UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 27,~~December 26, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36743

Apple Inc.

(Exact name of Registrant as specified in its charter)


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

One Apple Park Way
Cupertino, California						95014
(Address of principal executive offices)						(Zip Code)

(408) 996-1010

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	AAPL	The Nasdaq Stock Market LLC
1.000% Notes due 2022	—	The Nasdaq Stock Market LLC
1.375% Notes due 2024	—	The Nasdaq Stock Market LLC
0.000% Notes due 2025	—	The Nasdaq Stock Market LLC
0.875% Notes due 2025	—	The Nasdaq Stock Market LLC
1.625% Notes due 2026	—	The Nasdaq Stock Market LLC
2.000% Notes due 2027	—	The Nasdaq Stock Market LLC
1.375% Notes due 2029	—	The Nasdaq Stock Market LLC
3.050% Notes due 2029	—	The Nasdaq Stock Market LLC
0.500% Notes due 2031	—	The Nasdaq Stock Market LLC
3.600% Notes due 2042	—	The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

~~4,275,634,000~~16,788,096,000 shares of common stock were issued and outstanding as of ~~July 17, 2020~~January 15, 2021.

Apple Inc.

Form 10-Q

For the Fiscal Quarter Ended ~~June 27,~~December 26, 2020

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except number of shares which are reflected in thousands and per share amounts)


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Net sales:	Net sales:									Net sales:
Products	Products	$	46,529	$	42,354	$	170,598	$	162,354	Products	$	95,678	$	79,104
Services	Services	13,156		11,455		39,219		33,780		Services	15,761		12,715
Total net sales	Total net sales	59,685		53,809		209,817		196,134		Total net sales	111,439		91,819

Cost of sales:	Cost of sales:									Cost of sales:
Products	Products	32,693		29,473		116,089		109,758		Products	62,130		52,075
Services	Services	4,312		4,109		13,461		12,297		Services	4,981		4,527
Total cost of sales	Total cost of sales	37,005		33,582		129,550		122,055		Total cost of sales	67,111		56,602
Gross margin	Gross margin	22,680		20,227		80,267		74,079		Gross margin	44,328		35,217

Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	4,758		4,257		13,774		12,107		Research and development	5,163		4,451
Selling, general and administrative	Selling, general and administrative	4,831		4,426		14,980		13,667		Selling, general and administrative	5,631		5,197
Total operating expenses	Total operating expenses	9,589		8,683		28,754		25,774		Total operating expenses	10,794		9,648

Operating income	Operating income	13,091		11,544		51,513		48,305		Operating income	33,534		25,569
Other income/(expense), net	Other income/(expense), net	46		367		677		1,305		Other income/(expense), net	45		349
Income before provision for income taxes	Income before provision for income taxes	13,137		11,911		52,190		49,610		Income before provision for income taxes	33,579		25,918
Provision for income taxes	Provision for income taxes	1,884		1,867		7,452		8,040		Provision for income taxes	4,824		3,682
Net income	Net income	$	11,253	$	10,044	$	44,738	$	41,570	Net income	$	28,755	$	22,236

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	2.61	$	2.20	$	10.25	$	8.92	Basic	$	1.70	$	1.26
Diluted	Diluted	$	2.58	$	2.18	$	10.16	$	8.86	Diluted	$	1.68	$	1.25

Shares used in computing earnings per share:	Shares used in computing earnings per share:									Shares used in computing earnings per share:
Basic	Basic	4,312,573		4,570,633		4,362,571		4,660,175		Basic	16,935,119		17,660,160
Diluted	Diluted	4,354,788		4,601,380		4,404,695		4,691,759		Diluted	17,113,688		17,818,417

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Net income	Net income	$	11,253	$	10,044	$	44,738	$	41,570	Net income	$	28,755	$	22,236
Other comprehensive income/(loss):	Other comprehensive income/(loss):									Other comprehensive income/(loss):
Change in foreign currency translation, net of tax	Change in foreign currency translation, net of tax	194		(219)		(170)		(123)		Change in foreign currency translation, net of tax	549		202

Change in unrealized gains/losses on derivative instruments, net of tax:	Change in unrealized gains/losses on derivative instruments, net of tax:									Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivatives	Change in fair value of derivatives	78		(108)		46		(492)		Change in fair value of derivatives	(304)		111
Adjustment for net (gains)/losses realized and included in net income	Adjustment for net (gains)/losses realized and included in net income	(1,120)		(44)		(884)		(107)		Adjustment for net (gains)/losses realized and included in net income	(183)		(398)
Total change in unrealized gains/losses on derivative instruments	Total change in unrealized gains/losses on derivative instruments	(1,042)		(152)		(838)		(599)		Total change in unrealized gains/losses on derivative instruments	(487)		(287)

Change in unrealized gains/losses on marketable debt securities, net of tax:	Change in unrealized gains/losses on marketable debt securities, net of tax:									Change in unrealized gains/losses on marketable debt securities, net of tax:
Change in fair value of marketable debt securities	Change in fair value of marketable debt securities	3,098		1,253		898		3,405		Change in fair value of marketable debt securities	628		125
Adjustment for net (gains)/losses realized and included in net income	Adjustment for net (gains)/losses realized and included in net income	(11)		(22)		8		43		Adjustment for net (gains)/losses realized and included in net income	(105)		(10)
Total change in unrealized gains/losses on marketable debt securities	Total change in unrealized gains/losses on marketable debt securities	3,087		1,231		906		3,448		Total change in unrealized gains/losses on marketable debt securities	523		115

Total other comprehensive income/(loss)	Total other comprehensive income/(loss)	2,239		860		(102)		2,726		Total other comprehensive income/(loss)	585		30
Total comprehensive income	Total comprehensive income	$	13,492	$	10,904	$	44,636	$	44,296	Total comprehensive income	$	29,340	$	22,266

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 2

Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except number of shares which are reflected in thousands and par value)


		June 27, 2020		September 28, 2019			December 26, 2020		September 26, 2020
ASSETS:	ASSETS:									ASSETS:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	33,383	$	48,844	Cash and cash equivalents	$	36,010	$	38,016
Marketable securities	Marketable securities	59,642		51,713		Marketable securities	40,816		52,927
Accounts receivable, net	Accounts receivable, net	17,882		22,926		Accounts receivable, net	27,101		16,120
Inventories	Inventories	3,978		4,106		Inventories	4,973		4,061
Vendor non-trade receivables	Vendor non-trade receivables	14,193		22,878		Vendor non-trade receivables	31,519		21,325
Other current assets	Other current assets	10,987		12,352		Other current assets	13,687		11,264
Total current assets	Total current assets	140,065		162,819		Total current assets	154,106		143,713

Non-current assets:	Non-current assets:					Non-current assets:
Marketable securities	Marketable securities	100,592		105,341		Marketable securities	118,745		100,887
Property, plant and equipment, net	Property, plant and equipment, net	35,687		37,378		Property, plant and equipment, net	37,933		36,766
Other non-current assets	Other non-current assets	41,000		32,978		Other non-current assets	43,270		42,522
Total non-current assets	Total non-current assets	177,279		175,697		Total non-current assets	199,948		180,175
Total assets	Total assets	$	317,344	$	338,516	Total assets	$	354,054	$	323,888

LIABILITIES AND SHAREHOLDERS’ EQUITY:	LIABILITIES AND SHAREHOLDERS’ EQUITY:									LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	35,325	$	46,236	Accounts payable	$	63,846	$	42,296
Other current liabilities	Other current liabilities	35,005		37,720		Other current liabilities	48,504		42,684
Deferred revenue	Deferred revenue	6,313		5,522		Deferred revenue	7,395		6,643
Commercial paper and repurchase agreements		11,166		5,980
Commercial paper						Commercial paper	5,000		4,996
Term debt	Term debt	7,509		10,260		Term debt	7,762		8,773
Total current liabilities	Total current liabilities	95,318		105,718		Total current liabilities	132,507		105,392

Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Term debt	Term debt	94,048		91,807		Term debt	99,281		98,667
Other non-current liabilities	Other non-current liabilities	55,696		50,503		Other non-current liabilities	56,042		54,490
Total non-current liabilities	Total non-current liabilities	149,744		142,310		Total non-current liabilities	155,323		153,157
Total liabilities	Total liabilities	245,062		248,028		Total liabilities	287,830		258,549

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,283,939 and 4,443,236 shares issued and outstanding, respectively		48,696		45,174
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,823,263 and 16,976,763 shares issued and outstanding, respectively						Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,823,263 and 16,976,763 shares issued and outstanding, respectively	51,744		50,779
Retained earnings	Retained earnings	24,136		45,898		Retained earnings	14,301		14,966
Accumulated other comprehensive income/(loss)	Accumulated other comprehensive income/(loss)	(550)		(584)		Accumulated other comprehensive income/(loss)	179		(406)
Total shareholders’ equity	Total shareholders’ equity	72,282		90,488		Total shareholders’ equity	66,224		65,339
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	317,344	$	338,516	Total liabilities and shareholders’ equity	$	354,054	$	323,888

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 3

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions, except per share amounts)


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Total shareholders’ equity, beginning balances	Total shareholders’ equity, beginning balances	$	78,425	$	105,860	$	90,488	$	107,147	Total shareholders’ equity, beginning balances	$	65,339	$	90,488

Common stock and additional paid-in capital:	Common stock and additional paid-in capital:									Common stock and additional paid-in capital:
Beginning balances	Beginning balances	48,032		42,801		45,174		40,201		Beginning balances	50,779		45,174
Common stock issued	Common stock issued	—		1		430		391		Common stock issued	0		2
Common stock withheld related to net share settlement of equity awards	Common stock withheld related to net share settlement of equity awards	(1,071)		(958)		(2,123)		(1,885)		Common stock withheld related to net share settlement of equity awards	(1,101)		(951)
Share-based compensation	Share-based compensation	1,735		1,527		5,215		4,664		Share-based compensation	2,066		1,747
Ending balances	Ending balances	48,696		43,371		48,696		43,371		Ending balances	51,744		45,972

