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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-01 · 131 added, 100 removed, 136 unchanged (63% of the section changed)

23 unchanged sentences

COVID-19 Update

A novel strain of coronavirus (“COVID-19”) has spread rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response.

Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders.

During the second quarter of 2020, a novel strain of coronavirus (“COVID-19”) began spreading rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response.

Such measures included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders.

The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition and stock price.

During February 2020, following the initial outbreak of the virus in China, the Company experienced disruptions to its manufacturing, supply chain and logistical services provided by outsourcing partners, resulting in temporary iPhone supply shortages that affected sales worldwide.

Also, the Company’s sales of its products in China were adversely affected as public health measures and other actions to curb the spread of the virus, including the temporary closure of the Company’s retail stores and channel partner points of sale, were put in place.

The virus spread further around the world as the quarter progressed, and social distancing measures and shelter-in-place orders were introduced in many countries.

Effective March 13, 2020, the Company temporarily closed all of its retail stores outside of China.

The Company has also required substantially all of its employees in all of its offices outside of China to work remotely.

Additionally, many of the Company’s channel partner points of sale outside of China temporarily closed.

As a result of the above factors, the Company also experienced weakened demand for its products and services outside of China during the last three weeks of the quarter.

During the third quarter of 2020, aspects of the Company’s business continued to be adversely affected by the COVID-19 pandemic, with many of the Company’s retail stores temporarily closed and the vast majority of the Company’s employees working remotely.

The Company is working on safely re-opening its offices and retail stores, subject to local rules and regulations.

Demand for certain of the Company’s products and services was impacted throughout the third quarter of 2020.

The most pronounced impact occurred in April 2020, with demand improving in May and June 2020 across all product categories and Services.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.

Refer to Part I, Item 1A of the 2019 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors,” for more information.

| Q3 2020 Form 10-Q | 25

The COVID-19 pandemic has continued to adversely impact demand for certain of the Company’s products and services through April 2020.

The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.

See “ The Company’s business, results of operations, financial condition and stock price have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic ” in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.”

The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity requirements associated with its existing operations.

Second Quarter Fiscal 2020 Highlights

Total net sales increased 1% or $298 million during the second quarter of 2020 compared to the same quarter in 2019 , primarily driven by higher Services and Wearables, Home and Accessories net sales, partially offset by lower iPhone net sales.

Third Quarter Fiscal 2020 Highlights

Total net sales increased 11% or $5.9 billion during the third quarter of 2020 compared to the same quarter in 2019, primarily driven by higher net sales of Services, iPad and Mac.

The year-over-year increase in net sales during the third quarter of 2020 reflected growth in all of the Company’s geographic reportable segments and product categories.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on net sales during the second quarter of 2020 .

During the second quarter of 2020, the Company released an updated iPad Pro ® and added trackpad support to iPadOS ® .

Additionally, the Company released an updated MacBook Air ® .

The Company repurchased $18.5 billion of its common stock and paid dividends and dividend equivalents of $3.4 billion during the second quarter of 2020 .

dollar had an unfavorable impact on net sales during the third quarter of 2020.

During the third quarter of 2020, the Company released a new iPhone SE and an updated 13-inch MacBook Pro ® .

The Company also announced iOS 14, iPadOS ® 14, macOS ® Big Sur, watchOS ® 7 and tvOS ® 14, updates to its operating systems that are expected to be available in the fall of 2020.

The Company repurchased $16.0 billion of its common stock and paid dividends and dividend equivalents of $3.7 billion during the third quarter of 2020.

Products and Services Performance

The following table shows net sales by category for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (dollars in millions):

Three Months Ended

Six Months Ended

The following table shows net sales by category for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 Change June 27,

2020 June 29,

Net sales by category:

$ 26,418 $ 25,986 2 % $ 111,337 $ 109,019 2 %

7,079 5,820 22 % 19,590 18,749 4 %

6,582 5,023 31 % 16,927 16,624 2 %

Wearables, Home and Accessories (1)(2)

6,450 5,525 17 % 22,744 17,962 27 %

13,156 11,455 15 % 39,219 33,780 16 %

Total net sales $ 59,685 $ 53,809 11 % $ 209,817 $ 196,134 7 %

1 unchanged sentence

(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.

Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services.

(3) Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, Advertising and other services.

Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV + services, which are bundled in the sales price of certain products.

iPhone net sales decreased during the second quarter of 2020 compared to the second quarter of 2019 due primarily to the unfavorable impact of the COVID-19 pandemic.

Year-over-year iPhone net sales increased during the first six months of 2020 due primarily to the successful launch of the Company’s new iPhone models during the first quarter of 2020, partially offset by the unfavorable impact of the COVID-19 pandemic during the second quarter of 2020.

Mac net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower net sales of Mac portable computers and the impact of the COVID-19 pandemic.

iPhone net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to net sales of the new iPhone SE released during the third quarter of 2020.

Year-over-year iPhone net sales increased during the first nine months of 2020 due primarily to higher net sales of iPhone 11, 11 Pro and 11 Pro Max.

Mac net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due to higher net sales of MacBook Pro and MacBook Air ® .

Year-over-year Mac net sales increased during the first nine months of 2020 due to higher net sales of MacBook Pro.

iPad net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPad Pro ® .

Year-over-year iPad net sales increased during the first nine months of 2020 due primarily to higher net sales of iPad Air ® .

| Q3 2020 Form 10-Q | 26

iPad net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower net sales of iPad Pro and the impact of the COVID-19 pandemic.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the second quarter and first six months of 2020 compared to the same periods in 2019 , despite the impact of the COVID-19 pandemic, due to higher net sales of Wearables, primarily AirPods.

Services net sales increased during the second quarter of 2020 compared to the second quarter of 2019, despite the impact of the COVID-19 pandemic, due primarily to higher net sales from the App Store, licensing and Cloud Services.

Year-over-year Services net sales increased during the first six months of 2020 due primarily to higher net sales from the App Store, licensing and AppleCare.

Wearables, Home and Accessories net sales increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to higher net sales of AirPods.

Services net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales from the App Store, Video and Cloud Services.

Year-over-year Services net sales increased during the first nine months of 2020 due primarily to higher net sales from the App Store, Advertising and AppleCare.

Advertising net sales includes net sales from licensing arrangements and the Company’s advertising platforms.

Segment Operating Performance

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Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (dollars in millions):

Three Months Ended

Six Months Ended

The following table shows net sales by reportable segment for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 Change June 27,

2020 June 29,

Net sales by reportable segment:

Americas $ 27,018 $ 25,056 8 % $ 93,858 $ 87,592 7 %

Europe 14,173 11,925 19 % 51,740 45,342 14 %

Greater China 9,329 9,157 2 % 32,362 32,544 (1) %

Japan 4,966 4,082 22 % 16,395 16,524 (1) %

Rest of Asia Pacific 4,199 3,589 17 % 15,462 14,132 9 %

Total net sales $ 59,685 $ 53,809 11 % $ 209,817 $ 196,134 7 %

Americas net sales were flat during the second quarter of 2020 compared to the second quarter of 2019 due primarily to lower iPhone net sales as a result of the COVID-19 pandemic, largely offset by higher Services and Wearables, Home and Accessories net sales.

Year-over-year Americas net sales increased during the first six months of 2020 due primarily to higher Services, Wearables, Home and Accessories and iPhone net sales.

Americas net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of Services and iPad.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on Americas net sales during the second quarter and first six months of 2020.

Europe net sales increased during the second quarter and first six months of 2020 compared to the same periods in 2019 , despite the impact of the COVID-19 pandemic, due primarily to higher iPhone and Wearables, Home and Accessories net sales, partially offset by lower iPad net sales.

dollar had an unfavorable impact on Americas net sales during the third quarter of 2020.

Year-over-year Americas net sales increased during the first nine months of 2020 due primarily to higher net sales of Services and Wearables, Home and Accessories.

Europe net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPhone, iPad and Wearables, Home and Accessories.

Year-over-year Europe net sales increased during the first nine months of 2020 due primarily to higher net sales of iPhone and Wearables, Home and Accessories.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on Europe net sales during the second quarter and first six months of 2020 .

| Q2 2020 Form 10-Q | 27

dollar had an unfavorable impact on Europe net sales during the third quarter and first nine months of 2020.

Greater China

Greater China net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower iPhone net sales as a result of the COVID-19 pandemic, partially offset by higher Services net sales.

Greater China net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPad and Services, partially offset by lower net sales of iPhone.

Year-over-year Greater China net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on Greater China net sales during the second quarter and first six months of 2020 .

Japan net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower iPhone net sales attributable to lower carrier subsidies and as a result of the COVID-19 pandemic, partially offset by higher Services net sales.

dollar had an unfavorable impact on Greater China net sales during the third quarter and first nine months of 2020.

| Q3 2020 Form 10-Q | 27

Japan net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of Services, iPad and Mac.

Year-over-year Japan net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories.

The strength of the Japanese Yen relative to the U.S.

dollar had a favorable impact on Japan net sales during the second quarter and first six months of 2020 .

dollar had a favorable impact on Japan net sales during the first nine months of 2020.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the second quarter of 2020 compared to the second quarter of 2019, despite the impact of the COVID-19 pandemic, due primarily to higher Wearables, Home and Accessories and iPhone net sales, partially offset by lower iPad net sales.

Year-over-year Rest of Asia Pacific net sales increased during the first six months of 2020 due primarily to higher Wearables, Home and Accessories and Services net sales.

Rest of Asia Pacific net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPhone, iPad and Mac.

Year-over-year Rest of Asia Pacific net sales increased during the first nine months of 2020 due primarily to higher net sales of Wearables, Home and Accessories, iPhone and Services.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on Rest of Asia Pacific net sales during the second quarter and first six months of 2020 .

Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (dollars in millions):

Three Months Ended

Six Months Ended

dollar had an unfavorable impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2020.

Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Gross margin:

Products $ 13,836 $ 12,881 $ 54,509 $ 52,596

Services 8,844 7,346 25,758 21,483

Total gross margin $ 22,680 $ 20,227 $ 80,267 $ 74,079

Gross margin percentage:

Products 29.7 % 30.4 % 32.0 % 32.4 %

Services 67.2 % 64.1 % 65.7 % 63.6 %

Total gross margin percentage 38.0 % 37.6 % 38.3 % 37.8 %

Products Gross Margin

Products gross margin and Products gross margin percentage decreased during the second quarter of 2020 compared to the second quarter of 2019 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and the impact of the COVID-19 pandemic.

Products gross margin increased during the first six months of 2020 compared to the same period in 2019 due primarily to higher Products volume and favorable Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

dollar and the impact of the COVID-19 pandemic.

Year-over-year Products gross margin percentage decreased during the first six months of 2020 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and the impact of the COVID-19 pandemic, partially offset by higher leverage.

Products gross margin increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher Products volume and material cost savings, partially offset by a different Products mix and the weakness in foreign currencies relative to the U.S.

Year-over-year Products gross margin percentage decreased during the third quarter of 2020 due primarily to a different Products mix and the weakness in foreign currencies relative to the U.S.

dollar, partially offset by material cost savings and higher leverage.

Products gross margin increased during the first nine months of 2020 compared to the same period in 2019 due primarily to higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S.

Year-over-year Products gross margin percentage decreased during the first nine months of 2020 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and a different Products mix, partially offset by higher leverage.

Services Gross Margin

Services gross margin increased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to higher Services net sales.

Services gross margin percentage increased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to a favorable Services mix and higher leverage, partially offset by higher Services costs.

| Q2 2020 Form 10-Q | 28

Services gross margin increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to higher Services net sales.

Services gross margin percentage increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to a different Services mix and higher leverage, partially offset by higher Services costs.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2019 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and remain under downward pressure.

| Q3 2020 Form 10-Q | 28

Operating Expenses

Operating expenses for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (dollars in millions):

Three Months Ended

Six Months Ended

Operating expenses for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Research and development $ 4,758 $ 4,257 $ 13,774 $ 12,107

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Research and Development

The growth in research and development (“R&D”) expense during the second quarter and first six months of 2020 compared to the same periods in 2019 was driven primarily by increases in headcount-related expenses.

The growth in research and development (“R&D”) expense during the third quarter and first nine months of 2020 compared to the same periods in 2019 was driven primarily by increases in headcount-related expenses.

The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to the Company’s core business strategy.

Selling, General and Administrative

The growth in selling, general and administrative expense during the second quarter and first six months of 2020 compared to the same periods in 2019 was driven primarily by higher spending on marketing and advertising and increases in headcount-related expenses.

The growth in selling, general and administrative expense during the third quarter and first nine months of 2020 compared to the same periods in 2019 was driven primarily by increases in headcount-related expenses, higher spending on marketing and advertising and higher variable selling expenses.

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for the three- and six-month periods ended March 28, 2020 and March 30, 2019 was as follows (dollars in millions):

Three Months Ended

Six Months Ended

Other income/(expense), net (“OI&E”) for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 was as follows (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 Change June 27,

2020 June 29,

Interest and dividend income $ 901 $ 1,190 $ 2,995 $ 3,855

2 unchanged sentences

Total other income/(expense), net $ 46 $ 367 (87) % $ 677 $ 1,305 (48) %

OI&E decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower interest income, partially offset by lower interest expense.

The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 2.01% and 2.27% in the second quarter of 2020 and 2019 , respectively, and 2.05% and 2.23% in the first six months of 2020 and 2019 , respectively.

OI&E decreased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to lower interest income and impairments on non-marketable securities, partially offset by lower interest expense.

The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.74% and 2.17% in the third quarter of 2020 and 2019, respectively, and 1.95% and 2.21% in the first nine months of 2020 and 2019, respectively.

| Q3 2020 Form 10-Q | 29

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (dollars in millions):

Three Months Ended

Six Months Ended

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Provision for income taxes $ 1,884 $ 1,867 $ 7,452 $ 8,040

1 unchanged sentence

Statutory federal income tax rate 21 % 21 % 21 % 21 %

The Company’s effective tax rate for the second quarter and first six months of 2020 was lower than the statutory federal income tax rate due primarily to lower taxes on foreign earnings, including the impact of tax settlements .

The Company’s effective tax rate for the second quarter of 2020 was lower compared to the second quarter of 2019 due to lower taxes on foreign earnings, including the impact of tax settlements.

The Company’s effective tax rate for the first six months of 2020 was lower compared to the same period in 2019 due to the one-time adjustment of U.S.

The Company’s effective tax rate for the third quarter and first nine months of 2020 was lower than the statutory federal income tax rate due primarily to lower taxes on foreign earnings, including the impact of tax settlements, and tax benefits from share-based compensation.

The Company’s effective tax rate for the third quarter of 2020 was lower compared to the third quarter of 2019 due primarily to higher tax benefits from share-based compensation.

The Company’s effective tax rate for the first nine months of 2020 was lower compared to the same period in 2019 due primarily to the one-time adjustment of U.S.

foreign tax credits in response to regulations issued by the U.S.

8 unchanged sentences

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of March 28, 2020 and September 28, 2019 and for the first six months of 2020 and 2019 (in millions):

The following tables present selected financial information and statistics as of June 27, 2020 and September 28, 2019 and for the first nine months of 2020 and 2019 (in millions):

2020 September 28,

Cash, cash equivalents and marketable securities (1)

$ 193,617 $ 205,898

Property, plant and equipment, net $ 35,687 $ 37,378

Commercial paper and repurchase agreement

Commercial paper and repurchase agreements $ 11,166 $ 5,980

Total term debt $ 101,557 $ 102,067

Working capital $ 44,747 $ 57,101

Six Months Ended

Nine Months Ended

2020 June 29,

Cash generated by operating activities $ 60,098 $ 49,481

1 unchanged sentence

Cash used in financing activities $ (65,463) $ (69,937)

As of March 28, 2020 and September 28, 2019 , total marketable securities included $17.6 billion and $18.9 billion , respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) and other agreements.

Additionally, as of March 28, 2020 , $2.6 billion of marketable securities were pledged as collateral under a repurchase agreement (refer to Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).

(1) As of June 27, 2020 and September 28, 2019, total marketable securities included $18.3 billion and $18.9 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) and other agreements.

Additionally, as of June 27, 2020, $5.3 billion of marketable securities were pledged as collateral under repurchase agreements (refer to Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).

| Q3 2020 Form 10-Q | 30

In connection with the State Aid Decision, as of March 28, 2020 , the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into escrow, where it will remain restricted from general use pending the conclusion of all appeals.

In connection with the State Aid Decision, as of June 27, 2020, the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings.

The Company’s marketable securities investment portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.

The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

During the six months ended March 28, 2020 , cash generated by operating activities of $43.8 billion was a result of $33.5 billion of net income, non-cash adjustments to net income of $8.1 billion and an increase in the net change in operating assets and liabilities of $2.2 billion .

Cash used in investing activities of $4.7 billion during the six months ended March 28, 2020 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of $1.0 billion and cash used to acquire property, plant and equipment of $4.0 billion .

Cash used in financing activities of $46.3 billion during the six months ended March 28, 2020 consisted primarily of cash used to repurchase common stock of $39.3 billion , cash used to pay dividends and dividend equivalents of $6.9 billion and cash used to repay or redeem term debt of $5.3 billion , partially offset by net proceeds from commercial paper and repurchase agreement of $4.1 billion and net proceeds from the issuance of term debt of $2.2 billion .

During the six months ended March 30, 2019 , cash generated by operating activities of $37.8 billion was a result of $31.5 billion of net income and non-cash adjustments to net income of $9.2 billion , partially offset by a decrease in the net change in operating assets and liabilities of $2.9 billion .

Cash generated by investing activities of $19.2 billion during the six months ended March 30, 2019 consisted primarily of proceeds from sales and maturities of marketable securities, net of purchases, of $25.7 billion , partially offset by cash used to acquire property, plant and equipment of $5.7 billion .

Cash used in financing activities of $43.1 billion during the six months ended March 30, 2019 consisted primarily of cash used to repurchase common stock of $32.5 billion , cash used to pay dividends and dividend equivalents of $7.0 billion and cash used to repay term debt of $2.5 billion .

During the nine months ended June 27, 2020, cash generated by operating activities of $60.1 billion was a result of $44.7 billion of net income, non-cash adjustments to net income of $13.5 billion and an increase in the net change in operating assets and liabilities of $1.8 billion.

Cash used in investing activities of $9.8 billion during the nine months ended June 27, 2020 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of $2.0 billion and cash used to acquire property, plant and equipment of $5.5 billion.

Cash used in financing activities of $65.5 billion during the nine months ended June 27, 2020 consisted primarily of cash used to repurchase common stock of $55.2 billion, cash used to pay dividends and dividend equivalents of $10.6 billion and cash used to repay or redeem term debt of $12.6 billion, partially offset by net proceeds from the issuance of term debt of $10.6 billion and proceeds from repurchase agreements of $5.2 billion.

During the nine months ended June 29, 2019, cash generated by operating activities of $49.5 billion was a result of $41.6 billion of net income and non-cash adjustments to net income of $13.6 billion, partially offset by a decrease in the net change in operating assets and liabilities of $5.6 billion.

Cash generated by investing activities of $46.7 billion during the nine months ended June 29, 2019 consisted primarily of proceeds from sales and maturities of marketable securities, net of purchases, of $54.4 billion, partially offset by cash used to acquire property, plant and equipment of $7.7 billion.

