What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-10-29 compared with 2020-10-30 · 164 added, 368 removed, 851 unchanged (38% of the section changed)

3 unchanged sentences

Consolidated Statements of Comprehensive Income for the years ended September 25, 2021, September 26, 2020 and September 28, 2019

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

Consolidated Balance Sheets as of September 25, 2021 and September 26, 2020

Consolidated Statements of Shareholders’ Equity for the years ended September 25, 2021, September 26, 2020 and September 28, 2019

Consolidated Statements of Cash Flows for the years ended September 25, 2021, September 26, 2020 and September 28, 2019

Notes to Consolidated Financial Statements

Selected Quarterly Financial Information (Unaudited)

Reports of Independent Registered Public Accounting Firm

48 unchanged sentences

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

Change in fair value of derivatives

79 ( 661 ) 523

Change in fair value of derivative instruments 32 79 ( 661 )

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

1 unchanged sentence

Total change in unrealized gains/losses on derivative instruments 1,035 ( 1,185 ) ( 638 )

( 1,185 ) ( 638 ) 905

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

2 unchanged sentences

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

( 273 ) ( 63 ) 25

Total change in unrealized gains/losses on marketable debt securities

1 unchanged sentence

Total other comprehensive income/(loss)

42 2,781 ( 3,026 )

Total comprehensive income

54 unchanged sentences

Retained earnings

14,966 45,898

Accumulated other comprehensive income/(loss)

( 406 ) ( 584 )

Total shareholders’ equity

13 unchanged sentences

Common stock issued

1,105 880 781

Common stock withheld related to net share settlement of equity awards

69 unchanged sentences

Proceeds from issuance of common stock

1,105 880 781

Payments for taxes related to net share settlement of equity awards

8 unchanged sentences

( 8,750 ) ( 12,629 ) ( 8,805 )

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

Proceeds from/(Repayments of) commercial paper, net 1,022 ( 963 ) ( 5,977 )

( 129 ) ( 126 ) ( 105 )

23 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 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.

The Company’s fiscal years 2021, 2020 and 2019 spanned 52 weeks each.

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

Financial Instruments – Credit Losses

At the beginning of the first quarter of 2021, 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.

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

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments.

The Company adopted ASU 2016-13 utilizing the modified retrospective transition method.

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.

The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.

Advertising Costs

3 unchanged sentences

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

| 2020 Form 10-K | 36

Earnings Per Share

12 unchanged sentences

$ 5.61 $ 3.28 $ 2.97

| 2021 Form 10-K | 34

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

13 unchanged sentences

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 seven 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 five to seven years .

Depreciation and amortization expense on property and equipment was $ 9.5 billion, $ 9.7 billion and $ 11.3 billion during 2021, 2020 and 2019, respectively.

Non-cash investing activities involving property, plant and equipment resulted in a net increase/(decrease) to accounts payable and other current liabilities of $( 2.9 ) billion and $ 3.4 billion during 2019 and 2018, respectively.

| 2020 Form 10-K | 37

Non-Marketable Securities

The Company has elected to apply the measurement alternative to equity securities without readily determinable fair values.

As such, the Company’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer.

Gains and losses on non-marketable equity securities are recognized in OI&E.

Noncash investing activities involving property, plant and equipment resulted in a net decrease to accounts payable and other current liabilities of $ 2.9 billion during 2019.

Restricted Cash and Restricted Marketable Securities

2 unchanged sentences

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.

Derivative Instruments and Hedging

All derivative instruments are recorded in the Consolidated Balance Sheets at fair value.

The accounting treatment for derivative gains and losses is based on intended use and hedge designation.

Gains and losses arising from amounts that are included in the assessment of cash flow hedge effectiveness are initially deferred in accumulated other comprehensive income/(loss) (“AOCI”) and subsequently reclassified into earnings when the hedged transaction affects earnings, and in the same line item in the Consolidated Statements of Operations.

For options designated as cash flow hedges, the Company excludes time value from the assessment of hedge effectiveness and recognizes it on a straight-line basis over the life of the hedge in the Consolidated Statements of Operations line item to which the hedge relates.

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

Gains and losses arising from amounts that are included in the assessment of fair value hedge effectiveness are recognized in the Consolidated Statements of Operations line item to which the hedge relates along with offsetting losses and gains related to the change in value of the hedged item.

For foreign exchange forward contracts designated as fair value hedges, the Company excludes the forward carry component from the assessment of hedge effectiveness and recognizes it in OI&E 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.

Gains and losses arising from changes in the fair values of derivative instruments that are not designated as accounting hedges are recognized in the Consolidated Statements of Operations line items to which the derivative instruments relate.

| 2021 Form 10-K | 35

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

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

Fair Value Measurements

27 unchanged sentences

Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.

| 2020 Form 10-K | 38

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers.

3 unchanged sentences

The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.

| 2021 Form 10-K | 36

Deferred Revenue

13 unchanged sentences

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

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

(3) Services net sales include sales from the Company’s 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.

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

(3) Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services.

Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.

(4) Includes $ 6.7 billion of revenue recognized in 2021 that was included in deferred revenue as of September 26, 2020, $ 5.0 billion of revenue recognized in 2020 that was included in deferred revenue as of September 28, 2019, and $ 5.9 billion of revenue recognized in 2019 that was included in deferred revenue as of September 29, 2018.

3 unchanged sentences

Cash, Cash Equivalents and Marketable Securities

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):

The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of September 25, 2021 and September 26, 2020 (in millions):

Cost Unrealized

6 unchanged sentences

Money market funds 9,608 — — 9,608 9,608 — —

2,171 — — 2,171 2,171 — —

Mutual funds 175 11 ( 1 ) 185 — 185 —

Subtotal 9,783 11 ( 1 ) 9,793 9,608 185 —

Level 2 (2) :

Equity securities 1,527 — ( 564 ) 963 — 963 —

Treasury securities 22,878 102 ( 77 ) 22,903 3,596 6,625 12,682

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

agency securities 8,949 2 ( 64 ) 8,887 1,775 1,930 5,182

8,604 8 — 8,612 2,009 3,078 3,525

government securities 20,201 211 ( 101 ) 20,311 390 3,091 16,830

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

Certificates of deposit and time deposits

1 unchanged sentence

Commercial paper 2,639 — — 2,639 1,776 863 —

11,226 — — 11,226 3,185 8,041 —

Corporate debt securities 83,883 1,242 ( 267 ) 84,858 — 12,327 72,531

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

Municipal securities 967 14 — 981 — 130 851

1,001 22 — 1,023 — 139 884

Mortgage- and asset-backed securities

20,529 171 ( 124 ) 20,576 — 775 19,801

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

Subtotal 162,873 1,742 ( 1,197 ) 163,418 8,027 27,514 127,877

$ 189,961 $ 1,753 $ ( 1,198 ) $ 190,516 $ 34,940 $ 27,699 $ 127,877

8 unchanged sentences

2,171 — — 2,171 2,171 — —

15,897 — — 15,897 15,897 — —

Level 2 (2) :

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

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

agency securities

12 unchanged sentences

13,520 314 ( 24 ) 13,810 — 435 13,375

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

Subtotal 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

4 unchanged sentences

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 non-current marketable debt securities generally range from one to five years .

The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of September 25, 2021 (in millions):

Due after 1 year through 5 years $ 83,755

Due after 5 years through 10 years 23,915

Due after 10 years 20,207

Total fair value $ 127,877

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

1 unchanged sentence

Fair values were determined for each individual security in the investment portfolio.

When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis.

As of September 26, 2020, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.

Non-Marketable Securities

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

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 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

Restricted cash included in other current assets 36 23

Restricted cash included in other non-current assets 1,737 1,357

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

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

Derivative Financial Instruments

The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities.

Derivative Instruments and Hedging

The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk.

However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures.

There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.

To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S.

dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S.

dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies.

The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges.

There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.

Foreign Exchange Risk

To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, and may designate these instruments as cash flow hedges.

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

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.

In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries.

In both of these cases, the Company designates these instruments as net investment hedges.

To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments.

These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value.

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

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

As of September 25, 2021, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 21 years.

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.

These instruments may offset a portion of the changes in interest income or expense, or changes in fair value.

The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates, as well as 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.

Interest Rate Risk

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

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

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

Cash Flow Hedges

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, 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.

Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into OI&E in the period of de-designation.

Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions.

Net Investment Hedges

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

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.

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

The Company’s accounting treatment for these derivative instruments is based on its hedge designation.

The following tables show the Company’s derivative instruments at gross fair value as of September 26, 2020 and September 28, 2019 (in millions):

Fair Value of

Derivatives Designated

as Hedge Instruments Fair Value of

Derivatives Not Designated

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

$ 1,561 $ 485 $ 2,046

| 2020 Form 10-K | 42

Fair Value of

Derivatives Designated

as Hedge Instruments Fair Value of

Derivatives Not Designated

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

$ 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.

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

$ 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) :

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) :

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:

The notional amounts of the Company’s outstanding derivative instruments as of September 25, 2021 and September 26, 2020 were as follows (in millions):

Derivative instruments designated as accounting hedges:

Foreign exchange contracts

2 unchanged sentences

$ 16,875 $ 20,700

Instruments not designated as accounting hedges:

Derivative instruments not designated as accounting hedges:

Foreign exchange contracts

$ 126,918 $ 88,636

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.

The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date.

The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.

Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge.

The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The gross fair values of the Company’s derivative assets and liabilities were not material as of September 25, 2021 and September 26, 2020.

The gains and losses recognized in OCI and amounts reclassified from AOCI to net income for the Company’s derivative instruments designated as cash flow hedges were not material in 2021, 2020 and 2019.

| 2021 Form 10-K | 39

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty.

To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.

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

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 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.

The carrying amounts of the Company’s hedged items in fair value hedges as of September 25, 2021 and September 26, 2020 were as follows (in millions):

Hedged assets/(liabilities):

Current and non-current marketable securities $ 15,954 $ 16,270

Current and non-current term debt $ ( 17,857 ) $ ( 21,033 )

The gains and losses on the Company’s derivative instruments designated as fair value hedges and the related hedged item adjustments were not material in 2021, 2020 and 2019.

Accounts Receivable

9 unchanged sentences

Vendor Non-Trade Receivables

The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company.

The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company.

The Company purchases these components directly from suppliers.

As of September 26, 2020, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57 % and 11 %.

As of September 25, 2021, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 52 %, 11 % and 11 %.

As of September 26, 2020, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57 % and 11 %.

7 unchanged sentences

Leasehold improvements

11,023 10,283

Gross property, plant and equipment

22 unchanged sentences

Note 5 – Income Taxes

Tax Cuts and Jobs Act

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.

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.

Provision for Income Taxes and Effective Tax Rate

7 unchanged sentences

1,282 476 408

9,424 3,134 3,962

2,740 3,383 2,666

12,164 6,517 6,628

Provision for income taxes

$ 14,527 $ 9,680 $ 10,481

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.

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):

The foreign provision for income taxes is based on foreign pretax earnings of $ 68.7 billion, $ 38.1 billion and $ 44.3 billion in 2021, 2020 and 2019, respectively.

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate ( 21 % in 2021, 2020 and 2019) to income before provision for income taxes for 2021, 2020 and 2019, is as follows (dollars in millions):

2021 2020 2019

2 unchanged sentences

State taxes, net of federal effect

Impacts of the Act ( 582 ) — 1,515

1,151 423 423

Impacts of the U.S.

Tax Cuts and Jobs Act of 2017 — ( 582 ) —

Earnings of foreign subsidiaries ( 4,715 ) ( 2,534 ) ( 2,625 )

Foreign-derived intangible income deduction ( 1,372 ) ( 169 ) ( 149 )

Research and development credit, net

16 unchanged sentences

Deferred revenue 5,399 1,638

Tax credit carryforwards 4,262 797

Other 1,639 1,612

Total deferred tax assets 25,176 19,336

7 unchanged sentences

Total deferred tax liabilities

10,138 11,595

Net deferred tax assets $ 13,073 $ 8,157

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.

The Company has elected to record certain deferred tax assets and liabilities in connection with the minimum tax on certain foreign earnings created by the U.S.

Tax Cuts and Jobs Act of 2017 (the “Act”).

As of September 25, 2021, the Company had $ 2.6 billion in foreign tax credit carryforwards in Ireland and $ 1.6 billion in California research and development credit carryforwards, both of which can be carried forward indefinitely.

A valuation allowance has been recorded for the tax credit carryforwards and a portion of other temporary differences.

Uncertain Tax Positions

18 unchanged sentences

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

federal jurisdiction and many state and foreign jurisdictions.

Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed.

Tax years after 2014 remain open in certain major foreign jurisdictions and are subject to examination by the taxing authorities.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

However, the outcome of tax audits cannot be predicted with certainty.

If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

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.

federal jurisdiction and many state and foreign jurisd ictions.

Tax years after 2015 for the U.S.

federal jurisdiction, and after 2014 in certain major foreign jurisdictions, remain subject to examination.

Although the timing of resolution and/or closure of examinations 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 $ 1.2 billion.

| 2021 Form 10-K | 42

2 unchanged sentences

As of September 25, 2021 and September 26, 2020, the total amount of gross interest and penalties accrued was $ 1.5 billion and $ 1.4 billion, respectively.

The Company recognized interest and penalty expense in 2020, 2019 and 2018 of $ 85 million, $ 73 million and $ 489 million, respectively.

The Company recognized interest and penalty expense of $ 219 million, $ 85 million and $ 73 million in 2021, 2020 and 2019, respectively.

European Commission State Aid Decision

12 unchanged sentences

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

Note 6 – 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 multiyear renewal options, some of which are reasonably certain of exercise.

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

The Company has elected to combine and account for lease and nonlease 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 $ 1.7 billion and $ 1.5 billion for 2021 and 2020, respectively.

Lease costs associated with variable payments on the Company’s leases were $ 12.9 billion and $ 9.3 billion for 2021 and 2020, respectively.

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

The Company made $ 1.4 billion and $ 1.5 billion of fixed cash payments related to operating leases in 2021 and 2020, respectively.

Noncash activities involving right-of-use (“ROU”) assets obtained in exchange for lease liabilities were $ 3.3 billion for 2021 and $ 10.5 billion for 2020, including the impact of adopting FASB ASU No.

2016-02, Leases (Topic 842) in the first quarter of 2020.

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 25, 2021 and September 26, 2020 (in millions):

Lease-Related Assets and Liabilities Financial Statement Line Items 2021 2020

Right-of-use assets:

Operating leases Other non-current assets $ 10,087 $ 8,570

Finance leases Property, plant and equipment, net 861 629

Total right-of-use assets $ 10,948 $ 9,199

Lease liabilities:

Operating leases Other current liabilities $ 1,449 $ 1,436

Other non-current liabilities 9,506 7,745

Finance leases Other current liabilities 79 24

Other non-current liabilities 769 637

Total lease liabilities $ 11,803 $ 9,842

| 2021 Form 10-K | 43

Lease liability maturities as of September 25, 2021, are as follows (in millions):

Leases Finance

2022 $ 1,629 $ 104 $ 1,733

2023 1,560 123 1,683

2024 1,499 99 1,598

2025 1,251 46 1,297

2026 1,061 26 1,087

Thereafter 5,187 868 6,055

Total undiscounted liabilities 12,187 1,266 13,453

Imputed interest ( 1,232 ) ( 418 ) ( 1,650 )

Total lease liabilities $ 10,955 $ 848 $ 11,803

The weighted-average remaining lease term related to the Company’s lease liabilities as of September 25, 2021 and September 26, 2020 was 10.8 years and 10.3 years, respectively.

The discount rate related to the Company’s lease liabilities as of both September 25, 2021 and September 26, 2020 was 2.0 %.

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 25, 2021, the Company had $ 1.1 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not yet commenced.