Retained earnings:	Retained earnings:									Retained earnings:
Beginning balances	Beginning balances	33,182		64,558		45,898		70,400		Beginning balances	14,966		45,898
Net income	Net income	11,253		10,044		44,738		41,570		Net income	28,755		22,236
Dividends and dividend equivalents declared	Dividends and dividend equivalents declared	(3,611)		(3,580)		(10,528)		(10,605)		Dividends and dividend equivalents declared	(3,547)		(3,485)
Common stock withheld related to net share settlement of equity awards	Common stock withheld related to net share settlement of equity awards	(688)		(336)		(1,320)		(944)		Common stock withheld related to net share settlement of equity awards	(1,873)		(536)
Common stock repurchased	Common stock repurchased	(16,000)		(16,962)		(54,516)		(49,198)		Common stock repurchased	(24,000)		(20,000)
Cumulative effects of changes in accounting principles		—		—		(136)		2,501
Cumulative effect of change in accounting principle										Cumulative effect of change in accounting principle	0		(136)
Ending balances	Ending balances	24,136		53,724		24,136		53,724		Ending balances	14,301		43,977

Accumulated other comprehensive income/(loss):	Accumulated other comprehensive income/(loss):									Accumulated other comprehensive income/(loss):
Beginning balances	Beginning balances	(2,789)		(1,499)		(584)		(3,454)		Beginning balances	(406)		(584)
Other comprehensive income/(loss)	Other comprehensive income/(loss)	2,239		860		(102)		2,726		Other comprehensive income/(loss)	585		30
Cumulative effects of changes in accounting principles		—		—		136		89
Cumulative effect of change in accounting principle										Cumulative effect of change in accounting principle	0		136
Ending balances	Ending balances	(550)		(639)		(550)		(639)		Ending balances	179		(418)

Total shareholders’ equity, ending balances	Total shareholders’ equity, ending balances	$	72,282	$	96,456	$	72,282	$	96,456	Total shareholders’ equity, ending balances	$	66,224	$	89,531

Dividends and dividend equivalents declared per share or RSU	Dividends and dividend equivalents declared per share or RSU	$	0.82	$	0.77	$	2.36	$	2.23	Dividends and dividend equivalents declared per share or RSU	$	0.205	$	0.1925

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 4

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)


		Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Cash, cash equivalents and restricted cash, beginning balances	Cash, cash equivalents and restricted cash, beginning balances	$	50,224	$	25,913	Cash, cash equivalents and restricted cash, beginning balances	$	39,789	$	50,224
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	44,738		41,570		Net income	28,755		22,236
Adjustments to reconcile net income to cash generated by operating activities:	Adjustments to reconcile net income to cash generated by operating activities:					Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization	Depreciation and amortization	8,354		9,368		Depreciation and amortization	2,666		2,816
Share-based compensation expense	Share-based compensation expense	5,105		4,569		Share-based compensation expense	2,020		1,710
Deferred income tax expense/(benefit)		182		(38)
Deferred income tax benefit						Deferred income tax benefit	(58)		(349)
Other	Other	(94)		(340)		Other	25		(142)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	5,149		9,013		Accounts receivable, net	(10,945)		2,015
Inventories	Inventories	10		496		Inventories	(950)		(28)
Vendor non-trade receivables	Vendor non-trade receivables	8,685		13,483		Vendor non-trade receivables	(10,194)		3,902
Other current and non-current assets	Other current and non-current assets	(6,760)		693		Other current and non-current assets	(3,526)		(7,054)
Accounts payable	Accounts payable	(10,787)		(19,804)		Accounts payable	21,670		(1,089)
Deferred revenue	Deferred revenue	1,649		(776)		Deferred revenue	1,341		985
Other current and non-current liabilities	Other current and non-current liabilities	3,867		(8,753)		Other current and non-current liabilities	7,959		5,514
Cash generated by operating activities	Cash generated by operating activities	60,098		49,481		Cash generated by operating activities	38,763		30,516
Investing activities:	Investing activities:					Investing activities:
Purchases of marketable securities	Purchases of marketable securities	(96,606)		(21,902)		Purchases of marketable securities	(39,800)		(37,416)
Proceeds from maturities of marketable securities	Proceeds from maturities of marketable securities	54,865		26,783		Proceeds from maturities of marketable securities	25,177		19,740
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities	39,760		49,516		Proceeds from sales of marketable securities	9,344		7,280
Payments for acquisition of property, plant and equipment	Payments for acquisition of property, plant and equipment	(5,525)		(7,718)		Payments for acquisition of property, plant and equipment	(3,500)		(2,107)
Payments made in connection with business acquisitions, net	Payments made in connection with business acquisitions, net	(1,473)		(611)		Payments made in connection with business acquisitions, net	(9)		(958)
Purchases of non-marketable securities		(210)		(632)
Proceeds from non-marketable securities		58		1,526
Other	Other	(689)		(268)		Other	204		(207)
Cash generated by/(used in) investing activities		(9,820)		46,694
Cash used in investing activities						Cash used in investing activities	(8,584)		(13,668)
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of common stock	Proceeds from issuance of common stock	430		391		Proceeds from issuance of common stock	0		2
Payments for taxes related to net share settlement of equity awards	Payments for taxes related to net share settlement of equity awards	(3,234)		(2,626)		Payments for taxes related to net share settlement of equity awards	(2,861)		(1,379)
Payments for dividends and dividend equivalents	Payments for dividends and dividend equivalents	(10,570)		(10,640)		Payments for dividends and dividend equivalents	(3,613)		(3,539)
Repurchases of common stock	Repurchases of common stock	(55,171)		(49,453)		Repurchases of common stock	(24,775)		(20,706)
Proceeds from issuance of term debt, net	Proceeds from issuance of term debt, net	10,635		—		Proceeds from issuance of term debt, net	0		2,210
Repayments of term debt	Repayments of term debt	(12,629)		(5,500)		Repayments of term debt	(1,000)		(1,000)
Proceeds from/(Repayments of) commercial paper, net	Proceeds from/(Repayments of) commercial paper, net	31		(2,026)		Proceeds from/(Repayments of) commercial paper, net	22		(979)
Proceeds from repurchase agreements		5,165		—

Other	Other	(120)		(83)		Other	(22)		(16)
Cash used in financing activities	Cash used in financing activities	(65,463)		(69,937)		Cash used in financing activities	(32,249)		(25,407)
Increase/(Decrease) in cash, cash equivalents and restricted cash		(15,185)		26,238
Decrease in cash, cash equivalents and restricted cash						Decrease in cash, cash equivalents and restricted cash	(2,070)		(8,559)
Cash, cash equivalents and restricted cash, ending balances	Cash, cash equivalents and restricted cash, ending balances	$	35,039	$	52,151	Cash, cash equivalents and restricted cash, ending balances	$	37,719	$	41,665
Supplemental cash flow disclosure:	Supplemental cash flow disclosure:					Supplemental cash flow disclosure:
Cash paid for income taxes, net	Cash paid for income taxes, net	$	8,410	$	11,795	Cash paid for income taxes, net	$	1,787	$	4,393
Cash paid for interest	Cash paid for interest	$	2,275	$	2,563	Cash paid for interest	$	619	$	771

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 5

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The condensed consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September ~~28, 2019~~26, 2020 (the ~~“2019~~“2020 Form 10-K”).

The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. ~~A 14th~~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 ~~2020~~2021 and ~~2019~~2020 span 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 4-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

~~Leases~~Financial Instruments – Credit Losses

At the beginning of the first quarter of ~~2020,~~2021, the Company adopted the Financial Accounting Standards Board’s ~~(the “FASB”)~~ Accounting Standards Update ~~(“ASU”)~~ No. ~~2016-02,~~2016-13, ~~Leases~~Financial Instruments – Credit Losses (Topic ~~842)~~326): Measurement of Credit Losses on Financial Instruments (“ASU ~~2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”~~2016-13”), 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~~measurement 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 liabilitiesexpected credit losses on ~~its Condensed Consolidated Balance Sheet.~~

~~Hedging~~

~~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.certain financial instruments. The Company adopted ASU ~~2017-12~~2016-13 utilizing the modified retrospective transition method. ~~Upon~~The adoption of ASU 2016-13 did not have a material impact on 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.Company’s condensed consolidated financial statements.

~~Apple Inc. | Q3 2020 Form 10-Q | 6~~

Earnings Per Share

The following table shows the computation of basic and diluted earnings per share for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (net income in millions and shares in thousands):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Numerator:	Numerator:									Numerator:
Net income	Net income	$	11,253	$	10,044	$	44,738	$	41,570	Net income	$	28,755	$	22,236

Denominator:	Denominator:									Denominator:
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	4,312,573		4,570,633		4,362,571		4,660,175		Weighted-average basic shares outstanding	16,935,119		17,660,160
Effect of dilutive securities	Effect of dilutive securities	42,215		30,747		42,124		31,584		Effect of dilutive securities	178,569		158,257
Weighted-average diluted shares	Weighted-average diluted shares	4,354,788		4,601,380		4,404,695		4,691,759		Weighted-average diluted shares	17,113,688		17,818,417

Basic earnings per share	Basic earnings per share	$	2.61	$	2.20	$	10.25	$	8.92	Basic earnings per share	$	1.70	$	1.26
Diluted earnings per share	Diluted earnings per share	$	2.58	$	2.18	$	10.16	$	8.86	Diluted earnings per share	$	1.68	$	1.25

Potentially dilutive securities representing 1.5 million and 20.5 million shares of common stock were excluded from the computation of diluted earnings per share for the three- and nine-month periods ended June 29, 2019, respectively, because their effect would have been antidilutive.

Apple Inc. | Q1 2021 Form 10-Q | 6

Note 2 – Revenue Recognition

Net sales consist of revenue from the sale of iPhone^®, Mac^®, iPad^®, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.

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”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.

The Company has identified up to 3 performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud^®, Siri^® and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.

