Although most components essential to the Company’s business are generally available from multiple sources, a number of components are currently obtained from single or limited sources. In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.

The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers concentrated on the production of common components instead of components customized to meet the Company’s requirements.

The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.

Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s manufacturing purchase obligations typically cover its requirements for periods up to 150 days.

Other Off-Balance Sheet Commitments

Operating Leases

The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off-balance sheet financing arrangements. As of December 31, 2016, the Company’s total future minimum lease payments under noncancelable operating leases were $7.5 billion. The Company's retail store and other facility leases are typically for terms not exceeding 10 years and generally contain multi-year renewal options.

Contingencies

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully adjudicated, as further discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings” and in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.” 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. However, the outcome of litigation is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Apple Inc. v. Samsung Electronics Co., Ltd., et al.

On August 24, 2012, a jury returned a verdict awarding the Company $1.05 billion in its lawsuit against Samsung Electronics Co., Ltd. and affiliated parties in the United States District Court, Northern District of California, San Jose Division. On March 6, 2014, the District Court entered final judgment in favor of the Company in the amount of approximately $930 million. On May 18, 2015, the U.S. Court of Appeals for the Federal Circuit affirmed in part, and reversed in part, the decision of the District Court. As a result, the Court of Appeals ordered entry of final judgment on damages in the amount of approximately $548 million, with the District Court to determine supplemental damages and interest, as well as damages owed for products subject to the reversal in part. Samsung paid $548 million to the Company in December 2015, which was included in net sales in the Condensed Consolidated Statement of Operations. On December 6, 2016, the U.S. Supreme Court remanded the case to the U.S. Court of Appeals for the Federal Circuit for further proceedings related to the $548 million in damages. Because the case remains subject to further proceedings, the Company has not recognized any further amounts in its results of operations.

Note 11 – Segment Information and Geographic Data

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable operating segments.

The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and those Asian countries not included in the Company’s other reportable operating segments. Although the reportable operating 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. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2016 Form 10-K.

The Company evaluates the performance of its reportable operating segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable operating segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.

The following table shows information by reportable operating segment for the three months ended December 31, 2016 and December 26, 2015 (in millions):



	Three Months Ended
	December 31, 2016		December 26, 2015
Americas:
Net sales	$	31,968	$	29,325
Operating income	$	10,494	$	10,018

Europe:
Net sales	$	18,521	$	17,932
Operating income	$	5,736	$	5,779

Greater China:
Net sales	$	16,233	$	18,373
Operating income	$	6,176	$	7,576

Japan:
Net sales	$	5,766	$	4,794
Operating income	$	2,673	$	2,240

Rest of Asia Pacific:
Net sales	$	5,863	$	5,448

Price	287.00	EPS	13
Shares	4,455	P/E	22
MCap	1,278,449	P/FCF	17
Net Debt	61,421	EBIT	74,711
TEV	1,339,870	TEV/EBIT	18
TTM 2019-12-28, in MM, except price, ratios

10-K	2020-09-26	Filed 2020-10-30
10-Q	2020-06-27	Filed 2020-07-31
10-Q	2020-03-28	Filed 2020-05-01
10-Q	2019-12-28	Filed 2020-01-29
10-K	2019-09-28	Filed 2019-10-31
10-Q	2019-06-29	Filed 2019-07-31
10-Q	2019-03-30	Filed 2019-05-01
10-Q	2018-12-29	Filed 2019-01-30
10-K	2018-09-29	Filed 2018-11-05
10-Q	2018-06-30	Filed 2018-08-01
10-Q	2018-03-31	Filed 2018-05-02
10-Q	2017-12-30	Filed 2018-02-02
10-K	2017-09-30	Filed 2017-11-03
10-Q	2017-07-01	Filed 2017-08-02
10-Q	2017-04-01	Filed 2017-05-03
10-Q	2016-12-31	Filed 2017-02-01
10-K	2016-09-24	Filed 2016-10-26
10-Q	2016-06-25	Filed 2016-07-27
10-Q	2016-03-26	Filed 2016-04-27
10-Q	2015-12-26	Filed 2016-01-27
10-K	2015-09-26	Filed 2015-10-28
10-Q	2015-06-27	Filed 2015-07-22
10-Q	2015-03-28	Filed 2015-04-28
10-Q	2014-12-27	Filed 2015-01-28
10-K	2014-09-27	Filed 2014-10-27
10-Q	2014-06-28	Filed 2014-07-23
10-Q	2014-03-29	Filed 2014-04-24
10-Q	2013-12-28	Filed 2014-01-28
10-K	2013-09-28	Filed 2013-10-30
10-Q	2013-06-29	Filed 2013-07-24
10-Q	2013-03-30	Filed 2013-04-24
10-Q	2012-12-29	Filed 2013-01-24
10-K	2012-09-29	Filed 2012-10-31
10-Q	2012-06-30	Filed 2012-07-25
10-Q	2012-03-31	Filed 2012-04-25
10-Q	2011-12-31	Filed 2012-01-25
10-K	2011-09-24	Filed 2011-10-26
10-Q	2011-06-25	Filed 2011-07-20
10-Q	2011-03-26	Filed 2011-04-21
10-Q	2010-12-25	Filed 2011-01-19
10-K	2010-09-25	Filed 2010-10-27
10-Q	2010-06-26	Filed 2010-07-21
10-Q	2010-03-27	Filed 2010-04-21
10-Q	2009-12-26	Filed 2010-01-25

8-K	2020-10-29	Earnings, Exhibits
8-K	2020-08-13	Other Events, Exhibits
8-K	2020-08-03	Amend Bylaw, Exhibits
8-K	2020-07-30	Earnings, Exhibits
8-K	2020-05-04
8-K	2020-04-30
8-K	2020-02-26
8-K	2020-02-17
8-K	2020-01-28
8-K	2019-11-07
8-K	2019-10-30
8-K	2019-09-10
8-K	2019-09-04
8-K	2019-07-30
8-K	2019-04-30
8-K	2019-03-01
8-K	2019-02-05
8-K	2019-01-29
8-K	2019-01-02
8-K	2018-11-01
8-K	2018-07-31
8-K	2018-05-01
8-K	2018-04-30
8-K	2018-02-13
8-K	2018-02-01
8-K	2015-09-10
8-K	2015-07-24
8-K	2015-07-21
8-K	2015-06-03
8-K	2015-05-06
8-K	2015-04-27
8-K	2015-04-27
8-K	2015-03-10
8-K	2015-02-02
8-K	2015-01-28
8-K	2015-01-27

EX-31.1	a10-qexhibit31112312016.htm
EX-31.2	a10-qexhibit31212312016.htm
EX-32.1	a10-qexhibit32112312016.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company