What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2020-10-30 compared with 2019-10-31 · 473 added, 202 removed, 746 unchanged (48% of the section changed)

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Index to Consolidated Financial Statements Page

Consolidated Statements of Operations for the years ended September 26 , 20 20 , September 28 , 201 9 and September 29 , 201 8

Consolidated Statements of Comprehensive Income for the years ended September 26, 2020, September 28, 2019 and September 29, 2018

Consolidated Balance Sheets as of September 28, 2019 and September 29, 2018

Consolidated Statements of Shareholders’ Equity for the years ended September 28, 2019, September 29, 2018 and September 30, 2017

Consolidated Statements of Cash Flows for the years ended September 28, 2019, September 29, 2018 and September 30, 2017

Consolidated Balance Sheets as of Septe mber 26, 2020 and September 28, 2019

Consolidated Statements of Shareholders’ Equity for the years ended S eptember 26, 2020, September 28, 2019 and September 29, 2018

Consolidated Statements of Cash Flows for the years ended S eptember 26, 2020, September 28, 2019 and September 29, 2018

Notes to Consolidated Financial Statements

8 unchanged sentences

2019 September 29,

Products $ 220,747 $ 213,883 $ 225,847

Services 53,768 46,291 39,748

Total net sales 274,515 260,174 265,595

Cost of sales:

Products 151,286 144,996 148,164

Services 18,273 16,786 15,592

Total cost of sales 169,559 161,782 163,756

Gross margin 104,956 98,392 101,839

Operating expenses:

Research and development

18,752 16,217 14,236

Selling, general and administrative

19,916 18,245 16,705

Total operating expenses

38,668 34,462 30,941

Operating income

66,288 63,930 70,898

Other income/(expense), net

803 1,807 2,005

Income before provision for income taxes

67,091 65,737 72,903

Provision for income taxes

9,680 10,481 13,372

$ 57,411 $ 55,256 $ 59,531

Earnings per share:

$ 3.31 $ 2.99 $ 3.00

$ 3.28 $ 2.97 $ 2.98

Shares used in computing earnings per share:

17,352,119 18,471,336 19,821,510

17,528,214 18,595,651 20,000,435

See accompanying Notes to Consolidated Financial Statements.

5 unchanged sentences

2019 September 29,

$ 57,411 $ 55,256 $ 59,531

Other comprehensive income/(loss):

Change in foreign currency translation, net of tax

88 ( 408 ) ( 525 )

Change in unrealized gains/losses on derivative instruments, net of tax:

Change in fair value of derivatives

79 ( 661 ) 523

Adjustment for net (gains)/losses realized and included in net income

( 1,264 ) 23 382

Total change in unrealized gains/losses on derivative instruments

Change in unrealized gains/losses on marketable securities, net of tax:

Change in fair value of marketable securities

( 1,185 ) ( 638 ) 905

Change in unrealized gains/losses on marketable debt securities, net of tax:

Change in fair value of marketable debt securities

1,202 3,802 ( 3,407 )

Adjustment for net (gains)/losses realized and included in net income

Total change in unrealized gains/losses on marketable securities

Total change in unrealized gains/losses on marketable debt securities

1,139 3,827 ( 3,406 )

Total other comprehensive income/(loss)

42 2,781 ( 3,026 )

Total comprehensive income

$ 57,453 $ 58,037 $ 56,505

See accompanying Notes to Consolidated Financial Statements.

6 unchanged sentences

Cash and cash equivalents

$ 38,016 $ 48,844

Marketable securities

52,927 51,713

Accounts receivable, net

16,120 22,926

Vendor non-trade receivables

21,325 22,878

Other current assets

11,264 12,352

Total current assets

143,713 162,819

Non-current assets:

Marketable securities

100,887 105,341

Property, plant and equipment, net

36,766 37,378

Other non-current assets

42,522 32,978

Total non-current assets

180,175 175,697

$ 323,888 $ 338,516

LIABILITIES AND SHAREHOLDERS’ EQUITY:

1 unchanged sentence

Accounts payable

$ 42,296 $ 46,236

Other current liabilities

42,684 37,720

Deferred revenue

1 unchanged sentence

Total current liabilities

105,392 105,718

Non-current liabilities:

98,667 91,807

Other non-current liabilities

54,490 50,503

Total non-current liabilities

153,157 142,310

Total liabilities

258,549 248,028

Commitments and contingencies

3 unchanged sentences

16,976,763 and 17,772,945 shares issued and outstanding, respectively

50,779 45,174

Retained earnings

14,966 45,898

Accumulated other comprehensive income/(loss)

( 406 ) ( 584 )

Total shareholders’ equity

65,339 90,488

Total liabilities and shareholders’ equity

$ 323,888 $ 338,516

See accompanying Notes to Consolidated Financial Statements.

10 unchanged sentences

Common stock withheld related to net share settlement of equity awards

( 2,250 ) ( 2,002 ) ( 1,778 )

Share-based compensation 6,975 6,194 5,443

Tax benefit from equity awards, including transfer pricing adjustments

Ending balances 50,779 45,174 40,201

1 unchanged sentence

Beginning balances 45,898 70,400 98,330

Net income 57,411 55,256 59,531

Dividends and dividend equivalents declared ( 14,087 ) ( 14,129 ) ( 13,735 )

Common stock withheld related to net share settlement of equity awards

( 1,604 ) ( 1,029 ) ( 948 )

Common stock repurchased ( 72,516 ) ( 67,101 ) ( 73,056 )

16 unchanged sentences

Cash, cash equivalents and restricted cash, beginning balances

$ 50,224 $ 25,913 $ 20,289

Operating activities:

57,411 55,256 59,531

Adjustments to reconcile net income to cash generated by operating activities:

Depreciation and amortization

11,056 12,547 10,903

Share-based compensation expense

Deferred income tax expense/(benefit)

6,829 6,068 5,340

Deferred income tax benefit ( 215 ) ( 340 ) ( 32,590 )

( 97 ) ( 652 ) ( 444 )

Changes in operating assets and liabilities:

Accounts receivable, net

6,917 245 ( 5,322 )

( 127 ) ( 289 ) 828

Vendor non-trade receivables

1,553 2,931 ( 8,010 )

Other current and non-current assets

( 9,588 ) 873 ( 423 )

Accounts payable

( 4,062 ) ( 1,923 ) 9,175

Deferred revenue

2,081 ( 625 ) ( 3 )

Other current and non-current liabilities

8,916 ( 4,700 ) 38,449

Cash generated by operating activities 80,674 69,391 77,434

1 unchanged sentence

Purchases of marketable securities

( 114,938 ) ( 39,630 ) ( 71,356 )

Proceeds from maturities of marketable securities

69,918 40,102 55,881

Proceeds from sales of marketable securities

50,473 56,988 47,838

Payments for acquisition of property, plant and equipment

( 7,309 ) ( 10,495 ) ( 13,313 )

Payments made in connection with business acquisitions, net

( 1,524 ) ( 624 ) ( 721 )

Purchases of non-marketable securities

( 210 ) ( 1,001 ) ( 1,871 )

Proceeds from non-marketable securities

( 791 ) ( 1,078 ) ( 745 )

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

2 unchanged sentences

Payments for taxes related to net share settlement of equity awards

( 3,634 ) ( 2,817 ) ( 2,527 )

Payments for dividends and dividend equivalents

( 14,081 ) ( 14,119 ) ( 13,712 )

Repurchases of common stock

( 72,358 ) ( 66,897 ) ( 72,738 )

Proceeds from issuance of term debt, net

16,091 6,963 6,969

Repayments of term debt

Proceeds from/(Repayments of) commercial paper, net

( 12,629 ) ( 8,805 ) ( 6,500 )

Repayments of commercial paper, net ( 963 ) ( 5,977 ) ( 37 )

( 126 ) ( 105 ) —

Cash used in financing activities

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

Increase/(Decrease) in cash, cash equivalents and restricted cash ( 10,435 ) 24,311 5,624

Cash, cash equivalents and restricted cash, ending balances

$ 39,789 $ 50,224 $ 25,913

Supplemental cash flow disclosure:

Cash paid for income taxes, net

$ 9,501 $ 15,263 $ 10,417

Cash paid for interest

$ 3,002 $ 3,423 $ 3,022

See accompanying Notes to Consolidated Financial Statements.

3 unchanged sentences

Basis of Presentation and Preparation

The accompanying consolidated financial statements include the accounts of Apple Inc.

The consolidated financial statements include the accounts of Apple Inc.

and its wholly owned subsidiaries (collectively “Apple” or the “Company”).

6 unchanged sentences

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 fiscal quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters.

The Company’s fiscal years 2020, 2019 and 2018 spanned 52 weeks each.

An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters.

Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

Common Stock Split

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

All share, restricted stock unit (“RSU”) and per share or per RSU information has been retroactively adjusted to reflect the stock split.

Recently Adopted Accounting Pronouncements

Revenue Recognition

In the first quarter of 2019, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), and additional ASUs issued to clarify the guidance in ASU 2014-09 (collectively the “new revenue standard”), which amends the existing accounting standards for revenue recognition.

The Company adopted the new revenue standard utilizing the full retrospective transition method.

The Company did not restate total net sales in the prior periods presented, as the adoption of the new revenue standard did not have a material impact on previously reported amounts.

Additionally, 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.

Financial Instruments

In the first quarter of 2019, the Company adopted FASB ASU No.

2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of the recognition, measurement, presentation and disclosure of financial instruments.

The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.

In the first quarter of 2019, the Company adopted FASB ASU No.

2016-16, Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.

At the beginning of the first quarter of 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”), 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 adopted the new leases standard utilizing the modified retrospective transition method, under which amounts in prior periods presented were not restated.

For contracts existing at the time of adoption, the Company elected to not reassess (i) whether any are or contain leases, (ii) lease classification, and (iii) initial direct costs.

Upon adoption, the Company recorded $ 7.5 billion of right-of-use (“ROU”) assets and $ 8.1 billion of lease liabilities on its Condensed Consolidated Balance Sheet.

At the beginning of the first quarter of 2020, the Company adopted FASB 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, eliminates the separate measurement and presentation of hedge ineffectiveness, and updates disclosure requirements related to hedging.

The Company adopted ASU 2017-12 utilizing the modified retrospective transition method.

Upon adoption, the Company recorded $ 2.7 billion of net deferred tax assets, reduced other non-current assets by $ 128 million , and increased retained earnings by $ 2.6 billion on its Consolidated Balance Sheet.

The Company will recognize incremental deferred income tax expense as these net deferred tax assets are utilized.

Restricted Cash

In the first quarter of 2019, the Company adopted FASB ASU No.

2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows and requires additional disclosures about restricted cash balances.

Upon adoption, the Company recorded a $ 136 million increase in accumulated other comprehensive income/(loss) (“AOCI”) and a corresponding decrease in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity.

Advertising Costs

Advertising costs are expensed as incurred and included in selling, general and administrative expenses.

| 2019 Form 10-K | 34

Share-Based Compensation

1 unchanged sentence

Further information regarding share-based compensation can be found in Note 9, “Benefit Plans.”

| 2020 Form 10-K | 36

Earnings Per Share

The following table shows the computation of basic and diluted earnings per share for 2020, 2019 and 2018 (net income in millions and shares in thousands):

2020 2019 2018

$ 57,411 $ 55,256 $ 59,531

Weighted-average basic shares outstanding

17,352,119 18,471,336 19,821,510

Effect of dilutive securities

176,095 124,315 178,925

Weighted-average diluted shares

17,528,214 18,595,651 20,000,435

Basic earnings per share

$ 3.31 $ 2.99 $ 3.00

Diluted earnings per share

$ 3.28 $ 2.97 $ 2.98

The Company applies the treasury stock method to determine the dilutive effect of potentially dilutive securities.

10 unchanged sentences

Property, Plant and Equipment

Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building;

Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 40 years or the remaining life of the building;

between one and five years for machinery and equipment, including product tooling and manufacturing process equipment;

and the shorter of lease term or useful life for leasehold improvements.

Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to five years .

Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to seven years .

Depreciation and amortization expense on property and equipment was $ 9.7 billion, $ 11.3 billion and $ 9.3 billion during 2020, 2019 and 2018, respectively.

7 unchanged sentences

The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted.

The Company records restricted cash as other assets in the Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction.

The Company records restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities .

The Company reports restricted cash as other assets in the Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction.

The Company reports restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities.

Fair Value Measurements

9 unchanged sentences

The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.

For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”).

For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”).

When available, the Company uses observable prices to determine SSPs.

18 unchanged sentences

The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product.

For third-party applications sold through the App Store, Mac App Store, TV App Store and Watch App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer.

For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer.

Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.

5 unchanged sentences

Net sales disaggregated by significant products and services for 2020, 2019 and 2018 were as follows (in millions):

2020 2019 2018

$ 137,781 $ 142,381 $ 164,888

28,622 25,740 25,198

23,724 21,280 18,380

Wearables, Home and Accessories (1)(2)

30,620 24,482 17,381

53,768 46,291 39,748

Total net sales (4)

$ 274,515 $ 260,174 $ 265,595

(1) Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.

(2) Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and Apple-branded and third-party accessories.

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.

(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.

(4) Includes $ 5.0 billion of revenue recognized in 2020 that was included in deferred revenue as of September 28, 2019, $ 5.9 billion of revenue recognized in 2019 that was included in deferred revenue as of September 29, 2018, and $ 5.8 billion of revenue recognized in 2018 that was included in deferred revenue as of September 30, 2017.

4 unchanged sentences

The following tables show the Company’s cash and marketable securities by significant investment category as of September 26, 2020 and September 28, 2019 (in millions):

Cost Unrealized

Gains Unrealized

Value Cash and

Equivalents Current

Securities Non-Current

$ 17,773 $ — $ — $ 17,773 $ 17,773 $ — $ —

Level 1 (1) :

Money market funds

2,171 — — 2,171 2,171 — —

Level 2 (2) :

Treasury securities

28,439 331 — 28,770 8,580 11,972 8,218

agency securities

8,604 8 — 8,612 2,009 3,078 3,525

government securities

19,361 275 ( 186 ) 19,450 255 3,329 15,866

Certificates of deposit and time deposits

10,399 — — 10,399 4,043 6,246 110

Commercial paper

11,226 — — 11,226 3,185 8,041 —

Corporate debt securities

76,937 1,834 ( 175 ) 78,596 — 19,687 58,909

Municipal securities

1,001 22 — 1,023 — 139 884

Mortgage- and asset-backed securities

13,520 314 ( 24 ) 13,810 — 435 13,375

169,487 2,784 ( 385 ) 171,886 18,072 52,927 100,887

$ 189,431 $ 2,784 $ ( 385 ) $ 191,830 $ 38,016 $ 52,927 $ 100,887

Cost Unrealized

Gains Unrealized

Value Cash and

Equivalents Current

Securities Non-Current

$ 12,204 $ — $ — $ 12,204 $ 12,204 $ — $ —

Level 1 (1) :

Money market funds

15,897 — — 15,897 15,897 — —

Level 2 (2) :

Treasury securities

30,293 33 ( 62 ) 30,264 6,165 9,817 14,282

agency securities

9,767 1 ( 3 ) 9,765 6,489 2,249 1,027

government securities

19,821 337 ( 50 ) 20,108 749 3,168 16,191

Certificates of deposit and time deposits

4,041 — — 4,041 2,024 1,922 95

Commercial paper

12,433 — — 12,433 5,193 7,240 —

Corporate debt securities

85,383 756 ( 92 ) 86,047 123 26,127 59,797

Municipal securities

958 8 ( 1 ) 965 — 68 897

Mortgage- and asset-backed securities

14,180 67 ( 73 ) 14,174 — 1,122 13,052

176,876 1,202 ( 281 ) 177,797 20,743 51,713 105,341

$ 204,977 $ 1,202 $ ( 281 ) $ 205,898 $ 48,844 $ 51,713 $ 105,341

(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.

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”) and other agreements.

(3) 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”) and other agreements.

| 2020 Form 10-K | 40

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

The maturities of the Company’s long-term marketable debt securities generally range from one to five years .

The following tables show information about the Company’s marketable securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or greater as of September 28, 2019 and September 29, 2018 (in millions):

Continuous Unrealized Losses

Less than 12 Months

12 Months or Greater

Fair value of marketable debt securities

Unrealized losses

Continuous Unrealized Losses

Less than 12 Months

12 Months or Greater

Fair value of marketable securities

Unrealized losses

The maturities of the Company’s non-current marketable debt securities generally range from one to five years .

The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.

5 unchanged sentences

The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values.

As of September 28, 2019 , the Company’s non-marketable equity securities had a carrying value of $ 2.9 billion .

As of September 26, 2020 and September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $ 2.8 billion and $ 2.9 billion, respectively.

Restricted Cash

A reconciliation of the Company’s cash and cash equivalents in the Consolidated Balance Sheet to cash, cash equivalents and restricted cash in the Consolidated Statement of Cash Flows as of September 28, 2019 is as follows (in millions):

A reconciliation of the Company’s cash and cash equivalents in the Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows as of September 26, 2020 and September 28, 2019 is as follows (in millions):

Cash and cash equivalents $ 38,016 $ 48,844

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 39,789 $ 50,224

The Company’s restricted cash primarily consisted of cash required to be on deposit under a contractual agreement with a bank to support the Company’s iPhone Upgrade Program.

The Company’s restricted cash primarily consisted of cash to support the Company’s iPhone Upgrade Program.

Derivative Financial Instruments

7 unchanged sentences

The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

| 2019 Form 10-K | 39

To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates.

6 unchanged sentences

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

| 2020 Form 10-K | 41

To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments.

1 unchanged sentence

The Company designates these instruments as either cash flow or fair value hedges.

As of September 28, 2019 , the Company’s hedged interest rate transactions are expected to be recognized within 8 years .

As of September 26, 2020, the Company’s hedged interest rate transactions are expected to be recognized within seven years .

Cash Flow Hedges

The effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings.

Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in AOCI until the hedged item is recognized in earnings.

Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized.

Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in OI&E in the same period as the related income or expense is recognized.

For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness.

The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in OI&E.

For options designated as cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge relates on a straight-line basis over the life of the hedge.

Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period.

2 unchanged sentences

Net Investment Hedges

The effective portions of net investment hedges are recorded in OCI as a part of the cumulative translation adjustment.

The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in OI&E.

For foreign exchange forward contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness.

Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current period.

Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation adjustment.

For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge.

Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.

Fair Value Hedges

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

For foreign exchange forward contracts designated as fair value hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness.

The amount excluded from the effectiveness testing of fair value hedges was a gain of $ 777 million for 2019 , and was recognized in OI&E.

Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a corresponding loss or gain related to the change in value of the hedged item in the same line in the Consolidated Statements of Operations.

For foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OI&E on a straight-line basis over the life of the hedge.

Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $ 465 million and $ 777 million for 2020 and 2019, respectively.

Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.

Non-Designated Derivatives

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.

| 2019 Form 10-K | 40

The Company records all derivatives in the Consolidated Balance Sheets at fair value.

3 unchanged sentences

Derivatives Designated

as Hedge Instruments

Fair Value of

as Hedge Instruments Fair Value of

Derivatives Not Designated

as Hedge Instruments

as Hedge Instruments Total

Derivative assets (1) :

Foreign exchange contracts

$ 749 $ 303 $ 1,052

Interest rate contracts

$ 1,557 $ — $ 1,557

Derivative liabilities (2) :

Foreign exchange contracts

Interest rate contracts

$ 1,561 $ 485 $ 2,046

| 2020 Form 10-K | 42

Fair Value of

Derivatives Designated

as Hedge Instruments

Fair Value of

as Hedge Instruments Fair Value of

Derivatives Not Designated

as Hedge Instruments

as Hedge Instruments Total

Derivative assets (1) :

Foreign exchange contracts

$ 1,798 $ 323 $ 2,121

Interest rate contracts

$ 685 $ — $ 685

Derivative liabilities (2) :

Foreign exchange contracts

$ 1,341 $ 160 $ 1,501

Interest rate contracts

The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets and other non-current assets in the Consolidated Balance Sheets.

The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.

$ 105 $ — $ 105

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

(2) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is included in other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.

The Company classifies cash flows related to derivative financial instruments as operating activities in its Consolidated Statements of Cash Flows.

| 2019 Form 10-K | 41

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Consolidated Statements of Operations for 2019 , 2018 and 2017 (in millions):

Gains/(Losses) recognized in OCI – effective portion:

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and fair value hedges in OCI and the Consolidated Statements of Operations for 2020, 2019 and 2018 (in millions):

2020 2019 2018

Gains/(Losses) recognized in OCI – included in effectiveness assessment:

Cash flow hedges:

Foreign exchange contracts

$ 365 $ ( 959 ) $ 682

Interest rate contracts

$ 308 $ ( 959 ) $ 683

Net investment hedges:

Foreign currency debt

Gains/(Losses) reclassified from AOCI into net income – effective portion:

$ 15 $ ( 58 ) $ 4

Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:

Cash flow hedges:

Foreign exchange contracts

$ 1,553 $ ( 116 ) $ ( 482 )

Interest rate contracts

( 8 ) ( 7 ) 1

$ 1,545 $ ( 123 ) $ ( 481 )

The amount excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI was a loss of $ 168 million for 2020.

| 2020 Form 10-K | 43

The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for 2020, 2019 and 2018 and as of September 26, 2020 (in millions):

2020 2019 2018

Gains/(Losses) on derivative instruments (1) :

Fair value hedges:

Foreign exchange contracts $ ( 992 ) $ 1,020 $ ( 168 )

Interest rate contracts 1,114 2,068 ( 1,363 )

Total $ 122 $ 3,088 $ ( 1,531 )

Gains/(Losses) related to hedged items (1) :

Fair value hedges:

Marketable securities $ 991 $ ( 1,018 ) $ 167

Fixed-rate debt ( 1,114 ) ( 2,068 ) 1,363

Total $ ( 123 ) $ ( 3,086 ) $ 1,530

Carrying amounts of hedged assets/(liabilities):

Marketable securities (2)

Fixed-rate debt (3)

Cumulative hedging adjustments included in the carrying amounts of hedged items:

Marketable securities carrying amount increases/(decreases) $ 493

Fixed-rate debt carrying amount (increases)/decreases $ ( 1,541 )

(1) Gains and losses related to fair value hedges are included in OI&E in the Consolidated Statements of Operations.

(2) The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-current marketable securities in the Consolidated Balance Sheet.

(3) The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term debt in the Consolidated Balance Sheet.

The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September 26, 2020 and September 28, 2019 (in millions):

Amount Credit Risk

Amount Notional

Amount Credit Risk

Instruments designated as accounting hedges:

Foreign exchange contracts

$ 57,410 $ 749 $ 61,795 $ 1,798

Interest rate contracts

$ 20,700 $ 1,557 $ 31,250 $ 685

Instruments not designated as accounting hedges:

Foreign exchange contracts

$ 88,636 $ 303 $ 76,868 $ 323

The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss.

7 unchanged sentences

The Company presents its derivative assets and derivative liabilities at their gross fair values in its Consolidated Balance Sheets.

As of September 28, 2019 , the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $ 1.6 billion , which was recorded as other current liabilities in the Consolidated Balance Sheet.

As of September 29, 2018 , the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $ 1.0 billion , which was recorded as other current assets in the Consolidated Balance Sheet.

As of September 26, 2020 and September 28, 2019, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $ 875 million and $ 1.6 billion, respectively.

The Company includes gross collateral posted and received in other current assets and other current liabilities in the Consolidated Balance Sheets, respectively.

Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other.

As of September 28, 2019 and September 29, 2018 , the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $ 2.7 billion and $ 2.1 billion , respectively, resulting in a net derivative liability of $ 407 million and a net derivative asset of $ 138 million , respectively.

As of September 26, 2020 and September 28, 2019, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $ 2.8 billion and $ 2.7 billion, respectively, resulting in net derivative liabilities of $ 312 million and $ 407 million, respectively.

Accounts Receivable

6 unchanged sentences

As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.

As of September 28, 2019 , the Company had no customers that individually represented 10% or more of total trade receivables.

As of September 29, 2018 , the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10 % .

The Company’s cellular network carriers accounted for 51 % and 59 % of total trade receivables as of September 28, 2019 and September 29, 2018 , respectively.

As of both September 26, 2020 and September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables.

The Company’s cellular network carriers accounted for 51 % of total trade receivables as of September 28, 2019.

Vendor Non-Trade Receivables

7 unchanged sentences

Land and buildings

$ 17,952 $ 17,085

Machinery, equipment and internal-use software

75,291 69,797

Leasehold improvements

Gross property, plant and equipment

103,526 95,957

Accumulated depreciation and amortization

( 66,760 ) ( 58,579 )

Total property, plant and equipment, net

| 2019 Form 10-K | 43

$ 36,766 $ 37,378

Other Non-Current Liabilities

1 unchanged sentence

Other non-current liabilities

26,320 20,958

Total other non-current liabilities

$ 54,490 $ 50,503

| 2020 Form 10-K | 45

Other Income/(Expense), Net

The following table shows the detail of OI&E for 2020, 2019 and 2018 (in millions):

2020 2019 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

$ 803 $ 1,807 $ 2,005

Note 5 – Income Taxes

5 unchanged sentences

The Act also created a new minimum tax on certain foreign earnings, for which the Company has elected to record certain deferred tax assets and liabilities.

The Company completed its accounting for the income tax effects of the Act during 2019, in accordance with the U.S.

Securities and Exchange Commission Staff Accounting Bulletin No.

Provision for Income Taxes and Effective Tax Rate

The provision for income taxes for 2020, 2019 and 2018, consisted of the following (in millions):

2020 2019 2018

$ 6,306 $ 6,384 $ 41,425

( 3,619 ) ( 2,939 ) ( 33,819 )

2,687 3,445 7,606

3,134 3,962 3,986

3,383 2,666 1,181

6,517 6,628 5,167

Provision for income taxes

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

The foreign provision for income taxes is based on foreign pre-tax earnings of $ 38.1 billion, $ 44.3 billion and $ 48.0 billion in 2020, 2019 and 2018, respectively.

| 2019 Form 10-K | 44

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate ( 21 % in 2019 ;

24.5 % in 2018 ;

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate ( 21 % in 2020 and 2019;

24.5 % in 2018) to income before provision for income taxes for 2020, 2019 and 2018, is as follows (dollars in millions):

2020 2019 2018

Computed expected tax

$ 14,089 $ 13,805 $ 17,890

State taxes, net of federal effect

2 unchanged sentences

Research and development credit, net

( 728 ) ( 548 ) ( 560 )

Excess tax benefits from equity awards

( 930 ) ( 639 ) ( 675 )

( 58 ) 65 537

Provision for income taxes

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

Effective tax rate

The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards.

For restricted stock units (“RSUs”), the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value.

Prior to 2018, the Company reflected net excess tax benefits from equity awards as increases to additional paid-in capital, which amounted to $ 620 million in 2017 .

14.4 % 15.9 % 18.3 %

| 2020 Form 10-K | 46

Deferred Tax Assets and Liabilities

2 unchanged sentences

Amortization and depreciation

$ 8,317 $ 11,645

Accrued liabilities and other reserves

Lease liabilities 2,038 —

Deferred revenue

Share-based compensation

Unrealized losses

Total deferred tax assets 19,336 20,387

Valuation allowance ( 1,041 ) ( 747 )

Total deferred tax assets, net

18,295 19,640

Deferred tax liabilities:

Minimum tax on foreign earnings

Earnings of foreign subsidiaries

Right-of-use assets 1,862 —

Unrealized gains 526 186

Total deferred tax liabilities

Net deferred tax assets/(liabilities)

10,138 11,595

Net deferred tax assets $ 8,157 $ 8,045

Deferred tax assets and liabilities reflect the effects of tax credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

| 2019 Form 10-K | 45

Uncertain Tax Positions

2 unchanged sentences

The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2020, 2019 and 2018, is as follows (in millions):

2020 2019 2018

Beginning balances

$ 15,619 $ 9,694 $ 8,407

Increases related to tax positions taken during a prior year

454 5,845 2,431

Decreases related to tax positions taken during a prior year

( 791 ) ( 686 ) ( 2,212 )

Increases related to tax positions taken during the current year

1,347 1,697 1,824

Decreases related to settlements with taxing authorities

( 85 ) ( 852 ) ( 756 )

Decreases related to expiration of the statute of limitations

( 69 ) ( 79 ) —

Ending balances

$ 16,475 $ 15,619 $ 9,694

The Company is subject to taxation and files income tax returns in the U.S.

6 unchanged sentences

Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $ 3.9 billion.

| 2020 Form 10-K | 47

Interest and Penalties

5 unchanged sentences

The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014.

The recovery amount was calculated to be € 13.1 billion , plus interest of € 1.2 billion .

During the fourth quarter of 2019, the Irish Minister for Finance approved the Company’s request to reduce the recovery amount by € 190 million due to taxes paid to other countries, resulting in an adjusted recovery amount of € 12.9 billion as of September 28, 2019.

Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward.

The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union.

Ireland has also appealed the State Aid Decision.

The recovery amount was calculated to be € 13.1 billion, plus interest of € 1.2 billion.

The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”).

On July 15, 2020, the General Court annulled the State Aid Decision.

On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice.

The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S.

taxes, subject to any foreign tax credit limitations in the Act.

As of September 28, 2019 , the entire adjusted recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending the conclusion of all appeals.

On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries.

As of September 26, 2020, the adjusted recovery amount was € 12.9 billion, excluding interest.

The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings.

Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.

| 2019 Form 10-K | 46

Note 6 – Debt

Commercial Paper

Commercial Paper and Repurchase Agreements

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

3 unchanged sentences

The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2020, 2019 and 2018 (in millions):

2020 2019 2018

Maturities 90 days or less:

2 unchanged sentences

Proceeds from commercial paper

6,185 13,874 14,555

Repayments of commercial paper

Proceeds from/(Repayments of) commercial paper, net

Total proceeds from/(repayments of) commercial paper, net

( 7,248 ) ( 16,603 ) ( 15,636 )

Repayments of commercial paper, net ( 1,063 ) ( 2,729 ) ( 1,081 )

Total repayments of commercial paper, net $ ( 963 ) $ ( 5,977 ) $ ( 37 )

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 accounted for its Repos as collateralized borrowings.

The Company entered into $ 5.2 billion of Repos during 2020, all of which had been settled as of September 26, 2020.

| 2020 Form 10-K | 48

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”).

3 unchanged sentences

(in millions)

Interest Rate

Interest Rate Amount

(in millions)

2 unchanged sentences

Floating-rate notes

$ 2,250 0.60 % – 1.39 %

$ 4,250 2.25 % – 3.28 %

Fixed-rate 0.375 % – 4.650 % notes

2019 debt issuance:

87,487 0.28 % – 4.78 %

97,429 0.28 % – 4.78 %

First quarter 2020 debt issuance of € 2.0 billion:

Fixed-rate 0.000 % – 0.500 % notes

2,341 0.03 % – 0.56 %

Third quarter 2020 debt issuance of $ 8.5 billion:

Fixed-rate 0.750 % – 2.650 % notes

8,500 0.84 % – 2.72 %

Fourth quarter 2020 debt issuance of $ 5.5 billion:

Fixed-rate 0.550 % – 2.550 % notes

5,500 0.60 % – 2.59 %

Total term debt 106,078 101,679

Unamortized premium/(discount) and issuance costs, net

( 314 ) ( 224 )

Hedge accounting fair value adjustments 1,676 612

5 unchanged sentences

dollar–denominated notes.

A portion of the Company’s Japanese yen–denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation.

As of September 28, 2019 and September 29, 2018 , the carrying value of the debt designated as a net investment hedge was $ 1.0 billion and $ 811 million , respectively.

As of September 28, 2019, a portion of the Company’s Japanese yen–denominated notes with a carrying value of $ 1.0 billion was designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation.

The Company’s Japanese yen–denominated notes matured during 2020 and the associated net investment hedges were terminated.

For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of Note 3, “Financial Instruments.”

1 unchanged sentence

The Company recognized $ 2.8 billion, $ 3.2 billion and $ 3.0 billion of interest cost on its term debt for 2020, 2019 and 2018, respectively.

| 2019 Form 10-K | 47

The future principal payments for the Company’s Notes as of September 26, 2020, are as follows (in millions):

Thereafter 55,341

Total term debt $ 106,078

As of September 26, 2020 and September 28, 2019, the fair value of the Company’s Notes, based on Level 2 inputs, was $ 117.1 billion and $ 107.5 billion, respectively.

| 2020 Form 10-K | 49

Note 7 – Shareholders’ Equity

Share Repurchase 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 accelerated share repurchase arrangement 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 accelerated share repurchase arrangement (“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.

2 unchanged sentences

The following table shows the changes in shares of common stock for 2020, 2019 and 2018 (in thousands):

2020 2019 2018

Common stock outstanding, beginning balances

17,772,945 19,019,943 20,504,805

Common stock repurchased

( 917,270 ) ( 1,380,819 ) ( 1,622,198 )

Common stock issued, net of shares withheld for employee taxes

121,088 133,821 137,336

Common stock outstanding, ending balances

16,976,763 17,772,945 19,019,943

Note 8 – Comprehensive Income

1 unchanged sentence

dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable debt securities classified as available-for-sale.

The following table shows the pre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line item, for 2019 and 2018 (in millions):

Comprehensive Income Components

Financial Statement Line Item

The following table shows the pre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line items, for 2020 and 2019 (in millions):

Comprehensive Income Components Financial Statement Line Items 2020 2019

Unrealized (gains)/losses on derivative instruments:

1 unchanged sentence

Total net sales

$ ( 365 ) $ ( 206 )

Total cost of sales

( 584 ) ( 482 )

Other income/(expense), net

1 unchanged sentence

Other income/(expense), net

Unrealized (gains)/losses on marketable securities

( 1,545 ) 103

Unrealized (gains)/losses on marketable debt securities

Other income/(expense), net

Total amounts reclassified from AOCI

$ ( 1,627 ) $ 134

| 2020 Form 10-K | 50

1 unchanged sentence

Cumulative Foreign

Currency Translation

Unrealized Gains/Losses

on Derivative Instruments

Unrealized Gains/Losses

on Marketable Securities

Currency Translation Unrealized Gains/Losses

on Derivative Instruments Unrealized Gains/Losses

on Marketable Debt Securities Total

Balances as of September 29, 2018 $ ( 1,055 ) $ 810 $ ( 3,209 ) $ ( 3,454 )

Other comprehensive income/(loss) before reclassifications

( 421 ) ( 949 ) 4,854 3,484

Amounts reclassified from AOCI

13 208 ( 1,058 ) ( 837 )

Other comprehensive income/(loss)

( 408 ) ( 638 ) 3,827 2,781

Cumulative effect of change in accounting principle — — 89 89

1 unchanged sentence

Other comprehensive income/(loss) before reclassifications

91 115 1,560 1,766

Amounts reclassified from AOCI

— ( 1,545 ) ( 82 ) ( 1,627 )

( 3 ) 245 ( 339 ) ( 97 )

Other comprehensive income/(loss)

88 ( 1,185 ) 1,139 42

Cumulative effect of change in accounting principle (1)

11 unchanged sentences

DERs are accumulated and paid when the underlying shares vest.

Upon approval of the 2014 Plan, the Company reserved 385 million shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan.

Upon approval of the 2014 Plan, the Company reserved 1.54 billion shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan.

Shares subject to outstanding awards under the 2003 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations for RSUs, will also be available for awards under the 2014 Plan.

11 unchanged sentences

Rule 10b5-1 Trading Plans

During the three months ended September 28, 2019 , Section 16 officers Timothy D.

During the three months ended September 26, 2020, Section 16 officers Katherine L.

Adams, Timothy D.

Cook, Chris Kondo, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act.

13 unchanged sentences

Grant Date Fair

Value Per RSU

Value Per RSU Aggregate

(in millions)

Balance as of September 30, 2017 390,284 $ 27.58

181,402 $ 40.72

( 178,873 ) $ 27.81

RSUs canceled

( 24,195 ) $ 31.95

Balance as of September 29, 2018 368,618 $ 33.65

147,409 $ 53.99

( 168,350 ) $ 33.80

RSUs canceled

( 21,609 ) $ 40.71

Balance as of September 28, 2019 326,068 $ 42.30

156,800 $ 59.20

( 157,743 ) $ 40.29

RSUs canceled

( 14,347 ) $ 48.07

Balance as of September 26, 2020 310,778 $ 51.58 $ 34,894

3 unchanged sentences

Total payments for the employees’ tax obligations to taxing authorities were $ 3.9 billion, $ 3.0 billion and $ 2.7 billion in 2020, 2019 and 2018, respectively.

These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

| 2020 Form 10-K | 52

1 unchanged sentence

The following table shows share-based compensation expense and the related income tax benefit included in the Consolidated Statements of Operations for 2020, 2019 and 2018 (in millions):

2020 2019 2018

Share-based compensation expense $ 6,829 $ 6,068 $ 5,340

Income tax benefit related to share-based compensation expense

$ ( 2,476 ) $ ( 1,967 ) $ ( 1,893 )

As of September 26, 2020, the total unrecognized compensation cost related to outstanding RSUs and stock options was $ 12.2 billion, which the Company expects to recognize over a weighted-average period of 2.6 years.

2 unchanged sentences

The following table shows changes in the Company’s accrued warranties and related costs for 2020, 2019 and 2018 (in millions):

2020 2019 2018

Beginning accrued warranty and related costs

$ 3,570 $ 3,692 $ 3,834

Cost of warranty claims

( 2,956 ) ( 3,857 ) ( 4,115 )

Accruals for product warranty

2,740 3,735 3,973

Ending accrued warranty and related costs

$ 3,354 $ 3,570 $ 3,692

The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K.

and mainland China.

and China mainland.

The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met.

10 unchanged sentences

Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S.

Other Off–Balance Sheet Commitments

Operating Leases

The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements.

The Company does not currently utilize any other off–balance sheet financing arrangements.

As of September 28, 2019 , the Company’s total future minimum lease payments under noncancelable operating leases were $ 10.8 billion .

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

| 2020 Form 10-K | 53

Rent expense under all operating leases, including both cancelable and noncancelable leases, was $ 1.3 billion , $ 1.2 billion and $ 1.1 billion in 2019 , 2018 and 2017 , respectively.

Future minimum lease payments under noncancelable operating leases having initial or remaining terms in excess of one year as of September 28, 2019 , are as follows (in millions):

Unconditional Purchase Obligations

2 unchanged sentences

Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 26, 2020, are as follows (in millions):

Thereafter 130

Total $ 8,652

Contingencies

4 unchanged sentences

VirnetX, Inc.

(“VirnetX”) filed two lawsuits in the U.S.

District Court for the Eastern District of Texas (the “Eastern Texas District Court”) against the Company alleging that certain Company products infringe four patents (the “VirnetX Patents”) relating to network communications technology (“VirnetX I” and “VirnetX II”).

On September 30, 2016, a jury returned a verdict in VirnetX I against the Company and awarded damages of $ 302 million , which later increased to $ 440 million in post-trial proceedings.

The Company appealed the VirnetX I verdict to the U.S.

Court of Appeals for the Federal Circuit (the “Federal Circuit”).

On April 11, 2018, a jury returned a verdict in VirnetX II against the Company and awarded damages of $ 503 million .

VirnetX II is currently on appeal.

The Company has challenged the validity of the VirnetX Patents at the U.S.

Patent and Trademark Office (the “PTO”).

In response, the PTO has declared the VirnetX Patents invalid.

VirnetX appealed the invalidity decision of the PTO to the Federal Circuit.

The Federal Circuit consolidated the Company’s appeal of the Eastern Texas District Court VirnetX I verdict and VirnetX’s appeals from the PTO invalidity proceedings.

On January 15, 2019, the Federal Circuit affirmed the VirnetX I verdict, which the Company intends to further appeal.

On July 8, 2019, the Federal Circuit remanded one of VirnetX’s two appeals of the PTO’s invalidity decisions back to the PTO for further proceedings.

On August 1, 2019, the Federal Circuit affirmed-in-part, vacated-in-part, and remanded back to the PTO portions of VirnetX’s second appeal.

The Company has accrued its best estimate for the ultimate resolution of these matters.

| 2019 Form 10-K | 52

On January 20, 2017, the Company filed a lawsuit against Qualcomm Incorporated and affiliated parties (“Qualcomm”) in the U.S.

District Court for the Southern District of California seeking, among other things, to enjoin Qualcomm from requiring the Company to pay royalties at the rate demanded by Qualcomm.

No Qualcomm-related royalty payments had been remitted by the Company to its contract manufacturers since the beginning of the second quarter of 2017.

Following the Company’s lawsuit, Qualcomm filed patent infringement suits against the Company and its affiliates in the U.S.

and various international jurisdictions, some of which sought to enjoin the sale of certain of the Company’s products in particular countries.

On April 16, 2019, the Company and Qualcomm reached a settlement agreement to dismiss all litigation between the two companies worldwide.

The companies also reached a multi-year license agreement and a multi-year supply agreement.

Under the terms of the settlement agreement, Apple made a payment to Qualcomm to, among other things, resolve disputes over the withheld royalty payments.

(“VirnetX”) filed a lawsuit against the Company alleging that certain of the Company’s products infringe on patents owned by VirnetX.

On April 11, 2018, a jury returned a verdict against the Company and awarded damages of $ 503 million.

The Company appealed the verdict to the U.S.

Court of Appeals for the Federal Circuit, which remanded the case back to the U.S.

District Court for the Eastern District of Texas, where it is scheduled for a re-trial in October 2020.

The Company has challenged the validity of the patents at issue in the re-trial at the U.S.

Patent and Trademark Office (the “PTO”), and the PTO has declared the patents invalid, subject to further appeal by VirnetX.

iOS Performance Management Cases

4 unchanged sentences

federal actions were consolidated through a Multidistrict Litigation process into a single action in the U.S.

District Court for the Northern District of California.

District Court for the Northern District of California (the “Northern California District Court”).

On February 28, 2020, the parties in the Multidistrict Litigation reached a settlement to resolve the U.S.

federal and California state class actions.

Under the terms of the settlement, which the Northern California District Court preliminarily approved in May 2020, the Company has agreed to pay up to $ 500 million in the aggregate to certain U.S.

owners of iPhones if certain conditions are met.

The final amount of the settlement will be determined based on the number of consumers who file valid claims and the attorneys’ fee award.

However, the Company has agreed to pay at least $ 310 million to settle the claims.

In addition to civil litigation, the Company is also responding to governmental investigations and requests for information relating to the performance management feature.

The Company believes that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information.

The Company continues to believe that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information.

The Company has accrued its best estimate for the ultimate resolution of these matters.

French Competition Authority

In June 2019, the French Competition Authority (“FCA”) issued a report alleging that aspects of the Company’s sales and distribution practices in France violate French competition law.

The Company vigorously disagrees with the allegations, and a hearing of arguments was held before the FCA on October 15, 2019.

The Company is awaiting the decision of the FCA, which may include a fine.

On March 16, 2020, the French Competition Authority (“FCA”) announced its decision that aspects of the Company’s sales and distribution practices in France violate French competition law, and issued a fine of € 1.1 billion.

The Company strongly disagrees with the FCA’s decision, and has appealed.

| 2020 Form 10-K | 54

Optis Wireless Technology, LLC and related entities (“Optis”) filed a lawsuit in the U.S.

District Court for the Eastern District of Texas against the Company alleging that certain of the Company’s products infringe on patents owned by Optis.

On August 11, 2020, a jury returned a verdict against the Company and awarded damages of $ 506 million.

The Company has asked the court to set aside the verdict, where the case remains pending.

Note 11 – Segment Information and Geographic Data

5 unchanged sentences

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.

8 unchanged sentences

The Company does not include intercompany transfers between segments for management reporting purposes.

| 2019 Form 10-K | 53

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

2020 2019 2018

$ 124,556 $ 116,914 $ 112,093

Operating income

$ 37,722 $ 35,099 $ 34,864

$ 68,640 $ 60,288 $ 62,420

Operating income

$ 22,170 $ 19,195 $ 19,955

Greater China:

$ 40,308 $ 43,678 $ 51,942

Operating income

$ 15,261 $ 16,232 $ 19,742

$ 21,418 $ 21,506 $ 21,733

Operating income

$ 9,279 $ 9,369 $ 9,500

Rest of Asia Pacific:

$ 19,593 $ 17,788 $ 17,407

Operating income

$ 6,808 $ 6,055 $ 6,181

| 2020 Form 10-K | 55

A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2020, 2019 and 2018 is as follows (in millions):

2020 2019 2018

Segment operating income

$ 91,240 $ 85,950 $ 90,242

Research and development expense

( 18,752 ) ( 16,217 ) ( 14,236 )

Other corporate expenses, net

( 6,200 ) ( 5,803 ) ( 5,108 )

Total operating income

$ 66,288 $ 63,930 $ 70,898

and China were the only countries that accounted for more than 10% of the Company’s net sales in 2020, 2019 and 2018.

1 unchanged sentence

Net sales for 2020, 2019 and 2018 and long-lived assets as of September 26, 2020 and September 28, 2019 were as follows (in millions):

2020 2019 2018

$ 109,197 $ 102,266 $ 98,061

40,308 43,678 51,942

Other countries

125,010 114,230 115,592

Total net sales

$ 274,515 $ 260,174 $ 265,595

Long-lived assets:

$ 25,890 $ 24,711

Other countries

Total long-lived assets

$ 36,766 $ 37,378

(1) China includes Hong Kong and Taiwan.

Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.

Note 12 – Leases

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

These leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options, some of which are reasonably certain of exercise.

The Company’s lease arrangements may contain both lease and non-lease components.

The Company has elected to combine and account for lease and non-lease components as a single lease component for leases of retail, corporate, and data center facilities.

Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments are primarily based on purchases of output of the underlying leased assets.

Lease costs associated with fixed payments on the Company’s operating leases were $ 1.5 billion for 2020.

Lease costs associated with variable payments on the Company’s leases were $ 9.3 billion for 2020.

Rent expense for operating leases, as previously reported under former lease accounting standards, was $ 1.3 billion and $ 1.2 billion in 2019 and 2018, respectively.

For 2020, the Company made $ 1.5 billion of fixed cash payments related to operating leases.

Non-cash activities involving ROU assets obtained in exchange for lease liabilities were $ 10.5 billion for 2020, including the impact of adopting the new leases standard in the first quarter of 2020.

| 2020 Form 10-K | 56

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 26, 2020 (in millions):

Lease-Related Assets and Liabilities Financial Statement Line Items 2020

Right-of-use assets:

Operating leases Other non-current assets $ 8,570

Finance leases Property, plant and equipment, net 629

Total right-of-use assets $ 9,199

Lease liabilities:

Operating leases Other current liabilities $ 1,436

Other non-current liabilities 7,745

Finance leases Other current liabilities 24

Other non-current liabilities 637

Total lease liabilities $ 9,842

Lease liability maturities as of September 26, 2020, are as follows (in millions):

Leases Finance

2021 $ 1,493 $ 43 $ 1,536

2022 1,461 43 1,504

2023 1,317 54 1,371

2024 1,068 30 1,098

2025 960 25 985

Thereafter 3,845 895 4,740

Total undiscounted liabilities 10,144 1,090 11,234

Imputed interest ( 963 ) ( 429 ) ( 1,392 )

Total lease liabilities $ 9,181 $ 661 $ 9,842

The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of September 26, 2020 were 10.3 years and 2.0 %, respectively.

The discount rates are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.

As of September 26, 2020, the Company had $ 1.7 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not yet commenced.

These leases will commence between 2021 and 2022, with lease terms ranging from 1 year to 20 years.

Note 13 – Selected Quarterly Financial Information (Unaudited)

The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2020 and 2019 (in millions, except per share amounts):

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter Third Quarter Second Quarter First Quarter

Total net sales

$ 64,698 $ 59,685 $ 58,313 $ 91,819

$ 24,689 $ 22,680 $ 22,370 $ 35,217

$ 12,673 $ 11,253 $ 11,249 $ 22,236

Earnings per share (1) :

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Basic $ 0.74 $ 0.65 $ 0.64 $ 1.26

Diluted $ 0.73 $ 0.65 $ 0.64 $ 1.25

| 2020 Form 10-K | 57

Fourth Quarter Third Quarter Second Quarter First Quarter

Total net sales

$ 64,040 $ 53,809 $ 58,015 $ 84,310

$ 24,313 $ 20,227 $ 21,821 $ 32,031

$ 13,686 $ 10,044 $ 11,561 $ 19,965

Earnings per share (1) :

$ 0.76 $ 0.55 $ 0.62 $ 1.05

$ 0.76 $ 0.55 $ 0.61 $ 1.05

(1) Basic and diluted earnings per share are computed independently for each of the quarters presented.

27 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

European Commission State Aid Matter Uncertain Tax Position

Description of the Matter

As discussed in Note 5 of the financial statements, the European Commission (“EC”) has announced its decision that Ireland granted state aid to Apple Inc.

by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of Apple Inc.

The decision ordered Ireland to calculate and recover additional taxes from Apple Inc.

for the period from June 2003 through December 2014.

The adjusted amount indicated by the EC to be recovered is up to €12.9 billion, plus interest.

Auditing management’s evaluation of the uncertain tax position stemming from the effects of the EC decision is complex and highly judgmental due to the inherent uncertainty in predicting the ultimate resolution of the matter.

Uncertain Tax Positions

Description of the Matter As discussed in Note 5 to the financial statements, Apple Inc.

is subject to taxation and files income tax returns in the U.S.

federal jurisdiction and many state and foreign jurisdictions.

As of September 26, 2020, the total amount of gross unrecognized tax benefits was $16.5 billion, of which $8.8 billion, if recognized, would impact Apple Inc.’s effective tax rate.

uses significant judgment in the calculation of tax liabilities in estimating the impact of uncertainties in the application of technical merits and complex tax laws.

Auditing management’s evaluation of whether an uncertain tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings.

| 2020 Form 10-K | 59

How We Addressed the

Matter in Our Audit

We tested controls over the risk of material misstatement relating to the evaluation of the EC state aid matter, including management’s evaluation of the advice of legal counsel, the assessment as to whether Apple Inc.’s position is more likely than not to be sustained and the development of the related disclosure.

To evaluate Apple Inc.’s assessment of whether sustainment of its position is a more likely than not outcome, including underlying assumptions, our audit procedures included, among others, reading the EC August 2016 ruling and available correspondence between Apple Inc.

and the EC, and the EC and Ireland.

We also requested and received internal and external legal counsel confirmation letters, discussed the allegations with internal and external legal counsel and Apple Inc.

tax personnel and obtained a representation letter from Apple Inc.

We involved our EC and tax subject matter resources in considering the applicable tax laws, the pending appeal, the current status of legal precedent relevant to that appeal and the proceedings at the court hearing in September 2019.

In addition, we evaluated Apple Inc.’s disclosure included in Note 5 in relation to this matter.

Matter in Our Audit We tested controls relating to the evaluation of uncertain tax positions, including controls over management’s assessment as to whether tax positions are more likely than not to be sustained, management’s process to measure the benefit of its tax positions, and the development of the related disclosures.

To evaluate Apple Inc.’s assessment of which tax positions are more likely than not to be sustained, our audit procedures included, among others, reading and evaluating management’s assumptions and analysis, and, as applicable, Apple Inc.’s communications with taxing authorities, that detailed the basis and technical merits of the uncertain tax positions.

We involved our tax subject matter resources in assessing the technical merits of certain of Apple Inc.’s tax positions based on our knowledge of relevant tax laws and experience with related taxing authorities.

For certain tax positions, we also received external legal counsel confirmation letters and discussed the matters with external advisors and Apple Inc.

tax personnel.

In addition, we evaluated Apple Inc.’s disclosure in relation to these matters included in Note 5 to the financial statements.

/s/ Ernst & Young LLP

37 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data