Cash used in financing activities of $69.9 billion during the nine months ended June 29, 2019 consisted primarily of cash used to repurchase common stock of $49.5 billion, cash used to pay dividends and dividend equivalents of $10.6 billion and cash used to repay term debt of $5.5 billion.

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program.

The Company uses the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases.

As of March 28, 2020 , the Company had $7.5 billion of Commercial Paper outstanding, with a weighted-average interest rate of 1.39% and maturities generally less than nine months .

In the second quarter of 2020, the Company entered into an agreement to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repo”).

Due to the Company’s continuing involvement with the marketable securities, the Company accounts for the Repo as a collateralized borrowing.

As of March 28, 2020 , the Company had a $2.6 billion Repo liability with a maturity of less than six months , and had pledged $2.6 billion of marketable securities as collateral.

As of March 28, 2020 , the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $98.0 billion (collectively the “Notes”).

During the first six months of 2020 , the Company issued $2.2 billion and repaid or redeemed $5.3 billion of Notes.

As of June 27, 2020, the Company had $6.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.77% and maturities generally less than nine months.

In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”).

Due to the Company’s continuing involvement with the marketable securities, the Company accounts for its Repos as collateralized borrowings.

As of June 27, 2020, the Company had $5.2 billion of Repo liabilities outstanding with maturities of less than three months, and had pledged $5.3 billion of marketable securities as collateral.

As of June 27, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $100.1 billion (collectively the “Notes”).

During the first nine months of 2020, the Company issued $10.6 billion and repaid or redeemed $12.6 billion of Notes.

The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes.

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Capital Return Program

As of March 28, 2020 , the Company was authorized to purchase up to $175 billion of the Company’s common stock under a share repurchase program, of which $134.6 billion had been utilized.

During the six months ended March 28, 2020 , the Company repurchased 135.0 million shares of its common stock for $38.5 billion , including 30.4 million shares initially delivered under a $10.0 billion accelerated share repurchase arrangement dated November 2019.

On April 30, 2020 , the Company announced the Board of Directors increased the share repurchase program authorization by $50 billion .

As of June 27, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a share repurchase program, of which $150.6 billion had been utilized.

During the nine months ended June 27, 2020, the Company repurchased 186.4 million shares of its common stock for $54.5 billion, including 35.2 million shares delivered under a $10.0 billion November 2019 accelerated share repurchase arrangement (“ASR”) and 15.2 million shares initially delivered under a $6.0 billion May 2020 ASR.

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”).

On April 30, 2020 , the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.77 to $0.82 per share, beginning with the dividend to be paid during the third quarter of 2020.

As of June 27, 2020, the Company’s quarterly cash dividend was $0.82 per share.

The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

| Q3 2020 Form 10-Q | 31

Common Stock Split

On July 30, 2020, the Company announced a four-for-one split of its common stock to shareholders of record as of the close of business on August 24, 2020.

Trading of the Company’s common stock will begin on a split-adjusted basis on August 31, 2020.

Contractual Obligations

As of March 28, 2020 , the Company’s total fixed lease payment obligations were $12.5 billion , of which $8.1 billion was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company’s leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.

As of June 27, 2020, the Company’s total fixed lease payment obligations wer e $12.8 billion, of which $8.1 billion w as included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

Th e Company’s leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.

Manufacturing Purchase Obligations

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The Company also obtains individual components for its products from a wide variety of individual suppliers.

As of March 28, 2020 , the Company expects to pay $29.3 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

As of June 27, 2020, the Company expects to pay $30.3 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

Other Purchase Obligations

The Company’s other purchase obligations consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process equipment, and noncancelable obligations related to advertising, licensing, R&D, Internet and telecommunications services, content creation and other activities.

As of March 28, 2020 , the Company had other purchase obligations of $8.7 billion.

As of June 27, 2020, the Company had other purchase obligations of $10.0 billion.

Deemed Repatriation Tax Payable

As of March 28, 2020 , the balance of the deemed repatriation tax payable imposed by the U.S.

As of June 27, 2020, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act (the “Act”) was $28.1 billion, and was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis