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Item 7. Management’s Discussion and Analysis

2020-10-30 compared with 2019-10-31 · 114 added, 96 removed, 162 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.

Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.

Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.

Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K.

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc.

and its wholly owned subsidiaries, unless otherwise stated.

The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019.

Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2019.

Fiscal Period

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

The Company’s fiscal years 2019 and 2018 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks.

A 14th week was included in the first quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters.

Fiscal Year Highlights

COVID-19 Update

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.

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 2020, aspects of the Company’s business were adversely affected by the COVID-19 pandemic, with many of the Company’s retail stores, as well as channel partner points of sale, temporarily closed at various times, and the vast majority of the Company’s employees working remotely.

The Company has reopened some of its offices and the majority of its retail stores, subject to operating restrictions to protect public health and the health and safety of employees and customers, and it continues to work on safely re-opening the remainder of its offices and retail stores, subject to local rules and regulations.

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 this Form 10-K under the heading “Risk Factors,” for more information.

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.

Fiscal 2020 Highlights

Total net sales decreased 2% or $5.4 billion during 2019 compared to 2018, driven by lower net sales of iPhone, partially offset by higher net sales of Wearables, Home and Accessories and Services in all geographic operating segments.

The weakness in foreign currencies had a significant unfavorable impact on net sales during 2019.

Total net sales increased 6% or $14.3 billion during 2020 compared to 2019, primarily driven by higher net sales of Services and Wearables, Home and Accessories.

The weakness in foreign currencies had an unfavorable impact on net sales during 2020.

In April 2020, the Company announced an increase to its current share repurchase program authorization from $175 billion to $225 billion and raised its quarterly dividend from $0.1925 to $0.205 per share beginning in May 2020.

During 2020, the Company repurchased $72.5 billion of its common stock and paid dividends and dividend equivalents of $14.1 billion.

On August 28, 2020, the Company effected a four-for-one stock split to shareholders of record as of August 24, 2020.

All share, RSU and per share or per RSU information has been retroactively adjusted to reflect the stock split.

| 2020 Form 10-K | 20

Products and Services Performance

Beginning in the first quarter of 2019, the Company classified the amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of iPhone, Mac, iPad and certain other products, in Services net sales.

Historically, the Company classified the amortization of these amounts in Products net sales consistent with its management reporting framework.

As a result, Products and Services net sales for 2018 and 2017 were reclassified to conform to the 2019 presentation.

The following table shows net sales by category for 2020, 2019 and 2018 (dollars in millions):

2020 Change 2019 Change 2018

Net sales by category:

$ 137,781 (3) % $ 142,381 (14) % $ 164,888

28,622 11 % 25,740 2 % 25,198

23,724 11 % 21,280 16 % 18,380

Wearables, Home and Accessories (1)(2)

30,620 25 % 24,482 41 % 17,381

53,768 16 % 46,291 16 % 39,748

Total net sales $ 274,515 6 % $ 260,174 (2) % $ 265,595

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(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.

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

iPhone net sales decreased during 2019 compared to 2018 due primarily to lower iPhone unit sales.

Mac net sales increased during 2019 compared to 2018 due primarily to higher net sales of MacBook Air, partially offset by lower net sales of MacBook ® and MacBook Pro ® .

iPad net sales increased during 2019 compared to 2018 due primarily to higher net sales of iPad Pro.

(3) Services net sales include sales from the Company’s advertising, AppleCare, digital content 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 2020 compared to 2019 due primarily to the absence of new iPhone models in the fourth quarter of 2020 and the weakness in foreign currencies relative to the U.S.

dollar, partially offset by the introduction of iPhone SE in the third quarter of 2020.

Mac net sales increased during 2020 compared to 2019 due primarily to higher net sales of MacBook Pro.

iPad net sales increased during 2020 compared to 2019 due primarily to higher net sales of 10-inch versions of iPad, iPad Air and iPad Pro.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during 2020 compared to 2019 due primarily to higher net sales of AirPods and Apple Watch.

Services net sales increased during 2019 compared to 2018 due primarily to higher net sales from the App Store, licensing and AppleCare.

Services net sales increased during 2020 compared to 2019 due primarily to higher net sales from the App Store, advertising and cloud services.

| 2020 Form 10-K | 21

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

Greater China includes China, Hong Kong and Taiwan.

Greater China includes China mainland, Hong Kong and Taiwan.

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

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The following table shows net sales by reportable segment for 2020, 2019 and 2018 (dollars in millions):

2020 Change 2019 Change 2018

Net sales by reportable segment:

$ 124,556 7 % $ 116,914 4 % $ 112,093

68,640 14 % 60,288 (3) % 62,420

Greater China

40,308 (8) % 43,678 (16) % 51,942

21,418 — % 21,506 (1) % 21,733

Rest of Asia Pacific

19,593 10 % 17,788 2 % 17,407

Total net sales $ 274,515 6 % $ 260,174 (2) % $ 265,595

Americas net sales increased during 2019 compared to 2018 due primarily to higher Services and Wearables, Home and Accessories net sales, partially offset by lower iPhone net sales.

Americas net sales increased during 2020 compared to 2019 due primarily to 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 Americas net sales during 2020.

Europe net sales decreased during 2019 compared to 2018 due to lower iPhone net sales, partially offset by higher Wearables, Home and Accessories and Services net sales.

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

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

dollar had a significant unfavorable impact on Europe net sales during 2019.

dollar had an unfavorable impact on Europe net sales during 2020.

Greater China

Greater China net sales decreased during 2019 compared to 2018 due primarily to lower iPhone net sales, partially offset by higher Wearables, Home and Accessories and Services net sales.

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

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

dollar had an unfavorable impact on Greater China net sales during 2020.

Japan net sales decreased during 2019 compared to 2018 due to lower iPhone net sales, partially offset by higher Services and Wearables, Home and Accessories net sales.

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

Japan net sales were flat during 2020 compared to 2019 due primarily to lower net sales of iPhone, 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 2020.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during 2019 compared to 2018 due primarily to higher Wearables, Home and Accessories and Services net sales, partially offset by lower iPhone net sales.

Rest of Asia Pacific net sales increased during 2020 compared to 2019 due primarily to higher net sales of Wearables, Home and Accessories, Services and iPhone.

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

dollar had a significant unfavorable impact on Rest of Asia Pacific net sales during 2019.

dollar had an unfavorable impact on Rest of Asia Pacific net sales during 2020.

| 2020 Form 10-K | 22

Products and Services gross margin and gross margin percentage for 2020, 2019 and 2018 were as follows (dollars in millions):

2020 2019 2018

Gross margin:

Products $ 69,461 $ 68,887 $ 77,683

Services 35,495 29,505 24,156

Total gross margin $ 104,956 $ 98,392 $ 101,839

Gross margin percentage:

Products 31.5 % 32.2 % 34.4 %

Services 66.0 % 63.7 % 60.8 %

Total gross margin percentage 38.2 % 37.8 % 38.3 %

Products Gross Margin

Products gross margin and Products gross margin percentage decreased during 2019 compared to 2018 due primarily to lower iPhone unit sales and the weakness in foreign currencies relative to the U.S.

Products gross margin increased during 2018 compared to 2017 due primarily to a favorable shift in mix of iPhones and the strength in foreign currencies relative to the U.S.

dollar, partially offset by higher product cost structures.

Year-over-year Products gross margin percentage decreased during 2018 due primarily to higher product cost structures, partially offset by the strength in foreign currencies relative to the U.S.

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

dollar and a different Products mix.

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

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

Services Gross Margin

Year-over-year Services gross margin increased during 2019 and 2018 due primarily to higher Services net sales and a different services mix.

Year-over-year Services gross margin percentage increased during 2019 and 2018 due primarily to a different services mix and leverage of the Company’s services fixed cost structure from higher Services net sales.

The Company’s future gross margins can be impacted by a variety of factors, as set forth in Part I, Item 1A of this Form 10-K 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.

Services gross margin increased during 2020 compared to 2019 due primarily to higher Services net sales and a different Services mix.

Services gross margin percentage increased during 2020 compared to 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 set forth in Part I, Item 1A of this Form 10-K 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.

Operating Expenses

Operating expenses for 2020, 2019 and 2018 were as follows (dollars in millions):

2020 Change 2019 Change 2018

Research and development

$ 18,752 16 % $ 16,217 14 % $ 14,236

Percentage of total net sales

Selling, general and administrative

$ 19,916 9 % $ 18,245 9 % $ 16,705

Percentage of total net sales

Total operating expenses

$ 38,668 12 % $ 34,462 11 % $ 30,941

Percentage of total net sales

14 % 13 % 12 %

Research and Development

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Selling, General and Administrative

The year-over-year growth in selling, general and administrative expense in 2019 was driven primarily by increases in headcount-related expenses and higher spending on marketing and advertising and infrastructure-related costs.

The year-over-year growth in selling, general and administrative expense in 2020 was driven primarily by increases in headcount-related expenses, higher spending on marketing and advertising, and higher variable selling expenses.

| 2020 Form 10-K | 23

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Other income/(expense), net (“OI&E”) for 2020, 2019 and 2018 was as follows (dollars in millions):

2020 Change 2019 Change 2018

Interest and dividend income

$ 3,763 $ 4,961 $ 5,686

Interest expense

(2,873) (3,576) (3,240)

Other income/(expense), net (87) 422 (441)

Total other income/(expense), net

The year-over-year decrease in OI&E during 2019 was due primarily to lower interest income and higher interest expense, partially offset by the impact of foreign exchange–related items.

$ 803 (56) % $ 1,807 (10) % $ 2,005

The year-over-year decrease in OI&E during 2020 was due primarily to lower interest income and net impairment/gain activity 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 1.85% and 2.19% in 2020 and 2019, respectively.

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Provision for income taxes, effective tax rate and statutory federal income tax rate for 2020, 2019 and 2018 were as follows (dollars in millions):

2020 2019 2018

Provision for income taxes

$ 9,680 $ 10,481 $ 13,372

Effective tax rate

14.4 % 15.9 % 18.3 %

Statutory federal income tax rate

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S.

The Act lowered the Company’s U.S.

statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income.

By operation of law, the Company applied a blended U.S.

statutory federal income tax rate of 24.5% for 2018 (the “2018 blended U.S.

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

The Company’s effective tax rate for 2019 was lower than the statutory federal income tax rate due primarily to the lower tax rate on foreign earnings and tax benefits from share-based compensation.

The Company’s effective tax rate for 2018 was lower than the 2018 blended U.S.

tax rate due primarily to the lower tax rate on foreign earnings, partially offset by the remeasurement of deferred tax assets and liabilities as a result of the Act.

The Company’s effective tax rate for 2019 was lower compared to 2018 due primarily to a lower statutory federal income tax rate in 2019 and the impact of the Act in 2018, partially offset by higher taxes on foreign earnings in 2019.

21 % 21 % 24.5 %

The Company’s effective tax rate for both 2020 and 2019 was lower than the statutory federal income tax rate due primarily to the lower tax rate on foreign earnings, including the impact of tax settlements, and tax benefits from share-based compensation.

The Company’s effective tax rate for 2020 was lower compared to 2019 due primarily to a one-time adjustment of U.S.

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

Department of the Treasury in December 2019 in connection with the U.S.

Tax Cuts and Jobs Act of 2017 (the “Act”) and higher tax benefits from share-based compensation.

As of September 26, 2020, the Company had net deferred tax assets arising from deductible temporary differences and tax credits of $11.0 billion and deferred tax liabilities of $2.8 billion.

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Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).

ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness.

The Company will adopt ASU 2017-12 in its first quarter of 2020 utilizing the modified retrospective transition method.

Based on the Company’s derivative portfolio and hedging strategies, the adoption of ASU 2017-12 is not expected to have a material impact on its consolidated financial statements.

Financial Instruments

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

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The Company will adopt ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method.

Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.

Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 will not have a material impact on its consolidated financial statements.

| 2020 Form 10-K | 24

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements.

The Company will adopt ASU 2016-02 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of its first quarter of 2020.

Upon adoption, the Company anticipates recording lease-related assets and liabilities of approximately $8 billion on its Condensed Consolidated Balance Sheet, with no material impact to its Condensed Consolidated Statements of Operations.

Liquidity and Capital Resources

The following table presents selected financial information and statistics as of and for the years ended September 26, 2020, September 28, 2019 and September 29, 2018 (in millions):

2020 2019 2018

Cash, cash equivalents and marketable securities (1)

$ 191,830 $ 205,898 $ 237,100

Property, plant and equipment, net

$ 36,766 $ 37,378 $ 41,304

Commercial paper

$ 4,996 $ 5,980 $ 11,964

Total term debt

$ 107,440 $ 102,067 $ 102,519

Working capital

$ 38,321 $ 57,101 $ 15,410

Cash generated by operating activities

$ 80,674 $ 69,391 $ 77,434

Cash generated by/(used in) investing activities $ (4,289) $ 45,896 $ 16,066

Cash used in financing activities

As of September 28, 2019 and September 29, 2018 , total cash, cash equivalents and marketable securities included $18.9 billion and $20.3 billion , respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K) and other agreements.

$ (86,820) $ (90,976) $ (87,876)

(1) As of September 26, 2020 and September 28, 2019, total marketable securities included $18.6 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 Consolidated Financial Statements in Part II, Item 8 of this Form 10-K) and other agreements.

In connection with the State Aid Decision, as of September 28, 2019 , the entire 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 September 26, 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.

Further information regarding the State Aid Decision can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 5, “Income Taxes.”

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

During 2020, cash generated by operating activities of $80.7 billion was a result of $57.4 billion of net income, non-cash adjustments to net income of $17.6 billion and an increase in the net change in operating assets and liabilities of $5.7 billion.

Cash used in investing activities of $4.3 billion during 2020 consisted primarily of cash used to acquire property, plant and equipment of $7.3 billion and cash paid for business acquisitions, net of cash acquired, of $1.5 billion, partially offset by proceeds from maturities and sales of marketable securities, net of purchases, of $5.5 billion.

Cash used in financing activities of $86.8 billion during 2020 consisted primarily of cash used to repurchase common stock of $72.4 billion, cash used to pay dividends and dividend equivalents of $14.1 billion, cash used to repay or redeem term debt of $12.6 billion and net repayments of commercial paper of $1.0 billion, partially offset by net proceeds from the issuance of term debt of $16.1 billion.

During 2019, cash generated by operating activities of $69.4 billion was a result of $55.3 billion of net income and non-cash adjustments to net income of $17.6 billion, partially offset by a decrease in the net change in operating assets and liabilities of $3.5 billion.

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Cash used in financing activities of $91.0 billion during 2019 consisted primarily of cash used to repurchase common stock of $66.9 billion, cash used to pay dividends and dividend equivalents of $14.1 billion, cash used to repay term debt of $8.8 billion and net repayments of commercial paper of $6.0 billion, partially offset by net proceeds from the issuance of term debt of $7.0 billion.

During 2018 , cash generated by operating activities of $77.4 billion was a result of $59.5 billion of net income and an increase in the net change in operating assets and liabilities of $34.7 billion , partially offset by non-cash adjustments to net income of $16.8 billion .

Cash generated by investing activities of $16.1 billion during 2018 consisted primarily of proceeds from maturities and sales of marketable securities, net of purchases, of $32.4 billion , partially offset by cash used to acquire property, plant and equipment of $13.3 billion .

Cash used in financing activities of $87.9 billion during 2018 consisted primarily of cash used to repurchase common stock of $72.7 billion , cash used to pay dividends and dividend equivalents of $13.7 billion and cash used to repay term debt of $6.5 billion , partially offset by net proceeds from the issuance of term debt of $7.0 billion .

| 2019 Form 10-K | 23

Capital Assets

The Company’s capital expenditures were $7.6 billion during 2019 , which included product tooling and manufacturing process equipment;

data centers;

corporate facilities and infrastructure, including information systems hardware, software and enhancements;

and retail store facilities.

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

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As of September 26, 2020, the Company had $5.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.62% and maturities generally less than nine months.

The Company may enter into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount as an additional short-term liquidity arrangement.

| 2020 Form 10-K | 25

As of September 26, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $106.1 billion (collectively the “Notes”).

During 2019 , the Company issued $7.0 billion and repaid $8.8 billion of Notes.

During 2020, the Company issued $16.1 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

On April 30, 2019, the Company announced the Board of Directors increased the current share repurchase program authorization from $100 billion to $175 billion of the Company’s common stock, of which $96.1 billion had been utilized as of September 28, 2019 .

During 2019 , the Company repurchased 345.2 million shares of its common stock for $67.1 billion , including 62.0 million shares delivered under a $12.0 billion ASR dated February 2019, which settled in August 2019.

As of September 26, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a share repurchase program, of which $168.6 billion had been utilized.

During 2020, the Company repurchased 917 million shares of its common stock for $72.5 billion, including 141 million shares delivered under a $10.0 billion November 2019 ASR and 64 million shares 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 Exchange Act.

On April 30, 2019, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.73 to $0.77 per share, beginning with the dividend paid during the third quarter of 2019.

As of September 26, 2020, the Company’s quarterly cash dividend was $0.205 per share.

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

Contractual Obligations

The following table presents certain payments due by the Company as of September 28, 2019 , and excludes amounts already recorded on the Consolidated Balance Sheet, except for term debt and the deemed repatriation tax payable (in millions):

Payments due in 2020

Payments due in 2021–2022

Payments due in 2023–2024

Payments due after 2024

Operating leases

The following table presents certain payments due by the Company as of September 26, 2020, and includes amounts already recorded on the Consolidated Balance Sheet, except for manufacturing purchase obligations, other purchase obligations and certain lease obligations (in millions):

Payments due in 2021 Payments due in 2022–2023 Payments due in 2024–2025 Payments due after 2025 Total

$ 8,750 $ 20,958 $ 21,029 $ 55,341 $ 106,078

1,622 3,097 2,352 5,888 12,959

Manufacturing purchase obligations (1)

47,961 1,849 61 40 49,911

Other purchase obligations

6,178 2,736 400 90 9,404

Deemed repatriation tax payable

1,533 5,923 12,955 9,254 29,665

Total $ 66,044 $ 34,563 $ 36,797 $ 70,613 $ 208,017

(1) Represents amount expected to be paid under manufacturing-related supplier arrangements, which are primarily noncancelable.

Operating Leases

The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space.

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

The above contractual obligations table includes future payments under leases that had commenced as of September 26, 2020, and were therefore recorded on the Company’s Consolidated Balance Sheet, as well as leases that had been signed but not yet commenced as of September 26, 2020.

Further information regarding the Company’s leases can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 12, “Leases.”

Manufacturing Purchase Obligations

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

| 2019 Form 10-K | 24

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.

| 2020 Form 10-K | 26

Deemed Repatriation Tax Payable

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The Company’s remaining other non-current liabilities primarily consist of items for which the Company is unable to make a reasonably reliable estimate of the timing or amount of payments;

therefore, such amounts are not included in the above contractual obligation table.

therefore, such amounts are not included in the above contractual obligations table.

Critical Accounting Policies and Estimates

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Factors subject to change include the nature of the product-related bundled services and unspecified software upgrade rights offered, their estimated value and the estimated period they are expected to be provided.

| 2019 Form 10-K | 25

Valuation of Manufacturing-Related Assets and Estimation of Inventory Purchase Commitment Cancellation Fees

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The Company also accrues estimated purchase commitment cancellation fees related to inventory orders that have been canceled or are expected to be canceled.

The Company’s estimates of future product development plans and demand for its products are the key inputs in the determination of the recoverability of manufacturing-related assets and the assessment of the adequacy of any purchase commitment cancellation fee accruals.

The Company’s estimates of future product development plans and demand for its products are key inputs in determining the recoverability of manufacturing-related assets and assessing the adequacy of any purchase commitment cancellation fee accruals.

If there is an abrupt and substantial decline in estimated demand for one or more of the Company’s products, a change in the Company’s product development plans, or an unanticipated change in technological requirements for any of the Company’s products, the Company may be required to record write-downs or impairments of manufacturing-related assets or accrue purchase commitment cancellation fees.

| 2020 Form 10-K | 27

Warranty Costs

The Company offers limited warranties on its new hardware products and on parts used to repair its hardware products, and customers may purchase extended service coverage, where available, on many of the Company’s hardware products.

The Company offers limited warranties on its new and certified refurbished hardware products and on parts used to repair its hardware products, and customers may purchase extended service coverage, where available, on many of the Company’s hardware products.

The Company accrues the estimated cost of warranties in the period the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost per claim and knowledge of specific product failures outside the Company’s typical experience.

The Company regularly reviews these estimates and adjusts the amounts as necessary.

If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater-than-50% likelihood of being realized upon ultimate settlement.

The Company recognizes tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater-than-50% likelihood of being realized upon ultimate settlement.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws.

7 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis