+1(978)310-4246 credencewriters@gmail.com
  

Apple 10K Relevant 10K Sections for Assignments
Item 1,1A,2,3 Business pages 1-15
Item 7 page 20-27
Item 7A pages 28-29
Note 1 page 37 Plant, property, and equipement
Note 9 page 51 Benefit plans
Note 10 page 53 Sources of supply of materials
Note 11 page 55 Segment Info and Geog Data
https://www.thestreet.com/video/what-is-a-10k

Items in the Annual Report on Form 10-K
Part I
Item 1 “Business” requires a description of the company’s business, including its main products
and services, what subsidiaries it owns, and what markets it operates in. This section may also
include information about recent events, competition the company faces, regulations that apply
to it, labor issues, special operating costs, or seasonal factors. This is a good place to start to
understand how the company operates.
Item 1A “Risk Factors” includes information about the most significant risks that apply to the
company or to its securities. Companies generally list the risk factors in order of their
importance. In practice, this section focuses on the risks themselves, not how the company
addresses those risks. Some risks may be true for the entire economy, some may apply only to
the company’s industry sector or geographic region, and some may be unique to the company.
Item 1B “Unresolved Staff Comments” requires the company to explain certain comments it has
received from the SEC staff on previously filed reports that have not been resolved after an
extended period of time. Check here to see whether the SEC has raised any questions about the
company’s statements that have not been resolved.
Item 2 “ Properties” includes information about the company’s significant physical properties,
such as principal plants, mines and other materially important physical properties.
Item 3 “Legal Proceedings” requires the company to include information about significant
pending lawsuits or other legal proceedings, other than ordinary litigation.
Item 4 ”Mine Safety Disclosures” requires disclosure, if applicable, of. Information concerning
mine safety violations, among other things.
Part II
Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities” requires information about the company’s equity securities,
including market information, the number of holders of the shares, dividends, stock repurchases
by the company, and similar information.
Item 6 This item has no required information, but is reserved by the SEC for future
rulemaking. Prior to February 2021, however, this item was titled “Selected Financial Data”
and required summarized financial data about the company for the last five years.
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” gives the company’s perspective on the business results of the past financial year.
This section, known as the MD&A for short, allows company management to tell its story in its
own words. The MD&A presents:
•
•
•
The company’s operations and financial results, including information about the
company’s liquidity and capital resources and any known trends or uncertainties that
could materially affect the company’s results. This section may also discuss
management’s views of key business risks and what it is doing to address them.
Material changes in the company’s results compared to a prior period.
Critical accounting judgments, such as estimates and assumptions. These accounting
judgments – and any changes from previous years – can have a significant impact on the
numbers in the financial statements, such as assets, costs, and net income.
Discussion of Risk in the MD&A
Here are examples of how an MD&A may discuss risks that the company faces.
•
•
•
•
•
•
A consumer company might discuss ways in which it seeks to meet changing tastes.
A manufacturing company that relies on natural resources may discuss how it assesses
commodity risks and conducts resource management programs.
A financial institution may discuss ways that management monitors liquidity and assures
adequate capital under various scenarios, such as a rise in interest rates or a ratings
downgrade.
A global company may discuss how it handles exchange rate risks.
Companies may discuss how they handle competition, build their brands, or manage in
an economic downturn.
Companies also may discuss how they ensure compliance with laws and regulations, or
how they are addressing the impact of new or anticipated laws and regulations.
Item 7A “Quantitative and Qualitative Disclosures about Market Risk” requires information
about the company’s exposure to market risk, such as interest rate risk, foreign currency
exchange risk, commodity price risk or equity price risk. The company may discuss how it
manages its market risk exposures.
Item 8 “Financial Statements and Supplementary Data” requires the company’s audited financial
statements. This includes the company’s income statement (which is sometimes called the
statement of earnings or the statement of operations), balance sheets, statement of cash flows and
statement of stockholders’ equity. The financial statements are accompanied by notes that
explain the information presented in the financial statements.
U.S. companies are required to present their financial statements according to a set of accounting
standards, conventions and rules known as Generally Accepted Accounting Principles, or GAAP.
An independent accountant audits the company’s financial statements. For large companies, the
independent accountant also reports on a company’s internal controls over financial reporting.
The auditor’s report is a key part of the 10-K. Most audit reports express an “unqualified
opinion” that the financial statements fairly present the company’s financial position in
conformity with GAAP. If, however, an auditor expresses a “qualified opinion” or a “disclaimer
of opinion,” investors should look carefully at what kept the auditor from expressing an
unqualified opinion. Likewise, investors should carefully evaluate material weaknesses disclosed
on internal controls over financial reporting.
In addition, a company’s CEO and CFO must certify that the 10-K is both accurate and
complete. These are called Sections 302 and 906 certifications, and you can usually find them in
Exhibits 31 and 32.
You may also find “non-GAAP financial measures” in the 10-K. That means that the numbers do
NOT conform to GAAP. While companies are permitted to present non-GAAP measures, they
must also show how they differ from the most comparable corresponding GAAP financial
measure. As an investor, it is up to you to decide how much weight to give to non-GAAP
measures.
Item 9 “Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure” requires a company, if there has been a change in its accountants, to discuss any
disagreements it had with those accountants. Many investors view this disclosure as a red flag.
Item 9A “Controls and Procedures” includes information about the company’s disclosure
controls and procedures and its internal control over financial reporting.
Item 9B “Other Information” includes any information that was required to be reported on a
Form 8-K during the fourth quarter of the year covered by the 10-K, but was not yet reported.
Part III
These items cover the following topics:
Item 10 “Directors, Executive Officers and Corporate Governance” requires information about
the background and experience of the company’s directors and executive officers, the company’s
code of ethics, and certain qualifications for directors and committees of the board of directors.
Item 11 “Executive Compensation” includes detailed disclosure about the company’s
compensation policies and programs and how much compensation was paid to the top executive
officers of the company in the past year.
Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” requires information about the shares owned by the company’s directors,
officers and certain large shareholders, and about shares covered by equity compensation plans.
Item 13 “Certain Relationships and Related Transactions, and Director Independence” includes
information about relationships and transactions between the company and its directors, officers
and their family members. It also includes information about whether each director of the
company is independent.
Item 14 “Principal Accountant Fees and Services” requires companies to disclose the fees they
paid to their accounting firm for various types of services during the year. Although these
disclosures are required by the 10-K, most companies meet this requirement by providing the
information in a separate document called the proxy statement, which companies provide to their
shareholders in connection with annual meetings. If the information is provided through the
proxy statement, the 10-K would include a statement from the company that it is incorporating
the information from the proxy statement by reference – in effect directing readers to go to the
proxy statement document to find this information. Keep in mind that the proxy statement is
typically filed a month or two after the 10-K.
Part IV
Item 15 “Exhibits, Financial Statement Schedules” requires a list of the financial statements and
exhibits included as part of the Form 10-K. Many exhibits are required, including documents
such as the company’s bylaws, copies of its material contracts, and a list of the company’s
subsidiaries.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 2019
or
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.)
One Apple Park Way
Cupertino California
95014
(Address of principal executive offices)
(Zip Code)
(408) 996-1010
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol(s)
Name of each exchange on which registered
Common Stock, $0.00001 par value per share
1.000% Notes due 2022
1.375% Notes due 2024
0.875% Notes due 2025
1.625% Notes due 2026
2.000% Notes due 2027
1.375% Notes due 2029
3.050% Notes due 2029
3.600% Notes due 2042
AAPL
—
—
—
—
—
—
—
—
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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 every Interactive Data File required to be submitted 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 such files).
Yes
No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of March 29, 2019, the last business day
of the Registrant’s most recently completed second fiscal quarter, was approximately $874,698,000,000. Solely for purposes of this disclosure,
shares of common stock held by executive officers and directors of the Registrant as of such date have been excluded because such persons may
be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any
other purposes.
4,443,265,000 shares of common stock were issued and outstanding as of October 18, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to its 2020 annual meeting of shareholders (the “2020 Proxy Statement”) are incorporated
by reference into Part III of this Annual Report on Form 10-K where indicated. The 2020 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.
Apple Inc.
Form 10-K
For the Fiscal Year Ended September 28, 2019
TABLE OF CONTENTS
Page
Part I
Item 1.
Business
1
Item 1A.
Risk Factors
5
Item 1B.
Unresolved Staff Comments
14
Item 2.
Properties
14
Item 3.
Legal Proceedings
14
Item 4.
Mine Safety Disclosures
14
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
15
Item 6.
Selected Financial Data
17
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 8.
Financial Statements and Supplementary Data
28
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
59
Item 9A.
Controls and Procedures
59
Item 9B.
Other Information
59
Item 10.
Directors, Executive Officers and Corporate Governance
60
Item 11.
Executive Compensation
60
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
60
Item 13.
Certain Relationships and Related Transactions, and Director Independence
60
Item 14.
Principal Accounting Fees and Services
60
Item 15.
Exhibits, Financial Statement Schedules
61
Item 16.
Form 10-K Summary
63
Part II
Part III
Part IV
This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II,
Item 7 of this Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include
any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by
words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,”
“may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results
may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are
incorporated herein by reference. Unless otherwise stated, all information presented herein is based on the Company’s fiscal
calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September
and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company”and “Apple”as used herein
refers collectively to Apple Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company assumes no obligation
to revise or update any forward-looking statements for any reason, except as required by law.
PART I
Item 1.
Business
Company Background
The Company designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and
sells a variety of related services. The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September.
The Company is a California corporation established in 1977.
Products
iPhone
iPhone® is the Company’s line of smartphones based on its iOS operating system. In September 2019, the Company introduced
three new iPhones: iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max.
Mac
Mac® is the Company’s line of personal computers based on its macOS® operating system. During 2019, the Company released a
new version of MacBook Air® and a new Mac mini®, and introduced an updated Mac Pro®, which is expected to be available in the
fall of 2019.
iPad
iPad® is the Company’s line of multi-purpose tablets. iPad is based on the Company’s iPadOS™ operating system, which was
introduced during 2019. Also during 2019, the Company released two new versions of iPad Pro®, an iPad Air®, an updated iPad
mini® and a new 10.2-inch iPad.
Wearables, Home and Accessories
Wearables, Home and Accessories includes AirPods®, Apple TV®, Apple Watch®, Beats® products, HomePod™, iPod touch® and
other Apple-branded and third-party accessories. AirPods are the Company’s wireless headphones that interact with Siri. In October
2019, the Company introduced AirPods Pro™. Apple Watch is a personal electronic device that combines the watchOS® user interface
and other technologies created specifically for a smaller device. In September 2019, the Company introduced Apple Watch Series
5.
Services
Digital Content Stores and Streaming Services
The Company operates various platforms that allow customers to discover and download applications and digital content, such as
books, music, video, games and podcasts. These platforms include the App Store®, available for iPhone and iPad, the Mac App
Store, the TV App Store and the Watch App Store.
The Company also offers subscription-based digital content streaming services, including Apple Music®, which offers users a curated
listening experience with on-demand radio stations, and Apple TV+, which offers exclusive original content, and is expected to be
available in November 2019.
Apple Inc. | 2019 Form 10-K | 1
AppleCare
AppleCare® includes AppleCare + (“AC+”) and the AppleCare Protection Plan, which are fee-based services that extend the coverage
of phone support eligibility and hardware repairs. AC+ offers additional coverage for instances of accidental damage and is available
in certain countries for certain products. Additionally, AC+ with theft and loss protection is available for iPhone in the U.S.
iCloud
iCloud® is the Company’s cloud service, which stores music, photos, contacts, calendars, mail, documents and more, keeping them
up-to-date and available across multiple Apple devices and Windows personal computers.
Licensing
The Company licenses the use of certain of its intellectual property, and provides other related services.
Other Services
The Company delivers a variety of other services available in certain countries, including Apple Arcadeâ„¢, a game subscription
service; Apple Cardâ„¢, a co-branded credit card; Apple News+, a subscription news and magazine service; and Apple Pay, a cashless
payment service.
Markets and Distribution
The Company’s customers are primarily in the consumer, small and mid-sized business, education, enterprise and government
markets. The Company sells its products and resells third-party products in most of its major markets directly to consumers, small
and mid-sized businesses, and education, enterprise and government customers through its retail and online stores and its direct
sales force. The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers,
wholesalers, retailers and resellers. During 2019, the Company’s net sales through its direct and indirect distribution channels
accounted for 31% and 69%, respectively, of total net sales.
No single customer accounted for more than 10% of net sales in 2019, 2018 and 2017.
Competition
The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive
competition in all areas of its business. These markets are characterized by frequent product introductions and rapid technological
advances that have substantially increased the capabilities and use of smartphones, personal computers, tablets and other electronic
devices. Many of the Company’s competitors that sell mobile devices and personal computers based on other operating systems
seek to compete primarily through aggressive pricing and very low cost structures. Principal competitive factors important to the
Company include price, product and service features (including security features), relative price and performance, product 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.
The Company is focused on expanding its market opportunities related to smartphones, personal computers, tablets and other
electronic devices. These markets are highly competitive and include many large, well-funded and experienced participants. The
Company expects competition in these markets to intensify significantly as competitors imitate features of the Company’s products
and applications within their products, or collaborate to offer solutions that are more competitive than those they currently offer.
These markets are characterized by aggressive price competition, frequent product introductions, evolving design approaches and
technologies, rapid adoption of technological advancements by competitors, and price sensitivity on the part of consumers and
businesses.
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 believes it offers superior innovation and integration of the entire solution, including hardware, software and services.
Some of the Company’s current and potential competitors have substantial resources and may be able to provide such products
and services at little or no profit, or even at a loss, to compete with the Company’s offerings.
Apple Inc. | 2019 Form 10-K | 2
Supply of Components
Although most components essential to the Company’s business are generally available from multiple sources, certain components
are currently obtained from single or limited sources. The Company also competes for various components with other participants
in the markets for smartphones, personal computers, tablets and other electronic devices. 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
commodity pricing fluctuations.
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 their manufacturing capacities have increased. The
continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate 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.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia,
with some Mac computers manufactured in the U.S. and Ireland.
Research and Development
Because the industries in which the Company competes are characterized by rapid technological advances, the Company’s ability
to compete successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products, services and
technologies to the marketplace. The Company continues to develop new technologies to enhance existing products and services,
and to expand the range of its offerings through research and development (“R&D”), licensing of intellectual property and acquisition
of third-party businesses and technology.
Intellectual Property
The Company currently holds a broad collection of intellectual property rights relating to certain aspects of its hardware devices,
accessories, software and services. This includes patents, copyrights, trademarks, service marks, trade dress and other forms of
intellectual property rights in the U.S. and various foreign countries. Although the Company believes the ownership of such intellectual
property rights is an important factor in its business and that its success does depend in part on such ownership, the Company
relies primarily on the innovative skills, technical competence and marketing abilities of its personnel.
The Company regularly files patent applications to protect innovations arising from its research, development and design, and is
currently pursuing thousands of patent applications around the world. Over time, the Company has accumulated a large portfolio
of issued patents, including utility patents, design patents and others. The Company also holds copyrights relating to certain aspects
of its products and services. No single intellectual property right is solely responsible for protecting the Company’s products. The
Company believes the duration of its intellectual property rights is adequate relative to the expected lives of its products.
In addition to Company-owned intellectual property, many of the Company’s products and services are designed to include intellectual
property owned by third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of the
Company’s products, processes and services. While the Company has generally been able to obtain such licenses on commercially
reasonable terms in the past, there is no guarantee that such licenses could be obtained in the future on reasonable terms or at all.
Business Seasonality and Product Introductions
The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in
part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales
and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution
channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often
declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate
a product introduction.
Employees
As of September 28, 2019, the Company had approximately 137,000 full-time equivalent employees.
Apple Inc. | 2019 Form 10-K | 3
Available Information
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments
to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are
filed with the Securities and Exchange Commission (the “SEC”). The Company is subject to the informational requirements of the
Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information
filed by the Company with the SEC are available free of charge at investor.apple.com/investor-relations/sec-filings/default.aspx when
such reports are available on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. 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. The information contained on the websites
referenced in this Form 10-K is not incorporated by reference into this filing. Further, the Company’s references to website URLs are
intended to be inactive textual references only.
Apple Inc. | 2019 Form 10-K | 4
Item 1A.
Risk Factors
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding
other statements in this Form 10-K. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently
known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause
the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial
condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business,
financial condition, operating results and stock price.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical
trends to anticipate results or trends in future periods.
Global and regional economic conditions could materially adversely affect the Company’s business, results of operations,
financial condition and growth.
The Company has international operations with sales outside the U.S. representing a majority of the Company’s total net sales. In
addition, a majority of the Company’s 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.
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. These and other economic factors could materially
adversely affect the Company’s business, results of operations, financial condition and growth.
Global markets for the Company’s products and services are highly competitive and subject to rapid technological change,
and the Company may be unable to compete effectively in these markets.
The Company’s products and services are offered in highly competitive global markets characterized by aggressive price competition
and resulting downward pressure on gross margins, frequent introduction of new products and services, short product life cycles,
evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption of technological
advancements by competitors, and price sensitivity on the part of consumers and businesses.
The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of
innovative new products, services and technologies to the marketplace. The Company believes it is unique in that it designs and
develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and
related services. As a result, the Company must make significant investments in R&D. 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 currently holds a significant number of patents, trademarks and copyrights and has registered, and applied to register,
numerous patents, trademarks and copyrights. In contrast, many of the Company’s competitors seek to compete primarily through
aggressive pricing and very low cost structures, and emulating the Company’s products and infringing on its intellectual property.
If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe
on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.
Apple Inc. | 2019 Form 10-K | 5
The Company has a minority market share in the global smartphone, personal computer and tablet markets. The Company faces
substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources,
as well as established hardware, software and digital content supplier relationships. In addition, some of the Company’s competitors
have broader product lines, lower-priced products and a larger installed base of active devices. Competition has been particularly
intense as competitors have aggressively cut prices and lowered product margins. Certain competitors may have the resources,
experience or cost structures to provide products at little or no profit or even at a loss.
Additionally, the Company faces significant competition as competitors imitate the Company’s product features and applications
within their products or collaborate to offer solutions that are more competitive than those they currently offer. The Company also
expects competition to intensify as competitors imitate the Company’s approach to providing components seamlessly within their
offerings or work collaboratively to offer integrated solutions.
Some of the markets in which the Company competes have from time to time experienced little to no growth or contracted. In addition,
an increasing number of Internet-enabled devices that include software applications and are smaller, simpler and cheaper than
traditional personal computers compete with some of the Company’s existing products.
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’s financial condition and operating results depend substantially on the Company’s ability to continually improve its
products and services to maintain their functional and design advantages. There can be no assurance the Company will be able to
continue to provide products and services that compete effectively.
To remain competitive and stimulate customer demand, the Company must successfully manage frequent introductions
and 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 services, and successfully manage the transition to these new and upgraded products and
services. The success of new product and service introductions depends on a number of factors including, but not limited to, timely
and successful 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 and services may have quality or other defects or deficiencies. Accordingly,
the Company cannot determine in advance the ultimate effect of new product and service introductions and transitions.
The Company depends on the performance of carriers, wholesalers, retailers and other resellers.
The Company distributes its products through cellular network carriers, wholesalers, retailers and resellers, many of whom distribute
products from competing manufacturers. The Company also sells its products and resells third-party products in most of its major
markets directly to consumers, small and mid-sized businesses, and education, enterprise and government customers through its
retail and online stores and its direct sales force.
Some carriers providing cellular network service for iPhone offer financing, installment payment plans or subsidies for users’
purchases of the device. There is no assurance that such 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.
The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’
stores with Company employees and contractors, and improving product placement displays. These programs can require a
substantial investment while not assuring return or incremental sales. The financial condition of these resellers could weaken, these
resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products
could cause resellers to reduce their ordering and marketing of the Company’s products.
Apple Inc. | 2019 Form 10-K | 6
The Company is exposed to the risk of write-downs on the value of its inventory and other assets, in addition to purchase
commitment cancellation risk.
The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated
demand, or for which cost exceeds net realizable value. The Company also accrues necessary cancellation fee reserves for orders
of excess products and components. The Company reviews long-lived assets, including capital assets held at its suppliers’ facilities
and inventory prepayments, for impairment whenever events or circumstances indicate the assets may not be recoverable. If the
Company determines that 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 inventory, capital assets, inventory prepayments and other assets
and purchase commitments are currently recoverable, no assurance can be given that the Company will not incur 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 orders components for its products and builds inventory in advance of product announcements and shipments.
Manufacturing purchase obligations cover the Company’s forecasted component and manufacturing requirements, typically for
periods up to 150 days. Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes,
there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products,
or not fully utilize firm purchase commitments.
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially
reasonable terms.
Because the Company currently obtains 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 industrywide shortages and significant commodity pricing fluctuations that could materially adversely affect the Company’s financial condition
and operating results. While the Company has entered into agreements for the supply of many components, there can be no
assurance that the Company will be able to extend or renew these agreements on similar terms, or at all. Component suppliers 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 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 increases that could materially adversely affect its financial condition and operating results.
The Company’s new products often utilize custom components available from only one source. When a component or product uses
new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities
have increased. The continued availability of these components at acceptable prices, or at all, can be affected for any number of
reasons, including if suppliers decide to concentrate on the production of common components instead of components customized
to meet the Company’s requirements. 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 source, or to identify and obtain
sufficient quantities from an alternative source.
The Company depends on component and product manufacturing and logistical services provided by outsourcing partners,
many of which are located outside of the U.S.
Substantially all of the Company’s manufacturing is performed in whole or in part by outsourcing partners located primarily in Asia.
A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single
locations. The Company has also outsourced much of its transportation and logistics management. While these arrangements can
lower operating costs, they also reduce the Company’s direct control over production and distribution. Such diminished control may
have an adverse effect on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions.
Although arrangements with these partners may contain provisions for product defect expense reimbursement, the Company
generally remains responsible to the consumer for warranty and out-of-warranty service in the event of product defects and could
experience an unanticipated product defect liability. While the Company relies on its partners to adhere to its supplier code of conduct,
material violations of the supplier code of conduct could occur.
The Company relies on single-source outsourcing partners in the U.S., Asia and Europe to supply and manufacture many components,
and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the Company’s hardware products.
Any failure of these partners to perform can have a negative impact on the Company’s cost or supply of components or finished
goods. In addition, manufacturing or logistics in these locations or transit to final destinations can be disrupted for a variety of reasons
including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military
actions, economic, business, labor, environmental, public health or political issues, or international trade disputes.
Apple Inc. | 2019 Form 10-K | 7
The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and
has made prepayments to certain of its suppliers associated with long-term supply agreements. While these arrangements help
ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems
or other disruptions in their business, such continued supply can be reduced or terminated and the recoverability of manufacturing
process equipment or prepayments can be negatively impacted.
The Company’s products and services may be affected from time to time by design and manufacturing defects that could
materially adversely affect the Company’s business and result in harm to the Company’s reputation.
The Company offers complex hardware and software products and services that can be affected by design and manufacturing
defects. Sophisticated operating system software and applications, such as those offered by the Company, often have issues that
can unexpectedly interfere with the intended operation of hardware or software products. Defects can also exist in components and
products the Company purchases from third parties. 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. In addition, the Company’s service offerings may have quality issues and from
time to time experience outages, service slowdowns or errors. As a result, the Company’s services may not perform as anticipated
and may not meet customer expectations. There can be no assurance the Company will be able to detect and fix all issues and
defects in the hardware, software and services it offers. Failure to do so could result in widespread technical and performance issues
affecting the Company’s products and services. In addition, the Company can 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 can 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 service introductions and lost sales.
The Company relies on access to third-party digital content, which may not be available to the Company on commercially
reasonable terms or at all.
The Company contracts with numerous third parties to offer their digital content to customers. This includes the right to sell currently
available content. The licensing or other distribution arrangements with these third parties are for relatively short terms and do not
guarantee the continuation or renewal of these arrangements on commercially reasonable terms, if at all. Some third-party content
providers and distributors currently or in the future may offer competing products and services, and can take actions to make it more
difficult or impossible for the Company to license or otherwise distribute their content in the future. Other content owners, providers
or distributors may seek to limit the Company’s access to, or increase the cost of, such content. The Company may be unable to
continue to offer a wide variety of content at commercially reasonable prices with acceptable usage rules, or continue to expand its
geographic reach. Failure to obtain the right to make third-party digital content available, or to make such content available on
commercially reasonable terms, could have a material adverse impact on the Company’s financial condition and operating results.
Some third-party digital content providers require the Company to provide digital rights management and other security solutions.
If requirements change, the Company may have to develop or license new technology to provide these solutions. There is no
assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In addition,
certain countries have passed or may propose and adopt legislation that would force the Company to license its digital rights
management, which could lessen the protection of content and subject it to piracy and also could negatively affect arrangements
with the Company’s content providers.
The Company’s future performance depends in part on support from third-party software developers.
The Company believes decisions by customers to purchase its hardware products depend in part on the availability of third-party
software applications and services. There is no assurance that third-party developers will continue to develop and maintain software
applications and services for the Company’s products. If third-party software applications and services cease to be developed and
maintained for the Company’s products, customers may choose not to buy the Company’s products.
The Company believes the availability of third-party software applications and services for its products depends in part on the
developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software and services
for the Company’s products compared to competitors’ platforms, such as Android for smartphones and tablets and Windows for
personal computers. This analysis may be based on factors such as the market position of the Company and its products, the
anticipated revenue that may be generated, expected future growth of product sales, and the costs of developing such applications
and services.
Apple Inc. | 2019 Form 10-K | 8
The Company’s minority market share in the global smartphone, personal computer and tablet markets could make developers less
inclined to develop or upgrade software for the Company’s products and more inclined to devote their resources to developing and
upgrading software for competitors’ products with larger market share. If developers focus their efforts on these competing platforms,
the availability and quality of applications for the Company’s devices may suffer.
The Company relies on the continued availability and development of compelling and innovative software applications for its products.
The Company’s products and operating systems are subject to rapid technological change, and if third-party developers are unable
to or choose not to keep up with this pace of change, third-party applications might not take advantage of these changes to deliver
improved customer experiences or might not operate correctly and may result in dissatisfied customers.
The Company sells and delivers third-party applications for its products through the App Store, Mac App Store, TV App Store and
Watch 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 relies on access to third-party intellectual property, which may not be available to the Company on commercially
reasonable terms or at all.
Many of the Company’s products and services are designed to include intellectual property owned by third parties, which requires
licenses from those third parties. In addition, because of technological changes in the industries in which the Company currently
competes or in the future may compete, current extensive patent coverage and the rapid rate of issuance of new patents, the
Company’s products and services may unknowingly infringe existing patents or intellectual property rights of others. From time to
time, the Company has been notified that it may be infringing certain patents or other intellectual property rights of third parties.
Based on experience and industry practice, the Company believes licenses to such third-party intellectual property can generally
be obtained on commercially reasonable terms. There is, however, no assurance that the necessary licenses can be obtained on
commercially reasonable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual
property on commercially reasonable terms, could preclude the Company from selling certain products or services, or otherwise
have a material adverse impact on the Company’s financial condition and operating results.
The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on
intellectual property rights.
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and have not
yet been fully resolved, and new claims may arise in the future. In addition, agreements entered into by the Company sometimes
include indemnification provisions which can subject the Company to costs and damages in the event of a claim against an indemnified
third party.
Claims against the Company based on allegations of patent infringement or other violations of intellectual property rights have
generally increased over time and may continue to increase. In particular, the Company has historically faced a significant number
of patent claims relating to its cellular-enabled products, and new claims may arise in the future. For example, technology and other
patent-holding companies frequently assert their patents and seek royalties and often enter into litigation based on allegations of
patent infringement or other violations of intellectual property rights. The Company is vigorously defending infringement actions in
courts in several U.S. jurisdictions, as well as internationally in various countries. The plaintiffs in these actions frequently seek
injunctions and substantial damages.
Regardless of the merit of particular claims, litigation can be expensive, time-consuming, disruptive to the Company’s operations
and distracting to management. In recognition of these considerations, the Company may enter into licensing agreements or other
arrangements to settle litigation and resolve such disputes. No assurance can be given that such agreements can be obtained on
acceptable terms or that litigation will not occur. These agreements may also significantly increase the Company’s cost of sales and
operating expenses.
Except as described in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 10, “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 greater than a recorded accrual, concerning loss contingencies
for asserted legal and other claims, including matters related to infringement of intellectual property rights.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company or an indemnified
third party in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating
results for that reporting period could be materially adversely affected. Further, such an outcome could result in significant
compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive
relief against the Company that could materially adversely affect its financial condition and operating results.
While the Company maintains insurance coverage for certain types of claims, such insurance coverage may be insufficient to cover
all losses or all types of claims that may arise.
Apple Inc. | 2019 Form 10-K | 9
The Company is subject to complex and changing laws and regulations worldwide, which exposes the Company to potential
liabilities, increased costs and other adverse effects on the Company’s business.
The Company’s global operations are subject to complex and changing laws and regulations on subjects including, but not limited
to: antitrust; privacy, data security and data localization; consumer protection; advertising, sales, billing and e-commerce; product
liability; intellectual property ownership and infringement; digital platforms; Internet, telecommunications, and mobile
communications; media, television, film and digital content; availability of third-party software applications and services; labor and
employment; anti-corruption; import, export and trade; foreign exchange controls and cash repatriation restrictions; anti–money
laundering; foreign ownership and investment; tax; and environmental, health and safety.
Compliance with these laws and regulations may be onerous and expensive, increasing the cost of conducting the Company’s global
operations. Changes to laws and regulations can adversely affect the Company’s business by increasing the Company’s costs,
limiting the Company’s ability to offer a product or service to customers, requiring changes to the Company’s business practices or
otherwise making the Company’s products and services less attractive to customers. The Company has implemented policies and
procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s
employees, contractors or agents will not violate such laws and regulations or the Company’s policies and procedures. If the Company
is found to have violated laws and regulations, it could materially adversely affect the Company’s reputation, financial condition and
operating results.
The technology industry, including, in some instances, the Company, is subject to intense media, political and regulatory scrutiny,
which exposes the Company to government investigations, legal actions and penalties. For example, the Company is subject to
antitrust investigations in various jurisdictions around the world, which can result in legal proceedings and claims against the Company
that could, individually or in the aggregate, have a material impact on the Company’s financial condition and operating results. There
can be no assurance that the Company’s business will not be materially adversely affected, individually or in the aggregate, by the
outcomes of such investigations or changes to laws and regulations in the future.
The Company’s retail stores have required and will continue to require a substantial investment and commitment of resources
and are subject to numerous risks and uncertainties.
The Company’s retail stores have required substantial investment in equipment and leasehold improvements, information systems,
inventory and personnel. The Company also has entered into substantial lease commitments for retail space. Certain stores have
been designed and built to serve as high-profile venues to promote brand awareness. Because of their unique design elements,
locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high
cost structure associated with the Company’s retail stores, a decline in sales or the closure or poor performance of an individual
store or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and
severance costs.
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. Other factors include, but are not limited to, the Company’s ability to: manage costs associated with retail store
construction and operation; manage relationships with existing retail partners; manage costs associated with fluctuations in the
value of retail inventory; and obtain and renew leases in quality retail locations at a reasonable cost.
Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks
not originally contemplated.
The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve
significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities
and expenses, inadequate return on capital, and unidentified issues not discovered in the Company’s due diligence. These new
ventures are inherently risky and may not be successful.
The Company’s business and reputation may be impacted by information technology system failures or network disruptions.
The Company is exposed to information technology system failures or network disruptions caused by natural disasters, accidents,
power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or other
events or disruptions. System redundancy and other continuity measures may be ineffective or inadequate, and the Company’s
business continuity and disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions can adversely
impact the Company’s business by, among other things, preventing access to the Company’s online services, interfering with customer
transactions or impeding the manufacturing and shipping of the Company’s products. These events could materially adversely affect
the Company’s reputation, financial condition and operating results.
Apple Inc. | 2019 Form 10-K | 10
There may be losses or unauthorized access to or releases of confidential information, including personally identifiable
information, that could subject the Company to significant reputational, financial, legal and operational consequences.
The Company’s business requires it to use and store confidential information including, among other things, personally identifiable
information (“PII”) with respect to the Company’s customers and employees. The Company devotes significant resources to network
and data security, including through the use of encryption and other security measures intended to protect its systems and data.
But these measures cannot provide absolute security, and losses or unauthorized access to or releases of confidential information
occur and could materially adversely affect the Company’s reputation, financial condition and operating results.
The Company’s business also requires it to share confidential information with suppliers and other third parties. Although the Company
takes steps to secure confidential information that is provided to third parties, such measures are not always effective and losses
or unauthorized access to or releases of confidential information occur and could materially adversely affect the Company’s reputation,
financial condition and operating results.
For example, the Company may experience a security breach impacting the Company’s information technology systems that
compromises the confidentiality, integrity or availability of confidential information. Such an incident could, among other things,
impair the Company’s ability to attract and retain customers for its products and services, impact the Company’s stock price, materially
damage supplier relationships, and expose the Company to litigation or government investigations, which could result in penalties,
fines or judgments against the Company.
Although malicious attacks perpetrated to gain access to confidential information, including PII, affect many companies across
various industries, the Company is at a relatively greater risk of being targeted because of its high profile and the value of the
confidential information it creates, owns, manages, stores and processes.
The Company has implemented systems and processes intended to secure its information technology systems and prevent
unauthorized access to or loss of sensitive data, including through the use of encryption and authentication technologies. As with
all companies, these security measures may not be sufficient for all eventualities and may be vulnerable to hacking, employee error,
malfeasance, system error, faulty password management or other irregularities. For example, third parties fraudulently induce
employees or customers into disclosing user names, passwords or other sensitive information, which may, in turn, be used to access
the Company’s information technology systems. To help protect customers and the Company, the Company monitors its services
and systems for unusual activity and may freeze accounts under suspicious circumstances, which, among other things, may result
in the delay or loss of customer orders or impede customer access to the Company’s products and services.
In addition to the risks relating to general confidential information described above, the Company is also subject to specific obligations
relating to health data and payment card data. Health data is subject to additional privacy, security and breach notification
requirements, and the Company can be subject to audit by governmental authorities regarding the Company’s compliance with
these obligations. If the Company fails to adequately comply with these rules and requirements, or if health data is handled in a
manner not permitted by law or under the Company’s agreements with healthcare institutions, the Company could be subject to
litigation or government investigations, may be liable for associated investigatory expenses, and could also incur significant fees or
fines.
Under payment card rules and obligations, if cardholder information is potentially compromised, the Company could be liable for
associated investigatory expenses and could also incur significant fees or fines if the Company fails to follow payment card industry
data security standards. The Company could also experience a significant increase in payment card transaction costs or lose the
ability to process payment cards if it fails to follow payment card industry data security standards, which would materially adversely
affect the Company’s reputation, financial condition and operating results.
While the Company maintains insurance coverage that is intended to address certain aspects of data security risks, such insurance
coverage may be insufficient to cover all losses or all types of claims that may arise.
The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding
data protection.
The Company is subject to federal, state and international laws relating to the collection, use, retention, security and transfer of PII.
In many cases, these laws apply not only to third-party transactions, but also may restrict transfers of PII among the Company and
its international subsidiaries. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing
additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with
emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to
change its business practices. Noncompliance could result in significant penalties or legal liability.
The Company makes statements about its use and disclosure of PII through its privacy policy, information provided on its website
and press statements. Any failure by the Company to comply with these public statements or with other federal, state or international
privacy-related or data protection laws and regulations could result in proceedings against the Company by governmental entities
or others. In addition to reputational impacts, penalties could include ongoing audit requirements and significant legal liability.
Apple Inc. | 2019 Form 10-K | 11
The Company’s success depends largely on the continued service and availability of key personnel.
Much of the Company’s future success depends on the continued availability and service of key personnel, including its Chief
Executive Officer, executive team and other highly skilled employees. Experienced personnel in the technology industry are in high
demand and competition for their talents is intense, especially in Silicon Valley, where most of the Company’s key personnel are
located.
The Company’s business can be impacted by political events, international trade disputes, war, terrorism, natural disasters,
public health issues, industrial accidents and other business interruptions.
Political events, international trade disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other
business interruptions could harm or disrupt international commerce and the global economy, and could have a material adverse
effect on the Company and its customers, suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers
and other channel partners.
International trade disputes can result in tariffs and other measures that can adversely affect the Company’s business. For example,
trade tensions have led to a series of tariffs imposed by the U.S. on imports from China. Tariffs increase the cost of the Company’s
products and the components and raw materials that go into making them. These increased costs adversely impact the gross margin
that the Company earns on its products. Tariffs can 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 measures that could
limit the Company’s ability to offer its products and services. Political uncertainty surrounding international trade disputes and
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. In addition, such operations and facilities
are subject to the risk of interruption by fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist
attacks and other hostile acts, labor disputes, public health issues and other events beyond the Company’s control. Global climate
change could result in certain types of natural disasters occurring more frequently or with more intense effects. Such events could
make it difficult or impossible for the Company to manufacture and deliver products to its customers, create delays and inefficiencies
in the Company’s supply and manufacturing chain, and result in slowdowns and outages to the Company’s service offerings. Following
an interruption to its business, the Company could require substantial recovery time, experience significant expenditures to resume
operations, and lose significant sales. 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. While the
Company’s suppliers are required to maintain safe working environments and operations, an industrial accident could occur and
could result in disruption to the Company’s business and harm to the Company’s reputation. Should major public health issues,
including pandemics, arise, the Company could be adversely affected by more stringent employee travel restrictions, additional
limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps
of new products, and disruptions in the operations of the Company’s suppliers and contract manufacturers.
While the Company maintains insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover
all losses that may arise.
The Company expects its quarterly net sales and operating results to fluctuate.
The Company’s profit margins vary across its products, services, geographic segments and distribution channels. For example,
gross margins on the Company’s hardware products vary across product lines and can change over time. The Company’s gross
margins are subject to volatility and downward pressure due to a variety of factors, including: continued industry-wide global product
pricing pressures and product pricing actions that the Company may take in response to such pressures; increased competition;
the Company’s ability to effectively stimulate demand for certain of its products and services; compressed product life cycles; potential
increases in the cost of components, outside manufacturing services, and acquiring and delivering content for the Company’s
services; the Company’s ability to manage product quality and warranty costs effectively; shifts in the mix of products and services,
or in the geographic, currency or channel mix; fluctuations in foreign exchange rates; and the introduction of new products or services,
including new products or services with higher cost structures. These and other factors could have a materially adverse impact on
the Company’s financial condition and operating results.
Apple Inc. | 2019 Form 10-K | 12
The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in
part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales
and operating expenses. Further, the Company generates a significant portion of its net sales from a single product and a decline
in demand for that product could significantly impact quarterly net sales. The Company could also be subject to unexpected
developments, such as lower-than-anticipated demand for the Company’s products or services, issues with new product or service
introductions, information technology system failures or network disruptions, or failure of one of the Company’s logistics, components
supply, or manufacturing partners.
The Company’s stock price is subject to volatility.
The Company’s stock price has experienced substantial price volatility in the past and may continue to do so in the future. Additionally,
the Company, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations
that have affected stock prices in ways that may have been unrelated to these companies’ operating performance. Price volatility
over a given period may cause the average price at which the Company repurchases its stock to exceed the stock’s price at a given
point in time. The Company believes its stock price should reflect expectations of future growth and profitability. The Company also
believes its stock price should reflect expectations that its cash dividend will continue at current levels or grow, and that its current
share repurchase program will be fully consummated. Future dividends are subject to declaration by the Company’s Board of
Directors, and the Company’s share repurchase program does not obligate it to acquire any specific number of shares. If the Company
fails to meet expectations related to future growth, profitability, dividends, share repurchases or other market expectations, its stock
price may decline significantly, which could have a material adverse impact on investor confidence and employee retention.
The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar relative to
local currencies.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non–U.S. dollar–denominated sales,
cost of sales and operating expenses worldwide. Gross margins on the Company’s products in foreign countries and on products
that include components obtained from foreign suppliers could be materially adversely affected by foreign currency exchange rate
fluctuations.
The weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign
currency–denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing
demand for the Company’s products. In some circumstances, for competitive or other reasons, the Company may decide not to
raise international pricing to offset the U.S. dollar’s strengthening, which would adversely affect the U.S. dollar value of the gross
margins the Company earns on foreign currency–denominated sales.
Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign
currency–denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its foreign
currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may increase the
Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
The Company uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to
fluctuations in foreign currency exchange rates. The use of such hedging activities may not be effective to offset any, or more than
a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are
in place.
The Company is exposed to credit risk and fluctuations in the values of its investment portfolio.
The Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, market and economic
conditions, political risk, sovereign risk, interest rate fluctuations or other factors. As a result, the value and liquidity of the Company’s
cash, cash equivalents, and marketable and non-marketable securities may fluctuate substantially. Therefore, although the Company
has not realized any significant losses on its cash, cash equivalents, and marketable and non-marketable securities, future fluctuations
in their value could result in significant losses and could have a material adverse impact on the Company’s financial condition and
operating results.
Apple Inc. | 2019 Form 10-K | 13
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments
related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.
The Company distributes its products through third-party cellular network carriers, wholesalers, retailers and resellers. The Company
also sells its products directly to small and mid-sized businesses and education, enterprise and government customers. A substantial
majority of the Company’s outstanding trade receivables are not covered by collateral, third-party bank support or financing
arrangements, or credit insurance. The Company’s exposure to credit and collectibility risk on its trade receivables is higher in certain
international markets and its ability to mitigate such risks may be limited. The Company also has unsecured vendor non-trade
receivables resulting from purchases of components by outsourcing partners and other vendors that manufacture sub-assemblies
or assemble final products for the Company. In addition, the Company has made prepayments associated with long-term supply
agreements to secure supply of inventory components. As of September 28, 2019, a significant portion of the Company’s trade
receivables was concentrated within cellular network carriers, and its vendor non-trade receivables and prepayments related to
long-term supply agreements were concentrated among a few individual vendors located primarily in Asia. While the Company has
procedures to monitor and limit exposure to credit risk on its trade and vendor non-trade receivables, as well as long-term prepayments,
there can be no assurance such procedures will effectively limit its credit risk and avoid losses.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure
to additional tax liabilities.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, including Ireland, where a number of the Company’s
subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant
change. The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory
tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including in
the U.S. and Ireland.
The Company is also subject to the examination of its tax returns and other tax matters by the U.S. Internal Revenue Service and
other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting
from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these
examinations. If the Company’s effective tax rates were to increase, particularly in the U.S. or Ireland, or if the ultimate determination
of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s financial condition and
operating results could be materially adversely affected.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The Company’s headquarters are located in Cupertino, California. As of September 28, 2019, the Company owned or leased facilities
and land for corporate functions, R&D, data centers, retail and other purposes at locations throughout the U.S. and in various places
outside the U.S. The Company believes its existing facilities and equipment, which are used by all reportable segments, are in good
operating condition and are suitable for the conduct of its business.
Item 3.
Legal Proceedings
The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary
course of business. Except as described in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in
Note 10, “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 greater than a recorded accrual,
concerning loss contingencies for asserted legal and other claims.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting
period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting
period could be materially adversely affected. 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 2019 that did not individually or in the
aggregate have a material impact on the Company’s financial condition or operating results.
Item 4.
Mine Safety Disclosures
Not applicable.
Apple Inc. | 2019 Form 10-K | 14
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is traded on The Nasdaq Stock Market LLC under the symbol AAPL.
Holders
As of October 18, 2019, there were 23,233 shareholders of record.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended September 28, 2019 was as follows (in millions, except number of shares,
which are reflected in thousands, and per share amounts):
Total Number
of Shares
Purchased
Periods
Average
Price
Paid Per
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs (1)
June 30, 2019 to August 3, 2019:
Open market and privately negotiated purchases
23,860
$
205.36
23,860
August 4, 2019 to August 31, 2019:
February 2019 ASR
6,886
Open market and privately negotiated purchases
34,705
27,178
(2)
6,886
$
204.59
34,705
$
217.17
27,178
September 1, 2019 to September 28, 2019:
Open market and privately negotiated purchases
Total
92,629
$
(1)
On April 30, 2019, the Company announced the Board of Directors increased the current share repurchase program authorization
from $100 billion to $175 billion of the Company’s common stock, of which $96.1 billion had been utilized as of September 28,
2019. The remaining $78.9 billion in the table represents the amount available to repurchase shares under the authorized
repurchase program as of September 28, 2019. The Company’s share repurchase program does not obligate it to acquire any
specific number of shares. Under 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.
(2)
In February 2019, the Company entered into an accelerated share repurchase arrangement (“ASR”) to purchase up to $12.0
billion of the Company’s common stock. In August 2019, the purchase period for this ASR ended and an additional 6.9 million
shares were delivered and retired. In total, 62.0 million shares were delivered under this ASR at an average repurchase price
of $193.69.
Apple Inc. | 2019 Form 10-K | 15
78,869
Company Stock Performance
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend-reinvested basis, for the
Company, the S&P 500 Index, the S&P Information Technology Index and the Dow Jones U.S. Technology Supersector Index for
the five years ended September 28, 2019. 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 26, 2014. Note that historic stock price performance is not necessarily indicative of future stock price performance.
*
$100 invested on September 26, 2014 in stock or index, including reinvestment of dividends. Data points are the last day of
each fiscal year for the Company’s common stock and September 30th for indexes.
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
Copyright© 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
September
2014
September
2015
September
2016
September
2017
September
2018
September
2019
Apple Inc.
$
100
$
116
$
116
$
162
$
240
$
237
S&P 500 Index
$
100
$
99
$
115
$
136
$
160
$
167
S&P Information Technology Index
$
100
$
102
$
125
$
162
$
213
$
231
Dow Jones U.S. Technology Supersector Index
$
100
$
100
$
122
$
156
$
205
$
218
Apple Inc. | 2019 Form 10-K | 16
Item 6.
Selected Financial Data
The information set forth below for the five years ended September 28, 2019, 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 accompanying 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).
2019
2018
2017
2016
2015
Total net sales
$
260,174
$
265,595
$
229,234
$
215,639
$
233,715
Net income
$
55,256
$
59,531
$
48,351
$
45,687
$
53,394
Basic
$
11.97
$
12.01
$
9.27
$
8.35
$
9.28
Diluted
$
11.89
$
11.91
$
9.21
$
8.31
$
9.22
$
3.00
$
2.72
$
2.40
$
2.18
$
1.98
Earnings per share:
Cash dividends declared per share
Shares used in computing earnings per share:
Basic
4,617,834
4,955,377
5,217,242
5,470,820
5,753,421
Diluted
4,648,913
5,000,109
5,251,692
5,500,281
5,793,069
Total cash, cash equivalents and marketable securities $
205,898
$
237,100
$
268,895
$
237,585
$
205,666
Total assets
$
338,516
$
365,725
$
375,319
$
321,686
$
290,345
Non-current portion of term debt
$
91,807
$
93,735
$
97,207
$
75,427
$
53,329
Other non-current liabilities
$
50,503
$
48,914
$
44,212
$
39,986
$
38,104
Apple Inc. | 2019 Form 10-K | 17
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements
provide current expectations of future events based on certain assumptions and include any statement that does not directly relate
to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements
are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part
I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference.The following discussion
should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of
this Form 10-K. Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references
to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters,
months and periods of those fiscal years. Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple
Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any
forward-looking statements for any reason, except as required by law.
This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018.
Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be
found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,Item 7 of the Company’s
Annual Report on Form 10-K for the fiscal year ended September 29, 2018.
Fiscal Period
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company’s fiscal years
2019 and 2018 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks. A 14th week was included in the first quarter
of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters.
Fiscal 2019 Highlights
Total net sales decreased 2% or $5.4 billion during 2019 compared to 2018, driven by lower net sales of iPhone, partially offset by
higher net sales of Wearables, Home and Accessories and Services in all geographic operating segments. The weakness in foreign
currencies had a significant unfavorable impact on net sales during 2019.
In April 2019, the Company announced an increase to its current share repurchase program authorization from $100 billion to $175
billion and raised its quarterly dividend from $0.73 to $0.77 per share beginning in May 2019. During 2019, the Company repurchased
$67.1 billion of its common stock and paid dividends and dividend equivalents of $14.1 billion.
Apple Inc. | 2019 Form 10-K | 18
Products and Services Performance
Beginning in the first quarter of 2019, the Company classified the amortization of the deferred value of Maps, Siri and free iCloud
services, which are bundled in the sales price of iPhone, Mac, iPad and certain other products, in Services net sales. Historically,
the Company classified the amortization of these amounts in Products net sales consistent with its management reporting framework.
As a result, Products and Services net sales for 2018 and 2017 were reclassified to conform to the 2019 presentation.
The following table shows net sales by category for 2019, 2018 and 2017 (dollars in millions):
2019
Change
2018
Change
2017
Net sales by category:
iPhone (1)
(1)
iPad (1)
Mac
Wearables, Home and Accessories
$
(1)(2)
Services (3)
Total net sales
$
142,381
(14)% $
164,888
18 % $
139,337
25,740
2%
25,198
(1)%
25,569
21,280
16 %
18,380
(2)%
18,802
24,482
41 %
17,381
36 %
12,826
46,291
16 %
39,748
22 %
32,700
260,174
(2)% $
265,595
16 % $
229,234
(1)
Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the
sales price of the respective product.
(2)
Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod
touch and Apple-branded and third-party accessories.
(3)
Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and
other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which
are bundled in the sales price of certain products.
iPhone
iPhone net sales decreased during 2019 compared to 2018 due primarily to lower iPhone unit sales.
Mac
Mac net sales increased during 2019 compared to 2018 due primarily to higher net sales of MacBook Air, partially offset by lower
net sales of MacBook® and MacBook Pro®.
iPad
iPad net sales increased during 2019 compared to 2018 due primarily to higher net sales of iPad Pro.
Wearables, Home and Accessories
Wearables, Home and Accessories net sales increased during 2019 compared to 2018 due primarily to higher net sales of AirPods
and Apple Watch.
Services
Services net sales increased during 2019 compared to 2018 due primarily to higher net sales from the App Store, licensing and
AppleCare.
Apple Inc. | 2019 Form 10-K | 19
Segment Operating Performance
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…
Purchase answer to see full
attachment

  
error: Content is protected !!