These leases will commence between 2022 and 2023, with lease terms ranging from 3 years to 20 years.

Note 7 – Debt

13 unchanged sentences

( 6,567 ) ( 7,248 ) ( 16,603 )

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

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

Proceeds from/(Repayments of) commercial paper, net 1,379 ( 1,063 ) ( 2,729 )

Total proceeds from/(repayments of) commercial paper, net $ 1,022 $ ( 963 ) $ ( 5,977 )

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”).

17 unchanged sentences

103,828 0.03 % – 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:

Second quarter 2021 debt issuance:

Fixed-rate 0.700 % – 2.800 % notes

14,000 0.75 % – 2.81 %

Fourth quarter 2020 debt issuance of $ 5.5 billion:

Fourth quarter 2021 debt issuance:

Fixed-rate 1.400 % – 2.850 % notes

10 unchanged sentences

dollar–denominated notes.

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.”

The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging.

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.

The Company recognized $ 2.6 billion, $ 2.8 billion and $ 3.2 billion of interest expense on its term debt for 2021, 2020 and 2019, respectively.

The future principal payments for the Company’s Notes as of September 25, 2021, are as follows (in millions):

5 unchanged sentences

Share Repurchase Program

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.

Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As of September 25, 2021, the Company was authorized to purchase up to $ 315 billion of the Company’s common stock under a share repurchase program (the “Program”).

During 2021, the Company repurchased 656 million shares of its common stock for $ 85.5 billion, including 36 million shares delivered under a $ 5.0 billion accelerated share repurchase agreement entered into in May 2021, bringing the total utilization under the Program to $ 254.1 billion as of September 25, 2021.

The Program does not obligate the Company to acquire any specific number of shares.

Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Shares of Common Stock

9 unchanged sentences

16,426,786 16,976,763 17,772,945

Note 8 – Comprehensive Income

The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S.

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 items, for 2020 and 2019 (in millions):

Comprehensive Income Components Financial Statement Line Items 2020 2019

Unrealized (gains)/losses on derivative instruments:

Foreign exchange contracts

Total net sales

$ ( 365 ) $ ( 206 )

Total cost of sales

( 584 ) ( 482 )

Other income/(expense), net

Interest rate contracts

Other income/(expense), net

( 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

The following table shows the changes in AOCI by component for 2020 and 2019 (in millions):

Cumulative Foreign

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

Balances as of September 28, 2019 ( 1,463 ) 172 707 ( 584 )

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)

Balances as of September 26, 2020 $ ( 1,375 ) $ ( 877 ) $ 1,846 $ ( 406 )

(1) Refer to Note 1, “Summary of Significant Accounting Policies” for more information on the Company’s adoption of ASU 2017-12 in 2020.

Note 9 – Benefit Plans

2014 Employee Stock Plan

In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”).

The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of RSUs, stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards.

The 2014 Employee Stock Plan (the “2014 Plan”) is a shareholder-approved plan that provides for broad-based equity grants to employees, including executive officers, and permits the granting of restricted stock units (“RSUs”), stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards.

RSUs granted under the 2014 Plan generally vest over four years , based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one -for-one basis.

1 unchanged sentence

RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld.

Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock.

DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs.

DERs are accumulated and paid when the underlying shares vest.

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.

All RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock.

DERs are subject to the same vesting and other terms and conditions as the underlying RSUs.

As of September 25, 2021, approximately 760 million shares were reserved for future issuance under the 2014 Plan.

Shares subject to outstanding awards under the 2003 Employee Stock 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.

Non-Employee Director Stock Plan

3 unchanged sentences

The Director Plan expires on November 12, 2027.

All RSUs granted under the Director Plan are entitled to DERs.

DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs.

DERs are accumulated and paid when the underlying shares vest.

All RSUs granted under the Director Plan are entitled to DERs, which are subject to the same vesting and other terms and conditions as the underlying RSUs.

As of September 25, 2021, approximately 4 million shares were reserved for future issuance under the Director Plan.

| 2020 Form 10-K | 51

Rule 10b5-1 Trading Plans

1 unchanged sentence

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.

