Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

Note 1, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2016 Form 10-K, and “Critical Accounting Policies and Estimates” in Part I,II, Item 7 of the 2016 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 2016 Form 10-K.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the first ~~quarter~~nine months of 2017. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2016 Form 10-K.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of ~~December 31, 2016~~July 1, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the ~~first~~third quarter of 2017, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.	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. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. See the risk factor ““The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights” in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.” The Company settled certain matters during the ~~first~~third quarter of 2017 that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.


Item 1A.	Risk Factors

The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with the Company’s business previously disclosed in Part I, Item 1A of the 2016 Form 10-K and in Part II, Item 1A of the Forms 10-Q for the quarters ended December 31, 2016 and April 1, 2017, in each case under the heading “Risk Factors.” 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.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Global and regional economic conditions could materially adversely affect the Company.

The Company’s operations and performance depend significantly on global and regional economic conditions. Uncertainty about global and regional economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, higher unemployment, financial market volatility, government austerity programs, negative financial news, declines in income or asset values and/or other factors. These worldwide and regional economic conditions could have a material adverse effect on demand for the Company’s products and services. Demand also could differ materially from the Company’s expectations as a result of currency fluctuations because the Company generally raises prices on goods and services sold outside the U.S. to correspond with the effect of a strengthening of the U.S. dollar. Other factors that could influence worldwide or regional demand include changes in fuel and other energy costs, conditions in the real estate and mortgage markets, unemployment, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could materially adversely affect demand for the Company’s products and services.

In the event of financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, currency and equity markets. This could have a number of effects on the Company’s business, including the insolvency or financial instability of outsourcing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products, resulting in product delays; inability of customers, including channel partners, to obtain credit to finance purchases of the Company’s products; failure of derivative counterparties and other financial institutions; and restrictions on the Company’s ability to issue new debt. Other income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; changes in interest rates; increases or decreases in cash balances; volatility in foreign exchange rates; and changes in fair value of derivative instruments. Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them.

Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.

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

The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace. The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services. As a result, the Company must make significant investments in R&D. The Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks. In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the ~~Company's~~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.

The Company markets certain mobile communication and media devices based on the iOS mobile operating system and also markets related services, including third-party digital content and applications. The Company faces substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships; and the Company has a minority market share in the global smartphone market. Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. The Company competes with business models that provide content to users for free. The Company also competes with illegitimate means to obtain third-party digital content and applications. Some of the Company’s competitors have greater experience, product breadth and distribution channels than the Company. Because some current and potential competitors have substantial resources and/or experience and a lower cost structure, they may be able to provide products and services at little or no profit or even at a loss. The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing components seamlessly within their individual offerings or work collaboratively to offer integrated solutions. The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve iOS and iOS devices in order to maintain their functional and design advantages.

The Company is the only authorized maker of hardware using macOS, which has a minority market share in the personal computer market. This market has been contracting and is dominated by computer makers using competing operating systems, most notably Windows. In the market for personal computers and accessories, the Company faces a significant number of competitors, many of which have broader product lines, ~~lower priced~~lower-priced products and a larger installed customer base. Historically, consolidation in this market has resulted in larger competitors. Price competition has been particularly intense as competitors have aggressively cut prices and lowered product margins. An increasing number of internet-enabled devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products. The Company’s financial condition and operating results also depend on its ability to continually improve the Mac platform to maintain its functional and design advantages.

There can be no assurance the Company will be able to continue to provide products and services that compete effectively.

To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.

Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and successfully manage the transition to these new and upgraded products. The success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand and the risk that new products may have quality or other defects or deficiencies in the early stages of introduction. Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.

The Company depends on the performance of distributors, carriers and other resellers.

The Company distributes its products through cellular network carriers, wholesalers, national and regional retailers and value-added resellers, many of whom distribute products from competing manufacturers. The Company also sells its products and third-party products in most of its major markets directly to education, enterprise and government customers and consumers and small and mid-sized businesses through its retail and online stores.

Some carriers providing cellular network service for iPhone subsidize users’ purchases of the device. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.

The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays. These programs could require a substantial investment while providing no assurance of return or incremental revenue. The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.

The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.

The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components. The Company also reviews its long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable. If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the ~~assets~~asset exceeds its fair value. Although the Company believes its provisions related to inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company competes.

The Company must order components for its products and build inventory in advance of product announcements and shipments. ~~Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts and open orders, in each case based on projected demand.~~ Manufacturing purchase obligations typically cover forecasted component and manufacturing requirements for periods up to 150 days. Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.

Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.

Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations. While the Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all. A number of suppliers of components may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components 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” above, also could affect the Company’s ability to obtain components. Therefore, the Company remains subject to significant risks of supply shortages and price increases.

The Company’s new products often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. Continued availability of these components at acceptable prices, or at all, may be affected for any number of reasons, including if those suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements. The supply of components for a new or existing product could be delayed or constrained, or a key manufacturing vendor could delay shipments of completed products to the Company.

The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.

Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners located primarily in Asia. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. Although arrangements with these partners may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects and could experience an unanticipated product defect or warranty liability. While the Company relies on its partners to adhere to its supplier code of conduct, material violations of the supplier code of conduct could occur.

The Company relies on sole-sourced outsourcing partners in the U.S., Asia and Europe to supply and manufacture many critical components, and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the Company’s hardware products. Any failure of these partners to perform may have a negative impact on the Company’s cost or supply of components or finished goods. In addition, manufacturing or logistics in these locations or transit to final destinations may be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions or economic, business, labor, environmental, public health, or political issues.

The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply agreements. While these arrangements help ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems or other disruptions in their business, such continued supply could be reduced or terminated and the net realizable value of these assets could be negatively impacted.

The Company’s products and services may experience quality problems from time to time that can result in decreased sales and operating margin and harm to the Company’s reputation.

The Company sells complex hardware and software products and services that can contain design and manufacturing defects. Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the software’s intended operation. The Company’s online services may from time to time experience outages, service slowdowns or errors. Defects may also occur in components and products the Company purchases from third parties. There can be no assurance the Company will be able to detect and fix all defects in the hardware, software and services it sells. Failure to do so could result in lost revenue, significant warranty and other expenses and harm to the Company’s reputation.

The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.

The Company contracts with numerous third parties to offer their digital content to customers. This includes the right to sell currently available music, movies, TV shows and books. The licensing or other distribution arrangements with these third parties are for relatively short terms and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers and distributors currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license or otherwise distribute their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the cost of, such content. The Company may be unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach. Failure to obtain the right to make ~~available~~ third-party digital content available, or to make ~~available~~ 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~~third-party software applications and services. There is no assurance that third-party developers will continue to develop and maintain software applications and services for the Company’s products. If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.

With respect to its Mac products, the Company believes the availability of ~~third‑party~~third-party software applications and services depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software for the Company’s products compared to Windows-based products. This analysis may be based on factors such as the market position of the Company and its products, the anticipated revenue that may be generated, expected future growth of Mac sales and the costs of developing such applications and services. If the Company’s minority share of the global personal computer market causes developers to question the Mac’s prospects, developers could be less inclined to develop or upgrade software for the Company’s Mac products and more inclined to devote their resources to developing and upgrading software for the larger Windows market.

With respect to iOS devices, the Company relies on the continued availability and development of compelling and innovative software applications, including applications distributed through the App Store. iOS devices are subject to rapid technological change, and, if third-party developers are unable to or choose not to keep up with this pace of change, third-party applications might not successfully operate and may result in dissatisfied customers. As with applications for the Company’s Mac products, the availability and development of these applications also depend on developers’ perceptions and analysis of the relative benefits of developing, maintaining or upgrading software for the Company’s iOS devices rather than its competitors’ platforms, such as Android. If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s iOS devices may suffer.

The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.

Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties. Based on past experience and industry practice, the Company believes such licenses generally can be obtained on reasonable terms. There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could preclude the Company from selling certain products or otherwise have a material adverse impact on the Company’s financial condition and operating results.

The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights.

The Company is subject to various legal proceedings and claims that have ~~not yet been fully resolved and that have~~ arisen in the ordinary course of business and ~~additional~~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 may 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 ~~including many of the Company’s competitors,~~ 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. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. The intellectual property rights claims against the Company have generally increased over time and may continue to increase. In particular, the Company's cellular enabled products compete with products from mobile communication and media device companies that hold significant patent portfolios, and the Company has faced a significant number of patent claims against it. The Company is vigorously defending infringement actions in courts in a number of U.S. jurisdictions and before the U.S. International Trade Commission, as well as internationally in various countries. The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation. If the Company is found to infringe one or more patents or other intellectual property rights, regardless of whether it can develop non-infringing technology, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from marketing or selling certain products.

In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Company’s operating expenses.

~~Regardless of the~~ merit of particular claims, litigation may be expensive, time-consuming, disruptive to the Company’s operations and distracting to management. In recognition of these considerations, the Company may enter into licensing agreements or other arrangements to settle ~~litigation.~~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 operating expenses.

In management’s opinion, there is not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies, including matters related to infringement of intellectual property rights. However, the outcome of litigation is inherently uncertain.

Although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company or an indemnified third party in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company that could materially adversely affect its financial condition and operating results.

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.

The Company is subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.

The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of labor, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, quality of services, telecommunications, mobile communications and media, television, intellectual property ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental, health and safety.

By way of example, laws and regulations related to mobile communications and media devices in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes could include, among others, restrictions on the production, manufacture, distribution and use of devices, locking devices to a carrier’s network, or mandating the use of devices on more than one carrier’s network. These devices are also subject to certification and regulation by governmental and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications, or delays in product shipment dates, or could preclude the Company from selling certain products.

Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s products and services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or the Company’s policies and procedures.

The Company’s business is subject to the risks of international operations.

The Company derives a significant portion of its revenue and earnings from its international operations. Compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, environmental laws, labor laws and anti-competition regulations, increases the costs of doing business in foreign jurisdictions. Although the Company has implemented policies and procedures to comply with these laws and regulations, a violation by the Company’s employees, contractors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect the Company’s brand, international growth efforts and business.

The Company also could be significantly affected by other risks associated with international activities including, but not limited to, economic and labor conditions, increased duties, taxes and other costs and political instability. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by international trade regulations, including duties, tariffs and antidumping penalties. The Company is also exposed to credit and collectability risk on its trade receivables with customers in certain international markets. There can be no assurance the Company can effectively limit its credit risk and avoid losses.

The Company’s retail 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 operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high cost structure associated with the Company’s retail stores, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and severance costs.

Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties. These risks and uncertainties include, but are not limited to, macro-economic factors that could have an adverse effect on general retail activity, as well as the Company’s inability to manage costs associated with store construction and operation, the Company’s failure to manage relationships with its existing retail partners, more challenging environments in managing retail operations outside the U.S., costs associated with unanticipated fluctuations in the value of retail inventory, and the Company’s inability to obtain and renew leases in quality retail locations at a reasonable cost.

Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks not originally contemplated.

The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital and unidentified issues not discovered in the Company’s due diligence. These new ventures are inherently risky and may not be successful.

The Company’s business and reputation may be impacted by information technology system failures or network disruptions.

The Company may be subject to information technology system failures and network disruptions. These may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or other events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could, among other things, prevent access to the Company’s online stores and services, preclude retail store transactions, compromise Company or customer data, and result in delayed or ~~cancelled~~canceled orders. System failures and disruptions could also impede the manufacturing and shipping of products, delivery of online services, transactions processing and financial reporting.

There may be breaches of the Company’s information technology systems that materially damage business partner and customer relationships, curtail or otherwise adversely impact access to online stores and services, or subject the Company to significant reputational, financial, legal and operational consequences.

The Company’s business requires it to use and store customer, employee and business partner personally identifiable information (“PII”). This may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers and payment account information. Although malicious attacks to gain access to PII affect many companies across various industries, the Company is at a relatively greater risk of being targeted because of its high profile and the amount of PII it manages.

The Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company data or accounts. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access the Company’s information technology systems. To help protect customers and the Company, the Company monitors accounts and systems for unusual activity and may freeze accounts under suspicious circumstances, which may result in the delay or loss of customer orders.

The Company devotes significant resources to network security, data encryption and other security measures to protect its systems and data, but these security measures cannot provide absolute security. To the extent the Company was to experience a breach of its systems and was unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise adversely impact access to online stores and services. Moreover, if a computer security breach affects the Company’s systems or results in the unauthorized release of PII, the Company’s reputation and brand could be materially damaged, use of the Company’s products and services could decrease, and the Company could be exposed to a risk of loss or litigation and possible liability. While the Company maintains insurance coverage that, subject to policy terms and conditions and subject to a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

The Company is also subject to payment card association rules and obligations under its contracts with payment card processors. Under these rules and obligations, if information is compromised, the Company could be liable to payment card issuers for associated expenses and penalties. In addition, if the Company fails to follow payment card industry security standards, even if no customer information is compromised, the Company could incur significant fines or experience a significant increase in payment card transaction costs.

The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding data protection.

The Company is subject to federal, state and international laws relating to the collection, use, retention, security and transfer of PII. In many cases, these laws apply not only to third-party transactions, but also may restrict transfers of PII among the Company and its international subsidiaries. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to change its business practices. Noncompliance could result in significant penalties or legal liability.

The Company makes statements about its use and disclosure of PII through its privacy policy, information provided on its website and press statements. Any failure by the Company to comply with these public statements or with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against the Company by governmental entities or others. ~~Penalties~~In addition to reputational impacts, penalties could include ongoing audit requirements orand significant legal liability.

The Company’s success depends largely on the continued service and availability of key personnel.

Much of the Company’s future success depends on the continued availability and service of key personnel, including its Chief Executive Officer, executive team and other highly skilled employees. Experienced personnel in the technology industry are in high demand and competition for their talents is intense, especially in Silicon Valley, where most of the Company’s key personnel are located.

The Company’s business may be impacted by political events, war, terrorism, public health issues, natural disasters and other business interruptions.

War, terrorism, geopolitical uncertainties, public health issues and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a material adverse effect on the Company, its suppliers, logistics providers, manufacturing vendors and customers, including channel partners. The Company’s business operations are subject to interruption by, among others, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, labor disputes, public health issues and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult or impossible for the Company to make and deliver products to its customers, including channel partners, or to receive components from its suppliers, and create delays and inefficiencies in the Company’s supply chain. While the ~~Company's~~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~~Company’s business and harm to the ~~Company's~~Company’s reputation. Should major public health issues, including pandemics, arise, the Company could be adversely affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products and disruptions in the operations of the Company’s manufacturing vendors and component suppliers. The majority of the Company’s R&D activities, its corporate headquarters, information technology systems and other critical business operations, including certain component suppliers and manufacturing vendors, are in locations that could be affected by natural disasters. In the event of a natural disaster, the Company could incur significant losses, require substantial recovery time and experience significant expenditures in order to resume operations.

The Company expects its quarterly revenue and operating results to fluctuate.

The Company’s profit margins vary across its products and distribution channels. The Company’s software, accessories, and service and support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the Company’s hardware products vary across product lines and can change over time as a result of product transitions, pricing and configuration changes, and component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher associated gross margins than its indirect sales through its channel partners. In addition, the Company’s gross margin and operating margin percentages, as well as overall profitability, may be materially adversely impacted as a result of a shift in product, geographic or channel mix, component cost increases, the strengthening U.S. dollar, price competition, or the introduction of new products, including those that have higher cost structures with flat or reduced pricing.

The Company has typically experienced higher net sales in its first quarter compared to other quarters due in part to seasonal holiday demand. Additionally, new product introductions can significantly impact net sales, product costs and operating expenses. Further, the Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact quarterly net sales. The Company could also be subject to unexpected developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, issues with new product introductions, an internal systems failure, or failure of one of the Company’s logistics, components supply, or manufacturing partners.

The Company’s stock price is subject to volatility.

The Company’s stock price has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, the Company, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to these companies’ operating performance. Price volatility over a given period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time. The Company believes its stock price 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 versus local currencies.

The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency-denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its foreign currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.

The Company uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.

Given the global nature of its business, the Company has both domestic and international investments. Credit ratings and pricing of the Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of the Company’s cash, cash equivalents and marketable securities may fluctuate substantially. Therefore, although the Company has not realized any significant losses on its cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized ~~loss.~~losses.

The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.

The Company distributes its products through third-party cellular network carriers, wholesalers, retailers and value-added resellers. The Company also sells its products directly to small and mid-sized businesses and education, enterprise and government customers. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral, third-party financing arrangements or credit insurance. The Company’s exposure to credit and collectability risk on its trade receivables is higher in certain international markets and its ability to mitigate such risks may be limited. The Company also has unsecured vendor non-trade receivables resulting from purchases of components by outsourcing partners and other vendors that manufacture sub-assemblies or assemble final products for the Company. In addition, the Company has made prepayments associated with long-term supply agreements to secure supply of inventory components. As of ~~December 31, 2016,~~July 1, 2017, 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~~IRS and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations. If the Company’s effective tax rates were to increase, particularly in the U.S. or Ireland, or if the ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s financial condition, operating results and cash flows could be adversely affected.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity during the three months ended ~~December 31, 2016~~July 1, 2017 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):


Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ⁽¹⁾		Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
September 25, 2016 to October 29, 2016:
April 2, 2017 to May 6, 2017:
Open market and privately negotiated purchases	8,675		$	115.28	8,675				6,968		$	143.52	6,968

October 30, 2016 to November 26, 2016:
August 2016 ASR	4,382		⁽²⁾		4,382
November 2016 ASR	44,814	⁽³⁾	⁽³⁾		44,814	⁽³⁾
May 7, 2017 to June 3, 2017:
February 2017 ASR									3,422		⁽²⁾		3,422
May 2017 ASR									15,598	⁽³⁾	⁽³⁾		15,598	⁽³⁾
Open market and privately negotiated purchases	14,084		$	109.90	14,084				10,650		$	153.65	10,650

November 27, 2016 to December 31, 2016:
June 4, 2017 to July 1, 2017:
Open market and privately negotiated purchases	21,574		$	113.66	21,574				12,738		$	146.31	12,738
Total	93,529						$	31,024	49,376						$	51,523

(1)

In ~~April 2016,~~May 2017, the Company’s Board of Directors increased the ~~Company's~~ share repurchase ~~program~~ authorization from ~~$140~~$175 billion to ~~$175~~$210 billion of the Company’s common ~~stock. As~~stock, of which $158 billion had been utilized as of ~~December 31, 2016~~July 1, 2017,. The remaining $~~144~~52 billion ~~of the $175 billion had been utilized. The remaining $31 billion~~ in the table represents the amount available to repurchase shares under the authorized repurchase program as of ~~December 31, 2016~~July 1, 2017. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

(2)

In ~~August 2016,~~February 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) to purchase up to ~~$3.0~~$3.0 billion of the ~~Company's~~Company’s common stock. In ~~November 2016,~~May 2017, the purchase period for this ASR ended and an additional ~~4.4~~3.4 million shares were delivered and retired. In total, ~~26.9~~20.9 million shares were delivered under this ASR at an average repurchase price of ~~$111.73.~~$143.20.

(3)

In ~~November 2016,~~May 2017, the Company entered into a new ASR to purchase up to ~~$6.0~~$3.0 billion of the Company’s common stock. In exchange for an up-front payment of ~~$6.0~~$3.0 billion, the financial institution party to the arrangement committed to deliver shares to the Company during the ASR’s purchase period, which will end in ~~February~~August 2017. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the applicable purchase period based on the ~~volume weighted-average~~volume-weighted average price of the Company’s common stock during that period.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits

Exhibit Index ~~to Exhibits~~

Incorporated by Reference

Exhibit
Number

Exhibit Description
Form Exhibit
Filing Date/
Period End Date
3.2 Amended and Restated Bylaws of the Registrant effective as of December 13, 2016. 8-K 3.2 12/13/16
10.18* Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of October 14, 2016. 10-K 10.18 9/24/2016
10.19* Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of October 14, 2016. 10-K 10.19 9/24/2016
31.1** Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2** Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1*** Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101.INS** XBRL Instance Document.
101.SCH** XBRL Taxonomy Extension Schema Document.
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB** XBRL Taxonomy Extension Label Linkbase Document.
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document.



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date
4.1	Officer’s Certificate of the Registrant, dated as of May 11, 2017, including forms of global notes representing the Floating Rate Notes due 2020, Floating Rate Notes due 2022, 1.800% Notes due 2020, 2.300% Notes due 2022, 2.850% Notes due 2024 and 3.200% Notes due 2027.	8-K	4.1	5/11/17
4.2	Officer’s Certificate of the Registrant, dated as of May 24, 2017, including forms of global notes representing the 0.875% Notes due 2025 and 1.375% Notes due 2029.	8-K	4.1	5/24/17
4.3	Officer’s Certificate of the Registrant, dated as of June 20, 2017, including form of global note representing the 3.000% Notes due 2027.	8-K	4.1	6/20/17
31.1*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1**	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.


*	~~Indicates management contract or compensatory plan or arrangement.~~


**	Filed herewith.


***	Furnished herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



~~February 1,~~August 2, 2017	Apple Inc.

	By:	/s/ Luca Maestri
		Luca Maestri
		Senior Vice President,
		Chief Financial Officer

45Apple Inc. | Q3 2017 Form 10-Q | 46




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

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	December 31, 2016		December 26, 2015		July 1, 2017		June 25, 2016		July 1, 2017		June 25, 2016
Net sales	$	78,351	$	75,872	$	45,408	$	42,358	$	176,655	$	168,787
Cost of sales	48,175		45,449		27,920		26,252		108,400		102,337
Gross margin	30,176		30,423		17,488		16,106		68,255		66,450

Operating expenses:
Research and development	2,871		2,404		2,937		2,560		8,584		7,475
Selling, general and administrative	3,946		3,848		3,783		3,441		11,447		10,712
Total operating expenses	6,817		6,252		6,720		6,001		20,031		18,187

Operating income	23,359		24,171		10,768		10,105		48,224		48,263
Other income/(expense), net	821		402		540		364		1,948		921
Income before provision for income taxes	24,180		24,573		11,308		10,469		50,172		49,184
Provision for income taxes	6,289		6,212		2,591		2,673		12,535		12,511
Net income	$	17,891	$	18,361	$	8,717	$	7,796	$	37,637	$	36,673

Earnings per share:
Basic	$	3.38	$	3.30	$	1.68	$	1.43	$	7.18	$	6.66
Diluted	$	3.36	$	3.28	$	1.67	$	1.42	$	7.14	$	6.62

Shares used in computing earnings per share:
Basic	5,298,661		5,558,930		5,195,088		5,443,058		5,239,847		5,505,456
Diluted	5,327,995		5,594,127		5,233,499		5,472,781		5,274,394		5,535,931

Cash dividends declared per share	$	0.57	$	0.52	$	0.63	$	0.57	$	1.77	$	1.61


	Three Months Ended						Three Months Ended						Nine Months Ended
	December 31, 2016			December 26, 2015			July 1, 2017			June 25, 2016			July 1, 2017			June 25, 2016
Net income	$	17,891		$	18,361		$	8,717		$	7,796		$	37,637		$	36,673
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax effects of $76 and $19, respectively	(375		)	(102		)
Change in foreign currency translation, net of tax effects of $(35), $2, $(3) and $2, respectively							120			46			(41		)	64

Change in unrealized gains/losses on derivative instruments:
Change in fair value of derivatives, net of tax benefit/(expense) of $(228) and $(38), respectively	1,468			287
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(211) and $66, respectively	306			(445		)
Change in fair value of derivatives, net of tax benefit/(expense) of $(16), $27, $(269) and $(10), respectively							(166		)	(175		)	1,002			(66		)
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $176, $46, $276 and $256, respectively							(409		)	(88		)	(1,135		)	(1,061		)
Total change in unrealized gains/losses on derivative instruments, net of tax	1,774			(158		)	(575		)	(263		)	(133		)	(1,127		)

Change in unrealized gains/losses on marketable securities:
Change in fair value of marketable securities, net of tax benefit/(expense) of $989 and $508, respectively	(1,808		)	(922		)
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(11) and $(26), respectively	20			47
Change in fair value of marketable securities, net of tax benefit/(expense) of $(197), $(641), $536 and $(663), respectively							364			1,170			(980		)	1,217
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $16, $8, $12 and $(45), respectively							(32		)	(12		)	(25		)	84
Total change in unrealized gains/losses on marketable securities, net of tax	(1,788		)	(875		)	332			1,158			(1,005		)	1,301

Total other comprehensive income/(loss)	(389		)	(1,135		)	(123		)	941			(1,179		)	238
Total comprehensive income	$	17,502		$	17,226		$	8,594		$	8,737		$	36,458		$	36,911


	December 31, 2016		September 24, 2016		July 1, 2017			September 24, 2016
ASSETS:
Current assets:
Cash and cash equivalents	$	16,371	$	20,484	$	18,571		$	20,484
Short-term marketable securities	44,081		46,671		58,188			46,671
Accounts receivable, less an allowance of $53 in each period	14,057		15,754
Accounts receivable, less allowances of $55 and $53, respectively					12,399			15,754
Inventories	2,712		2,132		3,146			2,132
Vendor non-trade receivables	13,920		13,545		10,233			13,545
Other current assets	12,191		8,283		10,338			8,283
Total current assets	103,332		106,869		112,875			106,869

Long-term marketable securities	185,638		170,430		184,757			170,430
Property, plant and equipment, net	26,510		27,010		29,286			27,010
Goodwill	5,423		5,414		5,661			5,414
Acquired intangible assets, net	2,848		3,206		2,444			3,206
Other non-current assets	7,390		8,757		10,150			8,757
Total assets	$	331,141	$	321,686	$	345,173		$	321,686

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	38,510	$	37,294	$	31,915		$	37,294
Accrued expenses	23,739		22,027		23,304			22,027
Deferred revenue	7,889		8,080		7,608			8,080
Commercial paper	10,493		8,105		11,980			8,105
Current portion of long-term debt	3,499		3,500		6,495			3,500
Total current liabilities	84,130		79,006		81,302			79,006

Deferred revenue, non-current	3,163		2,930		2,984			2,930
Long-term debt	73,557		75,427		89,864			75,427
Other non-current liabilities	37,901		36,074		38,598			36,074
Total liabilities	198,751		193,437		212,748			193,437

Commitments and contingencies

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,255,423 and 5,336,166 shares issued and outstanding, respectively	32,144		31,251
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,169,782 and 5,336,166 shares issued and outstanding, respectively					34,445			31,251
Retained earnings	100,001		96,364		98,525			96,364
Accumulated other comprehensive income/(loss)	245		634		(545		)	634
Total shareholders’ equity	132,390		128,249		132,425			128,249
Total liabilities and shareholders’ equity	$	331,141	$	321,686	$	345,173		$	321,686



		Page
Part I
Item 1.	Financial Statements	31
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2221
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233
Item 4.	Controls and Procedures	3233

Part II
Item 1.	Legal Proceedings	3334
Item 1A.	Risk Factors	3334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4344
Item 3.	Defaults Upon Senior Securities	4344
Item 4.	Mine Safety Disclosures	4344
Item 5.	Other Information	4344
Item 6.	Exhibits	4445


	December 31, 2016															July 1, 2017
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities		Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
Cash	$	9,359	$	—	$	—		$	9,359	$	9,359	$	—	$	—	$	8,529	$	—	$	—		$	8,529	$	8,529	$	—	$	—

Level 1 ⁽¹⁾:
Money market funds	4,640		—		—			4,640		4,640		—		—		3,088		—		—			3,088		3,088		—		—
Mutual funds	1,004		—		(137		)	867		—		867		—		1,004		—		(118		)	886		—		886		—
Subtotal	5,644		—		(137		)	5,507		4,640		867		—		4,092		—		(118		)	3,974		3,088		886		—

Level 2 ⁽²⁾:
U.S. Treasury securities	48,431		47		(333		)	48,145		1,022		13,074		34,049		52,616		77		(230		)	52,463		1,013		20,104		31,346
U.S. agency securities	4,284		4		(10		)	4,278		404		1,999		1,875		5,328		3		(9		)	5,322		2,255		1,774		1,293
Non-U.S. government securities	7,574		79		(136		)	7,517		—		408		7,109		6,987		156		(50		)	7,093		—		64		7,029
Certificates of deposit and time deposits	5,893		—		—			5,893		334		4,089		1,470		6,731		—		—			6,731		894		5,191		646
Commercial paper	3,750		—		—			3,750		536		3,214		—		5,187		—		—			5,187		2,683		2,504		—
Corporate securities	140,697		469		(737		)	140,429		76		20,283		120,070		150,089		882		(312		)	150,659		109		27,522		123,028
Municipal securities	955		—		(9		)	946		—		111		835		938		3		(2		)	939		—		127		812
Mortgage- and asset-backed securities	20,486		23		(243		)	20,266		—		36		20,230		20,762		34		(177		)	20,619		—		16		20,603
Subtotal	232,070		622		(1,468		)	231,224		2,372		43,214		185,638		248,638		1,155		(780		)	249,013		6,954		57,302		184,757

Total	$	247,073	$	622	$	(1,605	)	$	246,090	$	16,371	$	44,081	$	185,638	$	261,259	$	1,155	$	(898	)	$	261,516	$	18,571	$	58,188	$	184,757



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

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

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

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


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


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


	December 31, 2016						July 1, 2017
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets ⁽¹⁾:
Foreign exchange contracts	$	1,453	$	1,104	$	2,557	$	485	$	242	$	727
Interest rate contracts	$	186	$	—	$	186	$	253	$	—	$	253

Derivative liabilities ⁽²⁾:
Foreign exchange contracts	$	977	$	536	$	1,513	$	842	$	362	$	1,204
Interest rate contracts	$	331	$	—	$	331	$	264	$	—	$	264


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


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


	Maturities	December 31, 2016				September 24, 2016				Maturities			July 1, 2017								September 24, 2016
		Amount (in millions)			Effective Interest Rate	Amount (in millions)			Effective Interest Rate				Amount (in millions)			Effective Interest Rate					Amount (in millions)			Effective Interest Rate
2013 debt issuance of $17.0 billion:
Floating-rate notes	2018	$	2,000		1.10%	$	2,000		1.10%	2018		2018	$	2,000			1.10%		1.10	%	$	2,000			1.10%		1.10	%
Fixed-rate 1.000% - 3.850% notes	2018 - 2043	12,500			1.08% - 3.91%	12,500			1.08% - 3.91%
Fixed-rate 1.000% – 3.850% notes										2018	–	2043	12,500				1.08%	–	3.91	%	12,500				1.08%	–	3.91	%

2014 debt issuance of $12.0 billion:
Floating-rate notes	2017 - 2019	2,000			0.95% - 1.18%	2,000			0.86% - 1.09%	2019	–	2019	1,000				1.48%		1.48	%	2,000				0.86%	–	1.09	%
Fixed-rate 1.050% - 4.450% notes	2017 - 2044	10,000			0.95% - 4.48%	10,000			0.85% - 4.48%
Fixed-rate 2.100% – 4.450% notes										2019	–	2044	8,500				1.48%	–	4.48	%	10,000				0.85%	–	4.48	%

2015 debt issuances of $27.3 billion:
Floating-rate notes	2017 - 2020	1,753			0.95% - 1.87%	1,781			0.87% - 1.87%	2019	–	2020	1,532				1.43%	–	1.87	%	1,781				0.87%	–	1.87	%
Fixed-rate 0.350% - 4.375% notes	2017 - 2045	24,225			0.28% - 4.51%	25,144			0.28% - 4.51%
Fixed-rate 0.350% – 4.375% notes										2019	–	2045	24,259				0.28%	–	4.51	%	25,144				0.28%	–	4.51	%

2016 debt issuances of $24.9 billion:
Floating-rate notes	2019 - 2021	1,350			1.02% - 2.05%	1,350			0.91% - 1.95%	2019	–	2021	1,350				1.31%	–	2.32	%	1,350				0.91%	–	1.95	%
Fixed-rate 1.100% - 4.650% notes	2018 - 2046	23,550			1.13% - 4.78%	23,609			1.13% - 4.58%
Fixed-rate 1.100% – 4.650% notes										2018	–	2046	23,610				1.13%	–	4.78	%	23,609				1.13%	–	4.58	%

Second quarter 2017 debt issuance of $10.0 billion:
Floating-rate notes												2019	500						1.26	%	—						—	%
Floating-rate notes												2020	500						1.38	%	—						—	%
Floating-rate notes												2022	1,000						1.68	%	—						—	%
Fixed-rate 1.550% notes												2019	500						1.59	%	—						—	%
Fixed-rate 1.900% notes												2020	1,000						1.38	%	—						—	%
Fixed-rate 2.500% notes												2022	1,500						1.67	%	—						—	%
Fixed-rate 3.000% notes												2024	1,750						1.98	%	—						—	%
Fixed-rate 3.350% notes												2027	2,250						2.12	%	—						—	%
Fixed-rate 4.250% notes												2047	1,000						4.26	%	—						—	%

Second quarter 2017 debt issuance of $1.0 billion:
Fixed-rate 4.300% notes												2047	1,000						4.30	%	—						—	%

Third quarter 2017 debt issuance of $7.0 billion:
Floating-rate notes												2020	500						1.25	%	—						—	%
Floating-rate notes												2022	750						1.53	%	—						—	%
Fixed-rate 1.800% notes												2020	1,000						1.84	%	—						—	%
Fixed-rate 2.300% notes												2022	1,000						2.34	%	—						—	%
Fixed-rate 2.850% notes												2024	1,750						2.16	%	—						—	%
Fixed-rate 3.200% notes												2027	2,000						2.34	%	—						—	%

Third quarter 2017 euro-denominated debt issuance of €2.5 billion:										Third quarter 2017 euro-denominated debt issuance of €2.5 billion:
Fixed-rate 0.875% notes												2025	1,419						3.03	%	—						—	%
Fixed-rate 1.375% notes												2029	1,419						3.37	%	—						—	%

Third quarter 2017 debt issuance of $1.0 billion:
Fixed-rate 3.000% notes												2027	1,000						3.03	%	—						—	%
Total term debt		77,378				78,384							96,589								78,384

Unamortized premium/(discount) and issuance costs, net		(166		)		(174		)					(210		)						(174		)
Hedge accounting fair value adjustments		(156		)		717							(20		)						717
Less: Current portion of long-term debt		(3,499		)		(3,500		)					(6,495		)						(3,500		)
Total long-term debt		$	73,557			$	75,427						$	89,864							$	75,427


	Dividends Per Share		Amount (in millions)		Dividends Per Share		Amount (in millions)
2017:
Third quarter					$	0.63	$	3,281
Second quarter					0.57		2,988
First quarter	$	0.57	$	3,042	0.57		3,042
Total cash dividends declared and paid					$	1.77	$	9,311

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


~~Item 1.~~	~~Financial Statements~~



	Purchase Period End Date	Number of Shares (in thousands)		Average Repurchase Price Per Share		ASR Amount (in millions)
May 2017 ASR	August 2017	15,598	⁽¹⁾	⁽¹⁾		$	3,000
February 2017 ASR	May 2017	20,949	⁽²⁾	$	143.20	$	3,000
November 2016 ASR	February 2017	51,157		$	117.29	$	6,000
August 2016 ASR	November 2016	26,850		$	111.73	$	3,000
May 2016 ASR	August 2016	60,452		$	99.25	$	6,000
November 2015 ASR	April 2016	29,122		$	103.02	$	3,000


(2)	Includes ~~22.5~~17.5 million shares delivered and retired at the beginning of the purchase period, which began in the ~~fourth~~second quarter of ~~2016~~2017 and ~~4.4~~3.4 million shares delivered and retired at the end of the purchase period, which concluded in the ~~first~~third quarter of 2017.


	Cumulative Foreign Currency Translation			Unrealized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total			Cumulative Foreign Currency Translation			Unrealized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total
Balance at September 24, 2016	$	(578	)	$	38		$	1,174		$	634		$	(578	)	$	38		$	1,174		$	634
Other comprehensive income/(loss) before reclassifications	(451		)	1,696			(2,797		)	(1,552		)	(38		)	1,271			(1,516		)	(283		)
Amounts reclassified from AOCI	—			517			31			548			—			(1,411		)	(37		)	(1,448		)
Tax effect	76			(439		)	978			615			(3		)	7			548			552
Other comprehensive income/(loss)	(375		)	1,774			(1,788		)	(389		)	(41		)	(133		)	(1,005		)	(1,179		)
Balance at December 31, 2016	$	(953	)	$	1,812		$	(614	)	$	245
Balance at July 1, 2017													$	(619	)	$	(95	)	$	169		$	(545	)


	Number of RSUs (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Aggregate Fair Value (in millions)		Number of RSUs (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Aggregate Fair Value (in millions)
Balance at September 24, 2016	99,089		$	97.54			99,089		$	97.54
RSUs granted	42,882		$	117.95			48,000		$	120.09
RSUs vested	(18,535	)	$	92.65			(41,712	)	$	95.78
RSUs cancelled	(1,577	)	$	105.01
Balance at December 31, 2016	121,859		$	105.37	$	14,114
RSUs canceled							(4,779	)	$	106.75
Balance at July 1, 2017							100,598		$	108.59	$	14,488


~~(1)~~	~~Includes deferrals and amortization of related software upgrade rights and non-software services.~~


~~(2)~~	(2)Includes revenue from Digital Content and Services, AppleCare^®, Apple Pay, licensing and other services. (3)^®~~, Apple Pay, licensing and other services.~~


~~(3)~~	Includes sales of Apple TV, Apple Watch, Beats^® products, iPod and Apple-branded and third-party accessories.


	Dividends and Dividend Equivalents Paid		Accelerated Share Repurchases		Open Market Share Repurchases		Taxes Related to Settlement of Equity Awards		Total		Dividends and Dividend Equivalents Paid		Accelerated Share Repurchases		Open Market Share Repurchases		Taxes Related to Settlement of Equity Awards		Total
Q3 2017											$	3,365	$	3,000	$	4,500	$	858	$	11,723
Q2 2017											3,004		3,000		4,001		159		10,164
Q1 2017	$	3,130	$	6,000	$	5,000	$	629	$	14,759	3,130		6,000		5,000		629		14,759
2016	12,150		12,000		17,000		1,570		42,720		12,150		12,000		17,000		1,570		42,720
2015	11,561		6,000		30,026		1,499		49,086		11,561		6,000		30,026		1,499		49,086
2014	11,126		21,000		24,000		1,158		57,284		11,126		21,000		24,000		1,158		57,284
2013	10,564		13,950		9,000		1,082		34,596		10,564		13,950		9,000		1,082		34,596
2012	2,488		—		—		56		2,544		2,488		—		—		56		2,544
Total	$	51,019	$	58,950	$	85,026	$	5,994	$	200,989	$	57,388	$	64,950	$	93,527	$	7,011	$	222,876

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