An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired under the Company’s employee and director equity plans.

Cook, 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.

An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired under the Company’s employee and director equity plans.

| 2021 Form 10-K | 46

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85 % of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods.

The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85 % of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods.

An employee’s payroll deductions under the Purchase Plan are limited to 10 % of the employee’s compensation and employees may not purchase more than $ 25,000 of stock during any calendar year.

2 unchanged sentences

Under the 401(k) Plan, participating U.S.

employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($ 19,500 for calendar year 2020).

employees may defer a portion of their pretax earnings, up to the U.S.

Internal Revenue Service annual contribution limit ($ 19,500 for calendar year 2021).

The Company matches 50 % to 100 % of each employee’s contributions, depending on length of service, up to a maximum of 6 % of the employee’s eligible earnings.

26 unchanged sentences

Total payments for the employees’ tax obligations to taxing authorities were $ 6.8 billion, $ 3.9 billion and $ 3.0 billion in 2021, 2020 and 2019, respectively.

| 2020 Form 10-K | 52

Share-Based Compensation

5 unchanged sentences

As of September 25, 2021, the total unrecognized compensation cost related to outstanding RSUs and stock options was $ 13.6 billion, which the Company expects to recognize over a weighted-average period of 2.5 years.

| 2021 Form 10-K | 47

Note 10 – Commitments and Contingencies

16 unchanged sentences

Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources.

The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets and other electronic devices.

The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets, wearables and accessories.

Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.

5 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.

| 2020 Form 10-K | 53

Unconditional Purchase Obligations

The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”).

The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, Internet and telecommunication services, intellectual property licenses and content creation.

The Company’s unconditional purchase obligations primarily consist of payments for content creation, Internet and telecommunications services and supplier arrangements.

Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 25, 2021, are as follows (in millions):

1 unchanged sentence

Total $ 8,184

| 2021 Form 10-K | 48

Contingencies

1 unchanged sentence

The outcome of litigation is inherently uncertain.

When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter.

If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

2 unchanged sentences

(“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.

On April 11, 2018, a jury returned a verdict against the Company in the U.S.

District Court for the Eastern District of Texas (the “Eastern Texas District Court”).

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.

Court of Appeals for the Federal Circuit, which remanded the case back to the Eastern Texas District Court, where a retrial was held in October 2020.

The jury returned a verdict against the Company and awarded damages of $ 503 million, which the Company has appealed.

The Company has challenged the validity of the patents at issue in the retrial 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

Various civil litigation matters have been filed in state and federal courts in the U.S.

and in various international jurisdictions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2.

The claims seek monetary damages and other non-monetary relief.

On April 5, 2018, several U.S.

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

federal actions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2, were consolidated through a Multidistrict Litigation process into a single action in the U.S.

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

1 unchanged sentence

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.

On March 18, 2021, the Northern California District Court granted final approval of the Multidistrict Litigation settlement, which will result in an aggregate payment of $ 310 million to settle all claims.

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

1 unchanged sentence

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.

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

In post-trial proceedings, the damages portion of the verdict was set aside.

A retrial on damages was held in August 2021 and the jury in that proceeding awarded damages of $ 300 million against the Company, which the Company plans to appeal.

Note 11 – Segment Information and Geographic Data

9 unchanged sentences

The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”

| 2021 Form 10-K | 49

The Company evaluates the performance of its reportable segments based on net sales and operating income.

24 unchanged sentences

$ 9,817 $ 6,808 $ 6,055

| 2020 Form 10-K | 55

A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2021, 2020 and 2019 is as follows (in millions):

8 unchanged sentences

$ 108,949 $ 66,288 $ 63,930

| 2021 Form 10-K | 50

and China were the only countries that accounted for more than 10% of the Company’s net sales in 2021, 2020 and 2019.

15 unchanged sentences

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.

| 2021 Form 10-K | 51

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

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) :

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.

Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

| 2020 Form 10-K | 58

Report of Independent Registered Public Accounting Firm

78 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