~~Apple Inc. | Q3 2020 Form 10-Q | 7~~

For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.

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

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.

Deferred Revenue

As of ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, the Company had total deferred revenue of ~~$9.8~~$11.6 billion and ~~$8.1~~$10.2 billion, respectively. As of ~~June 27,~~December 26, 2020, the Company expects ~~65%~~64% of total deferred revenue to be realized in less than a year, 26% within one-to-two years, 7%8% within two-to-three years and 2% in greater than three years.

Apple Inc. | Q1 2021 Form 10-Q | 7

Disaggregated Revenue

Net sales disaggregated by significant products and services for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 were as follows (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
iPhone⁽¹⁾	iPhone⁽¹⁾	$	26,418	$	25,986	$	111,337	$	109,019	iPhone (1)	$	65,597	$	55,957
Mac ⁽¹⁾	Mac ⁽¹⁾	7,079		5,820		19,590		18,749		Mac (1)	8,675		7,160
iPad⁽¹⁾	iPad⁽¹⁾	6,582		5,023		16,927		16,624		iPad (1)	8,435		5,977
Wearables, Home and Accessories ⁽¹⁾⁽²⁾	Wearables, Home and Accessories ⁽¹⁾⁽²⁾	6,450		5,525		22,744		17,962		Wearables, Home and Accessories (1)(2)	12,971		10,010
Services ⁽³⁾	Services ⁽³⁾	13,156		11,455		39,219		33,780		Services (3)	15,761		12,715
Total net sales ⁽⁴⁾	Total net sales ⁽⁴⁾	$	59,685	$	53,809	$	209,817	$	196,134	Total net sales (4)	$	111,439	$	91,819

(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®~~AirPods®, Apple ~~TV®~~TV®, Apple ~~Watch®~~Watch®, ~~Beats®~~Beats® products, ~~HomePod®~~HomePod®, iPod ~~touch®~~touch® and Apple-branded and third-party accessories.

(3)Services net sales include sales from the Company’s advertising, AppleCare®, digital content ~~stores and streaming services, AppleCare®, Advertising~~ and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TVTV+SM+ services, which are bundled in the sales price of certain products.

(4)Includes ~~$2.1~~$2.5 billion of revenue recognized in the three months ended June 27, 2020 that was included in deferred revenue as of March 28, 2020, $2.0 billion of revenue recognized in the three months ended June 29, 2019 that was included in deferred revenue as of March 30, 2019, $4.0 billion of revenue recognized in the nine months ended June 27,December 26, 2020 that was included in deferred revenue as of September ~~28, 2019,~~26, 2020 and ~~$4.9~~$1.9 billion of revenue recognized in the ~~nine~~three months ended ~~June 29,~~December 28, 2019 that was included in deferred revenue as of September ~~29, 2018.~~28, 2019.

The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019.

~~Apple Inc. | Q3 2020 Form 10-Q | 8~~

Note 3 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables show the Company’s cash and marketable securities by significant investment category as of ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 (in millions):

~~June 27, 2020~~

Adjusted
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

Cash and
Cash
Equivalents

Current
Marketable
Securities

~~Non-CurrentMarketable Securities~~

~~Cash~~

~~20,253~~

—

~~20,253~~

—

~~Level 1~~ ⁽¹⁾:

~~Money market funds~~

~~7,013~~

—

~~7,013~~

—

~~Subtotal~~

~~7,013~~

—

~~7,013~~

—

~~Level 2~~ ⁽²⁾:

~~U.S. Treasury securities~~

~~23,207~~

~~394~~

—

~~23,601~~

~~1,767~~

~~11,346~~

~~10,488~~

~~U.S. agency securities~~

~~7,129~~

~~(2)~~

~~7,136~~

~~2,737~~

~~4,340~~

~~Non-U.S. government securities~~

~~19,324~~

~~255~~

~~(272)~~

~~19,307~~

~~4,062~~

~~15,244~~

~~Certificates of deposit and time deposits~~

~~10,247~~

—

~~10,247~~

~~3,324~~

~~6,787~~

~~136~~

~~Commercial paper~~

~~12,105~~

—

~~12,105~~

~~936~~

~~11,169~~

—

~~Corporate debt securities~~

~~78,747~~

~~1,672~~

~~(280)~~

~~80,139~~

~~22,581~~

~~57,528~~

~~Municipal securities~~

~~964~~

—

~~984~~

—

~~941~~

~~Mortgage- and asset-backed securities~~

~~12,530~~

~~322~~

~~(20)~~

~~12,832~~

—

~~917~~

~~11,915~~

~~Subtotal~~

~~164,253~~

~~2,672~~

~~(574)~~

~~166,351~~

~~6,117~~

~~59,642~~

~~100,592~~

~~Total~~ ⁽³⁾

~~191,519~~

~~2,672~~

~~(574)~~

~~193,617~~

~~33,383~~

~~59,642~~

~~100,592~~


	December 26, 2020
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	18,729	$	0	$	0	$	18,729	$	18,729	$	0	$	0

Level 1 (1): Money market funds	6,312		0		0		6,312		6,312		0		0



Level 2 (2):
U.S. Treasury securities	21,939		270		(6)		22,203		3,227		8,527		10,449
U.S. agency securities	8,698		9		(1)		8,706		1,000		3,319		4,387
Non-U.S. government securities	20,185		395		(67)		20,513		100		2,874		17,539
Certificates of deposit and time deposits	8,002		0		0		8,002		5,009		2,623		370
Commercial paper	8,620		0		0		8,620		1,632		6,988		0
Corporate debt securities	83,042		2,155		(44)		85,153		1		16,117		69,035
Municipal securities	1,004		20		0		1,024		0		94		930
Mortgage- and asset-backed securities	16,051		281		(23)		16,309		0		274		16,035
Subtotal	167,541		3,130		(141)		170,530		10,969		40,816		118,745

Total (3)	$	192,582	$	3,130	$	(141)	$	195,571	$	36,010	$	40,816	$	118,745

September 28, 2019
Adjusted
Cost Unrealized
Gains Unrealized
Losses Fair
Value Cash and
Cash
Equivalents Current
Marketable
Securities Non-Current
Marketable
Securities
Cash $ 12,204 $ — $ — $ 12,204 $ 12,204 $ — $ —
Level 1 ⁽¹⁾:
Money market funds 15,897 — — 15,897 15,897 — —
Subtotal 15,897 — — 15,897 15,897 — —
Level 2 ⁽²⁾:
U.S. Treasury securities 30,293 33 (62) 30,264 6,165 9,817 14,282
U.S. agency securities 9,767 1 (3) 9,765 6,489 2,249 1,027
Non-U.S. 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
Subtotal 176,876 1,202 (281) 177,797 20,743 51,713 105,341
Total ⁽³⁾
$ 204,977 $ 1,202 $ (281) $ 205,898 $ 48,844 $ 51,713 $ 105,341

Apple Inc. | Q1 2021 Form 10-Q | 8


	September 26, 2020
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	17,773	$	0	$	0	$	17,773	$	17,773	$	0	$	0

Level 1 (1): Money market funds	2,171		0		0		2,171		2,171		0		0



Level 2 (2):
U.S. Treasury securities	28,439		331		0		28,770		8,580		11,972		8,218
U.S. agency securities	8,604		8		0		8,612		2,009		3,078		3,525
Non-U.S. government securities	19,361		275		(186)		19,450		255		3,329		15,866
Certificates of deposit and time deposits	10,399		0		0		10,399		4,043		6,246		110
Commercial paper	11,226		0		0		11,226		3,185		8,041		0
Corporate debt securities	76,937		1,834		(175)		78,596		0		19,687		58,909
Municipal securities	1,001		22		0		1,023		0		139		884
Mortgage- and asset-backed securities	13,520		314		(24)		13,810		0		435		13,375
Subtotal	169,487		2,784		(385)		171,886		18,072		52,927		100,887

Total (3)	$	189,431	$	2,784	$	(385)	$	191,830	$	38,016	$	52,927	$	100,887

(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.

(3)As of ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, total marketable securities included ~~$18.3~~$19.5 billion and ~~$18.9~~$18.6 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements. ~~Additionally, as of June 27, 2020, $5.3 billion of marketable securities were pledged as collateral under repurchase agreements (refer to Note 6, “Debt”).~~

~~Apple Inc. | Q3 2020 Form 10-Q | 9~~

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 Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. 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 June 27, 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 ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, the Company’s non-marketable equity securities had a carrying value of ~~$2.8~~$2.5 billion and ~~$2.9~~$2.8 billion, respectively.

Restricted Cash

A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows as of ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 is as follows (in millions):


		June 27, 2020		September 28, 2019			December 26, 2020		September 26, 2020
Cash and cash equivalents	Cash and cash equivalents	$	33,383	$	48,844	Cash and cash equivalents	$	36,010	$	38,016
Restricted cash included in other current assets		29		23
Restricted cash included in other non-current assets		1,627		1,357
Restricted cash						Restricted cash	1,709		1,773
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	35,039	$	50,224	Cash, cash equivalents and restricted cash	$	37,719	$	39,789

The Company’s restricted cash primarily consisted of cash to support the Company’s iPhone Upgrade Program. Substantially all of the Company’s restricted cash was included in other non-current assets in the Condensed Consolidated Balance Sheets.

Apple Inc. | Q1 2021 Form 10-Q | 9

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. 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. 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. As of ~~June 27,~~December 26, 2020, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 22 years.

~~Apple Inc. | Q3 2020 Form 10-Q | 10~~

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.

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 designates these instruments as either cash flow or fair value hedges. As of ~~June 27,~~December 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~~accumulated other comprehensive income/(loss) (“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 other income/(expense), net (“OI&E”) in the same period as the related income or expense is recognized. ~~Generally, for~~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 other comprehensive income/(loss) (“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.

Apple Inc. | Q1 2021 Form 10-Q | 10

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 Condensed 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 $82 million and $128 million for the three months ended December 26, 2020 and December 28, 2019, respectively. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI. Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $119 million and $373 million for the three- and nine-month periods ended June 27, 2020, respectively.

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.

~~Apple Inc. | Q3 2020 Form 10-Q | 11~~

The Company records all derivatives in the Condensed 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 ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 (in millions):


		June 27, 2020											December 26, 2020
		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value			Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets ⁽¹⁾:	Derivative assets ⁽¹⁾:							Derivative assets (1):
Foreign exchange contracts	Foreign exchange contracts	$	1,247	$	172	$	1,419	Foreign exchange contracts	$	524	$	780	$	1,304
Interest rate contracts	Interest rate contracts	$	1,612	$	—	$	1,612	Interest rate contracts	$	1,443	$	0	$	1,443

Derivative liabilities ⁽²⁾:	Derivative liabilities ⁽²⁾:							Derivative liabilities (2):
Foreign exchange contracts	Foreign exchange contracts	$	1,757	$	277	$	2,034	Foreign exchange contracts	$	2,332	$	1,314	$	3,646


		September 28, 2019											September 26, 2020
		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value			Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets⁽¹⁾:	Derivative assets⁽¹⁾:							Derivative assets (1):
Foreign exchange contracts	Foreign exchange contracts	$	1,798	$	323	$	2,121	Foreign exchange contracts	$	749	$	303	$	1,052
Interest rate contracts	Interest rate contracts	$	685	$	—	$	685	Interest rate contracts	$	1,557	$	0	$	1,557

Derivative liabilities ⁽²⁾:	Derivative liabilities ⁽²⁾:							Derivative liabilities (2):
Foreign exchange contracts	Foreign exchange contracts	$	1,341	$	160	$	1,501	Foreign exchange contracts	$	1,561	$	485	$	2,046
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 Condensed 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 Condensed Consolidated Balance Sheets.

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

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1211

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedges in OCI and the Condensed Consolidated Statements of Operations for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Gains/(Losses) recognized in OCI – included in effectiveness assessment:	Gains/(Losses) recognized in OCI – included in effectiveness assessment:									Gains/(Losses) recognized in OCI – included in effectiveness assessment:
Cash flow hedges:	Cash flow hedges:									Cash flow hedges:
Foreign exchange contracts	Foreign exchange contracts	$	366	$	(147)	$	175	$	(689)	Foreign exchange contracts	$	(191)	$	271
Interest rate contracts	Interest rate contracts	(6)		—		(72)		—		Interest rate contracts	54		0
Total	Total	$	360	$	(147)	$	103	$	(689)	Total	$	(137)	$	271

Net investment hedges:	Net investment hedges:									Net investment hedges:
Foreign currency debt	Foreign currency debt	$	(20)	$	(32)	$	15	$	(55)	Foreign currency debt	$	0	$	24

Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:	Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:									Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:
Cash flow hedges:	Cash flow hedges:									Cash flow hedges:
Foreign exchange contracts	Foreign exchange contracts	$	1,389	$	53	$	1,063	$	69	Foreign exchange contracts	$	314	$	491
Interest rate contracts	Interest rate contracts	(3)		(2)		(6)		(5)		Interest rate contracts	(3)		(2)
Total	Total	$	1,386	$	51	$	1,057	$	64	Total	$	311	$	489

Amounts excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI were losses of ~~$220~~$138 million and ~~$51~~$89 million for the ~~three-~~three months ended December 26, 2020 and ~~nine-month periods ended June 27, 2020,~~December 28, 2019, respectively.

The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 and as of ~~June 27,~~December 26, 2020 and September 26, 2020 (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Gains/(Losses) on derivative instruments ⁽¹⁾:	Gains/(Losses) on derivative instruments ⁽¹⁾:									Gains/(Losses) on derivative instruments (1):
Foreign exchange contracts	Foreign exchange contracts	$	(675)	$	(136)	$	(422)	$	509	Foreign exchange contracts	$	(753)	$	(183)
Interest rate contracts	Interest rate contracts	57		671		1,185		1,793		Interest rate contracts	(167)		(162)
Total	Total	$	(618)	$	535	$	763	$	2,302	Total	$	(920)	$	(345)

Gains/(Losses) related to hedged items ⁽¹⁾:	Gains/(Losses) related to hedged items ⁽¹⁾:									Gains/(Losses) related to hedged items (1):
Marketable securities	Marketable securities	$	675	$	136	$	422	$	(508)	Marketable securities	$	752	$	183
Fixed-rate debt	Fixed-rate debt	(57)		(671)		(1,185)		(1,793)		Fixed-rate debt	167		162
Total	Total	$	618	$	(535)	$	(763)	$	(2,301)	Total	$	919	$	345

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1312


	June 27, 2020
~~Carrying amounts of hedged assets/(liabilities):~~
~~Marketable securities~~ ⁽²⁾	$	~~15,736~~
~~Fixed-rate debt~~ ⁽³⁾	$	~~(21,104)~~

~~Cumulative hedging adjustments included in the carrying amounts of hedged items:~~
~~Marketable securities carrying amount increases/(decreases)~~	$	~~(146)~~
~~Fixed-rate debt carrying amount (increases)/decreases~~	$	~~(1,612)~~


	December 26, 2020		September 26, 2020
Carrying amounts of hedged assets/(liabilities):
Marketable securities (2)	$	17,009	$	16,270
Fixed-rate debt (3)	$	(20,866)	$	(21,033)

Cumulative hedging adjustments included in the carrying amounts of hedged items:
Marketable securities carrying amount increases/(decreases)	$	956	$	493
Fixed-rate debt carrying amount (increases)/decreases	$	(1,374)	$	(1,541)

(1)Gains and losses related to fair value hedges are included in OI&E in the Condensed 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 Condensed Consolidated Balance ~~Sheet.~~Sheets

(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 Condensed Consolidated Balance ~~Sheet.~~Sheets.

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 ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 (in millions):


		June 27, 2020						September 28, 2019							December 26, 2020				September 26, 2020
		Notional Amount		Credit Risk Amount		Notional Amount		Credit Risk Amount			Notional Amount		Credit Risk Amount		Notional Amount		Credit Risk Amount
Instruments designated as accounting hedges:	Instruments designated as accounting hedges:									Instruments designated as accounting hedges:
Foreign exchange contracts	Foreign exchange contracts	$	52,845	$	1,247	$	61,795	$	1,798	Foreign exchange contracts	$	71,191	$	524	$	57,410	$	749
Interest rate contracts	Interest rate contracts	$	19,500	$	1,612	$	31,250	$	685	Interest rate contracts	$	20,900	$	1,443	$	20,700	$	1,557

Instruments not designated as accounting hedges:	Instruments not designated as accounting hedges:									Instruments not designated as accounting hedges:
Foreign exchange contracts	Foreign exchange contracts	$	50,208	$	172	$	76,868	$	323	Foreign exchange contracts	$	123,267	$	780	$	88,636	$	303

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 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 Condensed Consolidated Balance Sheets. As of ~~June 27,~~December 26, 2020, ~~and~~the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $215 million. As of September ~~28, 2019,~~26, 2020, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was ~~$1.2 billion~~$875 million. The Company includes gross collateral posted and ~~$1.6 billion, respectively, which were included~~received in other current assets and other current liabilities in the Condensed Consolidated Balance ~~Sheets.~~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 ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, 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 ~~$3.3~~$3.5 billion and ~~$2.7~~$2.8 billion, respectively, resulting in net derivative liabilities of ~~$197~~$684 million and ~~$407~~$312 million, respectively.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1413

Accounts Receivable

Trade Receivables

The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.

As of both ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, the Company had 0 customers that individually represented 10% or more of total trade receivables. The Company’s cellular network carriers accounted for ~~32% and 51%~~41% of total trade receivables as of ~~June 27, 2020 and September 28, 2019, respectively.~~December 26, 2020.

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 purchases these components directly from suppliers. As of ~~June 27,~~December 26, 2020, ~~the Company had 3 vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 49%, 18% and 11%. As of September 28, 2019,~~ the Company had 2 vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for ~~59%~~61% and 14%. As of September 26, 2020, the Company had 2 vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57%, and 11%.

Note 4 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s condensed consolidated financial statement details as of ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 (in millions):

Property, Plant and Equipment, Net


		June 27, 2020		September 28, 2019			December 26, 2020		September 26, 2020
Land and buildings	Land and buildings	$	18,068	$	17,085	Land and buildings	$	18,885	$	17,952
Machinery, equipment and internal-use software	Machinery, equipment and internal-use software	72,982		69,797		Machinery, equipment and internal-use software	76,224		75,291
Leasehold improvements	Leasehold improvements	9,867		9,075		Leasehold improvements	10,384		10,283
Gross property, plant and equipment	Gross property, plant and equipment	100,917		95,957		Gross property, plant and equipment	105,493		103,526
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(65,230)		(58,579)		Accumulated depreciation and amortization	(67,560)		(66,760)
Total property, plant and equipment, net	Total property, plant and equipment, net	$	35,687	$	37,378	Total property, plant and equipment, net	$	37,933	$	36,766

Other Non-Current Liabilities


		June 27, 2020		September 28, 2019			December 26, 2020		September 26, 2020
Long-term taxes payable	Long-term taxes payable	$	28,188	$	29,545	Long-term taxes payable	$	28,170	$	28,170
Other non-current liabilities	Other non-current liabilities	27,508		20,958		Other non-current liabilities	27,872		26,320
Total other non-current liabilities	Total other non-current liabilities	$	55,696	$	50,503	Total other non-current liabilities	$	56,042	$	54,490

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1514

Other Income/(Expense), Net

The following table shows the detail of OI&E for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Interest and dividend income	Interest and dividend income	$	901	$	1,190	$	2,995	$	3,855	Interest and dividend income	$	747	$	1,045
Interest expense	Interest expense	(697)		(866)		(2,239)		(2,766)		Interest expense	(638)		(785)
Other income/(expense), net	Other income/(expense), net	(158)		43		(79)		216		Other income/(expense), net	(64)		89
Total other income/(expense), net	Total other income/(expense), net	$	46	$	367	$	677	$	1,305	Total other income/(expense), net	$	45	$	349

Note 5 – Income Taxes

Uncertain Tax Positions

As of ~~June 27,~~December 26, 2020, the total amount of gross unrecognized tax benefits was ~~$16.2~~$17.1 billion, of which ~~$8.6~~$9.0 billion, if recognized, would impact the Company’s effective tax rate. The Company had accrued ~~$1.3~~$1.6 billion of gross interest and penalties related to income tax matters as of ~~June 27,~~December 26, 2020.

The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign ~~jurisdictions.~~jurisdictions. The U.S. Internal Revenue Service concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 ~~remain~~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~~much as ~~$4.8~~$4.1 billion.

European Commission State Aid Decision

On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of 2 subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. 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. ~~The~~On September 25, 2020, the European Commission appealed the General Court’s ~~judgment is~~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 ~~appeal by~~any foreign tax credit limitations in the ~~European Commission.~~U.S. Tax Cuts and Jobs Act of 2017.

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 ~~June 27,~~December 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.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 1615

Note 6 – Debt

Commercial Paper ~~and Repurchase Agreements~~

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of both ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, the Company had ~~$6.0~~$5.0 billion of Commercial Paper outstanding, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was ~~0.77%~~0.10% and ~~2.24%~~0.62% as of ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):

Nine Months Ended
June 27,
2020 June 29,
2019
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net $ 401 $ (3,720)
Maturities greater than 90 days:
Proceeds from commercial paper 5,373 12,977
Repayments of commercial paper (5,743) (11,283)
Proceeds from/(Repayments of) commercial paper, net (370) 1,694
Total proceeds from/(repayments of) commercial paper, net $ 31 $ (2,026)

In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”). Due to the Company’s continuing involvement with the marketable securities, the Company accounts for its Repos as collateralized borrowings. As of June 27, 2020, the Company had $5.2 billion of Repo liabilities outstanding with maturities of less than three months, and had pledged $5.3 billion of marketable securities as collateral.


	Three Months Ended
	December 26, 2020		December 28, 2019
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net	$	1,439	$	(175)

Maturities greater than 90 days:
Proceeds from commercial paper	780		1,317
Repayments of commercial paper	(2,197)		(2,121)
Repayments of commercial paper, net	(1,417)		(804)

Total proceeds from/(repayments of) commercial paper, net	$	22	$	(979)

Term Debt

As of ~~June 27,~~December 26, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of ~~$100.1~~$105.9 billion (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of ~~June 27,~~December 26, 2020 and September ~~28, 2019:~~26, 2020:

Maturities
(calendar year) June 27, 2020 September 28, 2019
Amount
(in millions) Effective
Interest Rate Amount
(in millions) Effective
Interest Rate
2013 – 2019 debt issuances:
Floating-rate notes 2021 – 2022 $ 2,250 0.80% – 1.49% $ 4,250 2.25% – 3.28%
Fixed-rate 0.375% – 4.650% notes 2020 – 2049 87,055 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 2025 – 2031 2,260 0.03% – 0.56% — — %
Third quarter 2020 debt issuance of $8.5 billion:
Fixed-rate 0.750% – 2.650% notes 2023 – 2050 8,500 0.84% – 2.72% — — %
Total term debt 100,065 101,679
Unamortized premium/(discount) and issuance costs, net (279) (224)
Hedge accounting fair value adjustments 1,771 612
Less: Current portion of term debt (7,509) (10,260)
Total non-current portion of term debt $ 94,048 $ 91,807

~~Apple Inc. | Q3 2020 Form 10-Q | 17~~


	Maturities (calendar year)	December 26, 2020			September 26, 2020
		Amount (in millions)		Effective Interest Rate	Amount (in millions)		Effective Interest Rate
2013 – 2020 debt issuances:
Floating-rate notes	2021 – 2022	$	2,250	0.56% – 1.34%	$	2,250	0.60% – 1.39%
Fixed-rate 0.000% – 4.650% notes	2021 – 2060	103,613		0.03% – 4.78%	103,828		0.03% – 4.78%
Total term debt		105,863			106,078

Unamortized premium/(discount) and issuance costs, net		(305)			(314)
Hedge accounting fair value adjustments		1,485			1,676
Less: Current portion of term debt		(7,762)			(8,773)
Total non-current portion of term debt		$	99,281		$	98,667

To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. 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 the third quarter of 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 ~~$664~~$628 million and ~~$2.1 billion~~$757 million of interest cost on its term debt for the ~~three-~~three months ended December 26, 2020 and ~~nine-month periods ended June 27, 2020, respectively. The Company recognized $790 million and $2.4 billion of interest cost on its term debt for the three- and nine-month periods ended June 29,~~December 28, 2019, respectively.

As of ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, the fair value of the Company’s Notes, based on Level 2 inputs, was ~~$110.8~~$117.2 billion and ~~$107.5~~$117.1 billion, respectively.

Apple Inc. | Q1 2021 Form 10-Q | 16

Note 7 – Shareholders’ Equity

Share Repurchase Program

As of ~~June 27,~~December 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 ~~$150.6~~$192.6 billion had been utilized. During the ~~nine~~three months ended ~~June 27,~~December 26, 2020, the Company repurchased ~~186.4~~200 million shares of its common stock for $54.5 billion, including 35.2 million shares delivered under a $10.0 billion November 2019 accelerated share repurchase arrangement (“ASR”) and 15.2 million shares initially delivered under a $6.0 billion May 2020 ASR.$24.0 billion. 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”).

Under the Company’s ASRs, financial institutions deliver shares of the Company’s common stock during the purchase period of each ASR in exchange for an up-front payment. The total number of shares ultimately delivered under the May 2020 ASR, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of the Company’s common stock during the purchase period, which will end in or before August 2020. The shares received are retired in the periods they are delivered, and the up-front payment is accounted for as a reduction to retained earnings in the Company’s Condensed Consolidated Statement of Shareholders’ Equity in the period the payment is made.

~~Common Stock Split~~

On July 30, 2020, the Company announced a 4-for-one split of its common stock to shareholders of record as of the close of business on August 24, 2020. Trading of the Company’s common stock will begin on a split-adjusted basis on August 31, 2020.

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 hedges, and unrealized gains and losses on marketable debt securities classified as available-for-sale.

~~Apple Inc. | Q3 2020 Form 10-Q | 18~~

The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line items, for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):


			Three Months Ended						Nine Months Ended											Three Months Ended
Comprehensive Income Components	Comprehensive Income Components	Financial Statement Line Items	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		Comprehensive Income Components			Financial Statement Line Items		December 26, 2020		December 28, 2019
Unrealized (gains)/losses on derivative instruments:	Unrealized (gains)/losses on derivative instruments:										Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts	Foreign exchange contracts	Total net sales	$	(270)	$	(68)	$	(333)	$	(102)	Foreign exchange contracts			Total net sales		$	104	$	(97)
		Total cost of sales	(362)		13		(521)		(438)					Total cost of sales		245		(171)
		Other income/(expense), net	(760)		3		(212)		451					Other income/(expense), net		(628)		(223)
Interest rate contracts	Interest rate contracts	Other income/(expense), net	3		2		6		5		Interest rate contracts			Other income/(expense), net		3		2
			(1,389)		(50)		(1,060)		(84)							(276)		(489)
Unrealized (gains)/losses on marketable debt securities	Unrealized (gains)/losses on marketable debt securities	Other income/(expense), net	(14)		(28)		10		55		Unrealized (gains)/losses on marketable debt securities			Other income/(expense), net		(118)		(13)
Total amounts reclassified from AOCI	Total amounts reclassified from AOCI				$	(1,403)	$	(78)	$	(1,050)		$	(29)		Total amounts reclassified from AOCI			$	(394)	$	(502)

The following table shows the changes in AOCI by component for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 (in millions):

Cumulative Foreign
Currency Translation Unrealized Gains/Losses
on Derivative Instruments Unrealized Gains/Losses
on Marketable Debt Securities Total
Balances as of September 28, 2019 $ (1,463) $ 172 $ 707 $ (584)
Other comprehensive income/(loss) before reclassifications (167) 32 1,167 1,032
Amounts reclassified from AOCI — (1,060) 10 (1,050)
Tax effect (3) 190 (271) (84)
Other comprehensive income/(loss) (170) (838) 906 (102)
Cumulative effect of change in accounting principle ⁽¹⁾
— 136 — 136
Balances as of June 27, 2020 $ (1,633) $ (530) $ 1,613 $ (550)

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


	Cumulative Foreign Currency Translation		Unrealized Gains/Losses on Derivative Instruments		Unrealized Gains/Losses on Marketable Debt Securities		Total
Balances as of September 26, 2020	$	(1,375)	$	(877)	$	1,846	$	(406)
Other comprehensive income/(loss) before reclassifications	549		(294)		708		963
Amounts reclassified from AOCI	0		(276)		(118)		(394)
Tax effect	0		83		(67)		16
Other comprehensive income/(loss)	549		(487)		523		585
Balances as of December 26, 2020	$	(826)	$	(1,364)	$	2,369	$	179

Note 9 – Benefit Plans

Stock Plans

The Company had ~~203.3~~713 million shares reserved for future issuance under its stock plans as of ~~June 27,~~December 26, 2020. ~~Restricted stock units (“RSUs”)~~RSUs granted under the Company’s stock plans generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a 1-for-one basis. RSUs granted under the Company’s stock plans reduce the number of shares available for grant under the plans by a factor of 2 times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the plans utilizing a factor of 2 times the number of RSUs canceled or shares withheld.

Apple Inc. | Q1 2021 Form 10-Q | 17

Rule 10b5-1 Trading Plans

During the three months ended ~~June 27,~~December 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. 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.

~~Apple Inc. | Q3 2020 Form 10-Q | 19~~

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the ~~nine~~three months ended ~~June 27,~~December 26, 2020 is as follows:


		Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value Per RSU		Aggregate Fair Value (in millions)			Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value Per RSU		Aggregate Fair Value (in millions)
Balance as of September 28, 2019		81,517	$	169.18
Balance as of September 26, 2020							Balance as of September 26, 2020	310,778	$	51.58
RSUs granted	RSUs granted	37,815	$	229.58			RSUs granted	75,959	$	112.75
RSUs vested	RSUs vested	(37,076)	$	161.71			RSUs vested	(68,565)	$	44.91
RSUs canceled	RSUs canceled	(3,122)	$	190.50			RSUs canceled	(2,819)	$	61.05
Balance as of June 27, 2020		79,134	$	200.70	$	27,984
Balance as of December 26, 2020							Balance as of December 26, 2020	315,353	$	67.68	$	41,617

The fair value as of the respective vesting dates of RSUs was ~~$5.0~~$8.5 billion and ~~$9.8 billion~~ ~~for the three- and nine-month periods ended June 27, 2020, respectively, and was $3.7 billion and $8.1~~$4.2 billion for the ~~three-~~three months ended December 26, 2020 and ~~nine-month periods ended June 29,~~December 28, 2019, respectively.

Share-Based Compensation

The following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of Operations for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Share-based compensation expense	Share-based compensation expense	$	1,698	$	1,496	$	5,105	$	4,569	Share-based compensation expense	$	2,020	$	1,710
Income tax benefit related to share-based compensation expense	Income tax benefit related to share-based compensation expense	$	(740)	$	(502)	$	(1,942)	$	(1,583)	Income tax benefit related to share-based compensation expense	$	(1,624)	$	(758)

As of ~~June 27,~~December 26, 2020, the total unrecognized compensation cost related to outstanding RSUs and stock options was ~~$13.4~~$18.2 billion, which the Company expects to recognize over a weighted-average period of ~~2.7~~2.9 years.

Note 10 – Commitments and Contingencies

Accrued Warranty and Guarantees

The following table shows changes in the Company’s accrued warranties and related costs for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Beginning accrued warranty and related costs	Beginning accrued warranty and related costs	$	3,923	$	3,487	$	3,570	$	3,692	Beginning accrued warranty and related costs	$	3,354	$	3,570
Cost of warranty claims	Cost of warranty claims	(576)		(912)		(2,180)		(2,823)		Cost of warranty claims	(723)		(915)
Accruals for product warranty	Accruals for product warranty	557		548		2,514		2,254		Accruals for product warranty	1,493		1,218
Ending accrued warranty and related costs	Ending accrued warranty and related costs	$	3,904	$	3,123	$	3,904	$	3,123	Ending accrued warranty and related costs	$	4,124	$	3,873

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.~~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. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within net sales.

Apple Inc. | Q1 2021 Form 10-Q | 18

Concentrations in the Available Sources of Supply of Materials and Product

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. 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.

~~Apple Inc. | Q3 2020 Form 10-Q | 20~~

The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.

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. and Ireland.

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,~~content creation, Internet and ~~telecommunication~~telecommunications services ~~intellectual property licenses~~ and ~~content creation.~~supplier arrangements. As of ~~June 27,~~December 26, 2020, the Company’s total future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year were ~~$9.2~~$8.1 billion.

Contingencies

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. 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. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters:

VirnetX

VirnetX, Inc. (“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~~in the U.S. District Court for the Eastern District of ~~$503 million.~~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.~~Eastern Texas District Court, ~~for the Eastern District of Texas,~~ where ~~it is scheduled for~~ a re-trial was held in ~~August~~October 2020. The jury returned a verdict against the Company and awarded damages of $503 million, which the Company intends to appeal. 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.

Apple Inc. | Q1 2021 Form 10-Q | 19

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. 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. On November 18, 2020, the Company reached a settlement with a multi-state group of attorneys general. Under the terms of the settlement, the Company has agreed to pay an aggregate amount of $113 million to resolve civil, statutory 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

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.

Optis

~~Apple Inc. | Q3~~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, ~~Form 10-Q | 21~~

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

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. 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. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the ~~2019~~2020 Form 10-K.

The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.

Apple Inc. | Q1 2021 Form 10-Q | 20

The following table shows information by reportable segment for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (in millions):

Three Months Ended Nine Months Ended
June 27,
2020 June 29,
2019 June 27,
2020 June 29,
2019
Americas:
Net sales $ 27,018 $ 25,056 $ 93,858 $ 87,592
Operating income $ 7,974 $ 7,442 $ 28,327 $ 26,329
Europe:
Net sales $ 14,173 $ 11,925 $ 51,740 $ 45,342
Operating income $ 4,420 $ 3,687 $ 16,667 $ 14,371
Greater China:
Net sales $ 9,329 $ 9,157 $ 32,362 $ 32,544
Operating income $ 3,414 $ 3,221 $ 12,535 $ 12,142
Japan:
Net sales $ 4,966 $ 4,082 $ 16,395 $ 16,524
Operating income $ 2,114 $ 1,795 $ 7,128 $ 7,199
Rest of Asia Pacific:
Net sales $ 4,199 $ 3,589 $ 15,462 $ 14,132
Operating income $ 1,374 $ 1,155 $ 5,395 $ 4,811

~~Apple Inc. | Q3 2020 Form 10-Q | 22~~


	Three Months Ended
	December 26, 2020		December 28, 2019
Americas:
Net sales	$	46,310	$	41,367
Operating income	$	15,785	$	13,092

Europe:
Net sales	$	27,306	$	23,273
Operating income	$	9,589	$	7,719

Greater China:
Net sales	$	21,313	$	13,578
Operating income	$	8,530	$	5,363

Japan:
Net sales	$	8,285	$	6,223
Operating income	$	3,503	$	2,778

Rest of Asia Pacific:
Net sales	$	8,225	$	7,378
Operating income	$	2,953	$	2,731

A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 is as follows (in millions):

Three Months Ended Nine Months Ended
June 27,
2020 June 29,
2019 June 27,
2020 June 29,
2019
Segment operating income $ 19,296 $ 17,300 $ 70,052 $ 64,852
Research and development expense (4,758) (4,257) (13,774) (12,107)
Other corporate expenses, net (1,447) (1,499) (4,765) (4,440)
Total operating income $ 13,091 $ 11,544 $ 51,513 $ 48,305

~~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 ~~$381 million~~ ~~and $1.1 billion for the three- and nine-month periods ended June 27, 2020, respectively. Lease costs associated with variable payments on the Company’s leases were~~ ~~$1.8 billion and $6.6 billion for the three- and nine-month periods ended June 27, 2020, respectively.~~

~~For the three- and nine-month periods ended June 27, 2020, the Company made~~ ~~$388 million~~ ~~and $1.1 billion of fixed cash payments related to operating leases, respectively. Non-cash activities involving ROU assets obtained in exchange for lease liabilities were~~ ~~$403 million and $9.7 billion~~ ~~for the three- and nine-month periods ended June 27, 2020, respectively, including the impact of adopting the new leases standard in the first quarter of 2020.~~

~~The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of June 27, 2020 (in millions):~~

~~Lease-Related Assets and Liabilities~~

~~Financial Statement Line Items~~

June 27,
2020

~~Right-of-use assets:~~

~~Operating leases~~

~~Other non-current assets~~

~~8,164~~

~~Finance leases~~

~~Property, plant and equipment, net~~

~~625~~

~~Total right-of-use assets~~

~~8,789~~

~~Lease liabilities:~~

~~Operating leases~~

~~Other current liabilities~~

~~1,353~~

~~Other non-current liabilities~~

~~7,460~~

~~Finance leases~~

~~Other current liabilities~~

~~Other non-current liabilities~~

~~630~~

~~Total lease liabilities~~

~~9,463~~


	Three Months Ended
	December 26, 2020		December 28, 2019
Segment operating income	$	40,360	$	31,683
Research and development expense	(5,163)		(4,451)
Other corporate expenses, net	(1,663)		(1,663)
Total operating income	$	33,534	$	25,569

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 23

~~Lease liability maturities as of June 27, 2020, are as follows (in millions):~~

Operating
Leases Finance
Leases Total
2020 (remaining three months) $ 309 $ 5 $ 314
2021 1,504 41 1,545
2022 1,356 39 1,395
2023 1,183 50 1,233
2024 994 27 1,021
Thereafter 4,511 920 5,431
Total undiscounted liabilities 9,857 1,082 10,939
Less: Imputed interest (1,044) (432) (1,476)
Total lease liabilities $ 8,813 $ 650 $ 9,463

~~The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of June 27, 2020 were~~ ~~10.5 years and2.2%~~, respectively. The Company’s lease discount rates are generally based on estimates of its incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.

~~As of June 27, 2020, the Company had~~ ~~$1.8 billion of future payments under additional leases,~~ ~~primarily for corporate facilities and retail space,~~ ~~that had not yet commenced. These leases will commence between~~ ~~2020 and 2022,~~ ~~with lease terms ranging from less than 1 year to 20 years.~~

~~Apple Inc. | Q3 2020 Form 10-Q | 24~~21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September ~~28, 2019~~26, 2020 (the ~~“2019~~“2020 Form 10-K”) ~~and Part II, Item 1A of this Form 10-Q, in each case~~ under the heading “Risk Factors.” The ~~following discussion should be read in conjunction with the 2019 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial~~Company assumes no obligation to revise or update any forward-looking statements ~~and accompanying notes included in Part I, Item 1 of this Form 10-Q. All~~for any reason, except as required by law.

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly owned subsidiaries, unless otherwise stated.

The ~~Company assumes no obligation to revise or update any forward-looking~~following discussion should be read in conjunction with the 2020 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements ~~for any reason, except as required by law.~~and accompanying notes included in Part I, Item 1 of this Form 10-Q.

Available Information

The Company periodically provides certain information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Quarterly Highlights

Business Seasonality and Product Introductions

The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction.

COVID-19 Update

~~During the second quarter of 2020, a novel strain of coronavirus (“COVID-19”) began spreading rapidly throughout the world, prompting~~The COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, ~~in response. Such measures included~~such as restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders. The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken by many countries in response have ~~adversely~~ affected and could in the future materially ~~adversely~~ impact the Company’s business, results of operations, financial condition and stock price.

During the ~~third~~first quarter of ~~2020,~~2021, aspects of the Company’s business continued to be ~~adversely~~ affected by the COVID-19 pandemic, with many of the Company’s retail stores, as well as channel partner points of sale, temporarily closed at various times, and the vast majority of the Company’s employees working remotely. The Company ~~is working~~has reopened some of its offices and retail stores, subject to operating restrictions to protect public health and the health and safety of employees and customers, and it continues to work on safely ~~re-opening~~reopening the remainder of its offices and retail stores, subject to local rules and regulations.

Demand for certain of the Company’s products and services was impacted throughout the third quarter of 2020. The most pronounced impact occurred in April 2020, with demand improving in May and June 2020 across all product categories and Services.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the ~~pandemic,~~pandemic; the ~~development~~availability, distribution and ~~availability~~effectiveness of ~~effective treatments and vaccines,~~vaccines; the imposition of protective public safety ~~measures,~~measures; and the impact of the pandemic on the global economy and demand for consumer products. Refer to Part I, Item 1A of the ~~2019~~2020 Form 10-K ~~and Part II, Item 1A of this Form 10-Q, in each case~~ under the heading “Risk Factors,” for more information.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 2522

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

~~Third~~First Quarter Fiscal ~~2020~~2021 Highlights

Total net sales increased ~~11%~~21% or ~~$5.9~~$19.6 billion during the ~~third~~first quarter of ~~2020~~2021 compared to the same quarter in ~~2019, primarily~~2020, driven by higher net sales ofin all Products and Services ~~iPad and Mac. The year-over-year increase in~~categories. Additionally, net sales ~~during the third quarter of 2020 reflected growth~~ in all of the Company’s geographic reportable segments ~~and product categories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on net sales~~grew during the ~~third~~first quarter of ~~2020.~~2021.

During the ~~third~~first quarter of ~~2020,~~2021, the Company released ~~a new~~ the following products and services:

•iPhone SE12, iPhone 12 mini, iPhone 12 Pro and ~~an updated~~iPhone 12 Pro Max, all with 5G technology;

•MacBook Air®, 13-inch MacBook Pro^®~~. The Company also announced iOS 14, iPadOS~~^® ~~14, macOS~~^® ~~Big Sur, watchOS~~^® 7 and ~~tvOS~~Mac mini^® ~~14, updates to its operating systems that are expected to be available in~~, all powered by M1, the ~~fall of 2020.~~Company’s first chip designed specifically for the Mac;

•An all-new iPad Air®;

•AirPods Max™, new over-ear wireless headphones, and HomePod mini™; and

•Apple Fitness+SM, a fitness subscription service.

The Company repurchased ~~$16.0~~$24.0 billion of its common stock and paid dividends and dividend equivalents of ~~$3.7~~$3.6 billion during the ~~third~~first quarter of ~~2020.~~2021.

Products and Services Performance

The following table shows net sales by category for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (dollars in millions):


		Three Months Ended										Nine Months Ended									Three Months Ended
		June 27, 2020		June 29, 2019		Change		June 27, 2020		June 29, 2019		Change			December 26, 2020		December 28, 2019		Change
Net sales by category:	Net sales by category:													Net sales by category:
iPhone⁽¹⁾	iPhone⁽¹⁾	$	26,418	$	25,986	2	%	$	111,337	$	109,019	2	%	iPhone (1)	$	65,597	$	55,957	17	%
Mac ⁽¹⁾	Mac ⁽¹⁾	7,079		5,820		22	%	19,590		18,749		4	%	Mac (1)	8,675		7,160		21	%
iPad⁽¹⁾	iPad⁽¹⁾	6,582		5,023		31	%	16,927		16,624		2	%	iPad (1)	8,435		5,977		41	%
Wearables, Home and Accessories ⁽¹⁾⁽²⁾	Wearables, Home and Accessories ⁽¹⁾⁽²⁾	6,450		5,525		17	%	22,744		17,962		27	%	Wearables, Home and Accessories (1)(2)	12,971		10,010		30	%
Services ⁽³⁾	Services ⁽³⁾	13,156		11,455		15	%	39,219		33,780		16	%	Services (3)	15,761		12,715		24	%
Total net sales	Total net sales	$	59,685	$	53,809	11	%	$	209,817	$	196,134	7	%	Total net sales	$	111,439	$	91,819	21	%

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

iPhone

iPhone net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019~~in 2020 due primarily to higher net sales from the successful launch of the Company’s four new iPhone ~~SE released during the third quarter~~models and a favorable mix of ~~2020. Year-over-year~~ iPhone sales.

Mac

Mac net sales increased during the first ~~nine months~~quarter of 2021 compared to the same quarter in 2020 due primarily to higher net sales of ~~iPhone 11, 11 Pro and 11 Pro Max.~~

~~Mac~~

~~Mac net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due to higher net sales of~~ MacBook ~~Pro~~Air and MacBook ~~Air~~^®~~. Year-over-year Mac net sales increased during the first nine months of 2020 due to higher net sales of MacBook~~ Pro.

iPad

iPad net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019 due primarily to higher net sales of iPad Pro~~^®~~. Year-over-year iPad net sales increased during the first nine months of~~in 2020 due primarily to higher net sales of iPad Air and iPad Pro^®.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 2623

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 due primarily to higher net sales of Apple Watch, accessories and AirPods.

Services

Services net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019 due primarily to higher net sales from the App Store, Video and Cloud Services. Year-over-year Services net sales increased during the first nine months of~~in 2020 due primarily to higher net sales from the App Store, ~~Advertising~~advertising and ~~AppleCare. Advertising net sales includes net sales from licensing arrangements and the Company’s advertising platforms.~~cloud services.

Segment Operating Performance

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. 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. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.~~��~~”

The following table shows net sales by reportable segment for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 (dollars in millions):


		Three Months Ended										Nine Months Ended									Three Months Ended
		June 27, 2020		June 29, 2019		Change		June 27, 2020		June 29, 2019		Change			December 26, 2020		December 28, 2019		Change
Net sales by reportable segment:	Net sales by reportable segment:													Net sales by reportable segment:
Americas	Americas	$	27,018	$	25,056	8	%	$	93,858	$	87,592	7	%	Americas	$	46,310	$	41,367	12	%
Europe	Europe	14,173		11,925		19	%	51,740		45,342		14	%	Europe	27,306		23,273		17	%
Greater China	Greater China	9,329		9,157		2	%	32,362		32,544		(1)	%	Greater China	21,313		13,578		57	%
Japan	Japan	4,966		4,082		22	%	16,395		16,524		(1)	%	Japan	8,285		6,223		33	%
Rest of Asia Pacific	Rest of Asia Pacific	4,199		3,589		17	%	15,462		14,132		9	%	Rest of Asia Pacific	8,225		7,378		11	%
Total net sales	Total net sales	$	59,685	$	53,809	11	%	$	209,817	$	196,134	7	%	Total net sales	$	111,439	$	91,819	21	%

Americas

Americas net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019~~in 2020 due primarily to higher net sales of Services, and iPad. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Americas net sales during the third quarter of 2020. Year-over-year Americas net sales increased during the first nine months of 2020 due primarily to higher net sales of ServicesiPhone and Wearables, Home and Accessories.

Europe

Europe net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter in 2020 due primarily to higher net sales of Wearables, Home and Accessories, iPhone and iPad.

Greater China

Greater China net sales increased during the first quarter of ~~2019~~2021 compared to the same quarter in 2020 due primarily to higher net sales of iPhone, iPad and Wearables, Home and Accessories. ~~Year-over-year Europe~~The strength of the Chinese renminbi relative to the U.S. dollar had a favorable impact on Greater China net sales during the first quarter of 2021.

Japan

Japan net sales increased during the first ~~nine months~~quarter of 2021 compared to the same quarter in 2020 due primarily to higher net sales of iPhone, and Wearables, Home and Accessories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Europe net sales during the third quarter and first nine months of 2020.

~~Greater China~~

Greater China net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPad and Services, partially offset by lower net sales of iPhone. Year-over-year Greater China net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Greater China net sales during the third quarter and first nine months of 2020.

~~Apple Inc. | Q3 2020 Form 10-Q | 27~~

~~Japan~~

Japan net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of Services, iPad and Mac. Year-over-year Japan net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories.iPad. The strength of the Japanese ~~Yen~~yen relative to the U.S. dollar had a favorable impact on Japan net sales during the first ~~nine months~~quarter of ~~2020.~~2021.

Apple Inc. | Q1 2021 Form 10-Q | 24

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019 due primarily to higher net sales of iPhone, iPad and Mac. Year-over-year Rest of Asia Pacific net sales increased during the first nine months of~~in 2020 due primarily to higher net sales of Services, iPad and Wearables, Home and ~~Accessories, iPhone and Services.~~Accessories. The ~~weakness~~movement of foreign currencies in ~~foreign currencies~~the Rest of Asia Pacific relative to the U.S. dollar had ~~an unfavorable~~a net favorable impact on ~~Rest of Asia Pacific~~ net sales during the ~~third~~first quarter ~~and first nine months~~ of ~~2020.~~2021.

Gross Margin

Products and Services gross margin and gross margin percentage for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 were as follows (dollars in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Gross margin:	Gross margin:									Gross margin:
Products	Products	$	13,836	$	12,881	$	54,509	$	52,596	Products	$	33,548	$	27,029
Services	Services	8,844		7,346		25,758		21,483		Services	10,780		8,188
Total gross margin	Total gross margin	$	22,680	$	20,227	$	80,267	$	74,079	Total gross margin	$	44,328	$	35,217


Gross margin percentage:	Gross margin percentage:									Gross margin percentage:
Products	Products	29.7	%	30.4	%	32.0	%	32.4	%	Products	35.1	%	34.2	%
Services	Services	67.2	%	64.1	%	65.7	%	63.6	%	Services	68.4	%	64.4	%
Total gross margin percentage	Total gross margin percentage	38.0	%	37.6	%	38.3	%	37.8	%	Total gross margin percentage	39.8	%	38.4	%

Products Gross Margin

Products gross margin increased during the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter ~~of 2019~~in 2020 due primarily to higher Products volume and ~~material cost savings, partially offset by~~ a different Products ~~mix and the weakness in foreign currencies relative to the U.S. dollar. Year-over-year~~mix. Products gross margin percentage ~~decreased~~increased during the ~~third~~first quarter of 2021 compared to the same quarter in 2020 due primarily to ~~a different Products mix and the weakness in foreign currencies relative to the U.S. dollar, partially offset by material cost savings and higher leverage.~~

Products gross margin increased during the first nine months of 2020 compared to the same period in 2019 due primarily to higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S. dollar. Year-over-year Products gross margin percentage decreased during the first nine months of 2020 due primarily to the weakness in foreign currencies relative to the U.S. dollar and a different Products mix, partially offset by higher leverage.

Services Gross Margin

Services gross margin increased during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 due primarily to higher Services net ~~sales.~~sales and a different Services mix. Services gross margin percentage increased during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 due primarily to a different Services mix and higher leverage, partially offset by higher Services costs.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the ~~2019~~2020 Form 10-K ~~and Part II, Item 1A of this Form 10-Q, in each case~~ under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and remain under downward pressure.

~~Apple Inc. | Q3 2020 Form 10-Q | 28~~

Operating Expenses

Operating expenses for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 were as follows (dollars in millions):


		Three Months Ended									Nine Months Ended										Three Months Ended
		June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019				December 26, 2020			December 28, 2019
Research and development	Research and development	$	4,758		$	4,257		$	13,774		$	12,107		Research and development	$	5,163		$	4,451
Percentage of total net sales	Percentage of total net sales	8		%	8		%	7		%	6		%	Percentage of total net sales	5		%	5		%
Selling, general and administrative	Selling, general and administrative	$	4,831		$	4,426		$	14,980		$	13,667		Selling, general and administrative	$	5,631		$	5,197
Percentage of total net sales	Percentage of total net sales	8		%	8		%	7		%	7		%	Percentage of total net sales	5		%	6		%
Total operating expenses	Total operating expenses	$	9,589		$	8,683		$	28,754		$	25,774		Total operating expenses	$	10,794		$	9,648
Percentage of total net sales	Percentage of total net sales	16		%	16		%	14		%	13		%	Percentage of total net sales	10		%	11		%

Apple Inc. | Q1 2021 Form 10-Q | 25

Research and Development

The growth in research and development (“R&D”) expense during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 was driven primarily by increases in headcount-related expenses. The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to the Company’s core business strategy.

Selling, General and Administrative

The growth in selling, general and administrative expense during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 was driven primarily by increases in headcount-related expenses ~~higher spending on marketing and advertising~~ and higher variable selling expenses.

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 was as follows (dollars in millions):


		Three Months Ended										Nine Months Ended									Three Months Ended
		June 27, 2020		June 29, 2019		Change		June 27, 2020		June 29, 2019		Change			December 26, 2020		December 28, 2019		Change
Interest and dividend income	Interest and dividend income	$	901	$	1,190			$	2,995	$	3,855			Interest and dividend income	$	747	$	1,045
Interest expense	Interest expense	(697)		(866)				(2,239)		(2,766)				Interest expense	(638)		(785)
Other income/(expense), net	Other income/(expense), net	(158)		43				(79)		216				Other income/(expense), net	(64)		89
Total other income/(expense), net	Total other income/(expense), net	$	46	$	367	(87)	%	$	677	$	1,305	(48)	%	Total other income/(expense), net	$	45	$	349	(87)	%

OI&E decreased during the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 compared to the same ~~periods~~quarter in ~~2019~~2020 due primarily to lower interest income and ~~impairments on~~an adjustment to the carrying value of a non-marketable ~~securities,~~security, partially offset by lower interest expense. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was ~~1.74%~~1.49% and ~~2.17% in the third quarter of 2020 and 2019, respectively, and 1.95% and 2.21%~~2.08% in the first ~~nine months~~quarter of ~~2020~~2021 and ~~2019,~~2020, respectively.

~~Apple Inc. | Q3 2020 Form 10-Q | 29~~

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the ~~three- and nine-month periods~~three months ended ~~June 27,~~December 26, 2020 and ~~June 29,~~December 28, 2019 were as follows (dollars in millions):


		Three Months Ended									Nine Months Ended										Three Months Ended
		June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019				December 26, 2020			December 28, 2019
Provision for income taxes	Provision for income taxes	$	1,884		$	1,867		$	7,452		$	8,040		Provision for income taxes	$	4,824		$	3,682
Effective tax rate	Effective tax rate	14.3		%	15.7		%	14.3		%	16.2		%	Effective tax rate	14.4		%	14.2		%
Statutory federal income tax rate	Statutory federal income tax rate	21		%	21		%	21		%	21		%	Statutory federal income tax rate	21		%	21		%

The Company’s effective tax rate for the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 was lower than the statutory federal income tax rate due primarily to lower ~~taxes~~tax rates on foreign earnings ~~including the impact of tax settlements,~~ and tax benefits from share-based compensation.

The Company’s effective tax rate for the ~~third~~first quarter of ~~2020~~2021 was ~~lower compared to the third quarter of 2019 due primarily to higher tax benefits from share-based compensation. The Company’s effective tax rate for the first nine months of 2020 was lower~~relatively flat compared to the same ~~period~~quarter in 2019 due primarily to the one-time adjustment of U.S. foreign tax credits in response to regulations issued by the U.S. Department of the Treasury in December 2019 and lower taxes on foreign earnings, including the impact of tax settlements.2020.

Apple Inc. | Q1 2021 Form 10-Q | 26

~~Recent Accounting Pronouncements~~

~~Financial Instruments~~

~~In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 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 will adopt ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of ~~June 27,~~December 26, 2020 and September ~~28, 2019~~26, 2020 and for the first ~~nine~~three months of ~~2020~~2021 and ~~2019~~2020 (in millions):


		June 27, 2020		September 28, 2019			December 26, 2020		September 26, 2020
Cash, cash equivalents and marketable securities ⁽¹⁾	Cash, cash equivalents and marketable securities ⁽¹⁾	$	193,617	$	205,898	Cash, cash equivalents and marketable securities (1)	$	195,571	$	191,830
Property, plant and equipment, net	Property, plant and equipment, net	$	35,687	$	37,378	Property, plant and equipment, net	$	37,933	$	36,766
Commercial paper and repurchase agreements		$	11,166	$	5,980
Commercial paper						Commercial paper	$	5,000	$	4,996
Total term debt	Total term debt	$	101,557	$	102,067	Total term debt	$	107,043	$	107,440
Working capital	Working capital	$	44,747	$	57,101	Working capital	$	21,599	$	38,321


		Nine Months Ended							Three Months Ended
		June 27, 2020		June 29, 2019			December 26, 2020		December 28, 2019
Cash generated by operating activities	Cash generated by operating activities	$	60,098	$	49,481	Cash generated by operating activities	$	38,763	$	30,516
Cash generated by/(used in) investing activities		$	(9,820)	$	46,694
Cash used in investing activities						Cash used in investing activities	$	(8,584)	$	(13,668)
Cash used in financing activities	Cash used in financing activities	$	(65,463)	$	(69,937)	Cash used in financing activities	$	(32,249)	$	(25,407)

(1)As of ~~June 27,~~December 26, 2020 and September ~~28, 2019,~~26, 2020, total marketable securities included ~~$18.3~~$19.5 billion and ~~$18.9~~$18.6 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) and other agreements. Additionally, as of June 27, 2020, $5.3 billion of marketable securities were pledged as collateral under repurchase agreements (refer to Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).

~~Apple Inc. | Q3 2020 Form 10-Q | 30~~

In connection with the State Aid Decision, as of ~~June 27,~~December 26, 2020, the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Further information regarding the State Aid Decision can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 5, “Income Taxes.”

The Company’s marketable securities investment portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

During the ~~nine~~three months ended ~~June 27,~~December 26, 2020, cash generated by operating activities of ~~$60.1~~$38.8 billion was a result of ~~$44.7~~$28.8 billion of net income, non-cash adjustments to net income of ~~$13.5~~$4.7 billion and an increase in the net change in operating assets and liabilities of ~~$1.8~~$5.4 billion. Cash used in investing activities of ~~$9.8~~$8.6 billion during the ~~nine~~three months ended ~~June 27,~~December 26, 2020 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of ~~$2.0~~$5.3 billion and cash used to acquire property, plant and equipment of ~~$5.5~~$3.5 billion. Cash used in financing activities of ~~$65.5~~$32.2 billion during the ~~nine~~three months ended ~~June 27,~~December 26, 2020 consisted primarily of cash used to repurchase common stock of ~~$55.2~~$24.8 billion, cash used to pay dividends and dividend equivalents of ~~$10.6~~$3.6 billion, cash used for taxes related to net share settlement of equity awards of $2.9 billion, and cash used to repay ~~or redeem~~ term debt of ~~$12.6~~$1.0 billion.

During the three months ended December 28, 2019, cash generated by operating activities of $30.5 billion was a result of $22.2 billion of net income, non-cash adjustments to net income of $4.0 billion and an increase in the net change in operating assets and liabilities of $4.2 billion. Cash used in investing activities of $13.7 billion during the three months ended December 28, 2019 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $10.4 billion and cash used to acquire property, plant and equipment of $2.1 billion. Cash used in financing activities of $25.4 billion during the three months ended December 28, 2019 consisted primarily of cash used to repurchase common stock of $20.7 billion, cash used to pay dividends and dividend equivalents of $3.5 billion and cash used to repay term debt of $1.0 billion, partially offset by net proceeds from the issuance of term debt of ~~$10.6 billion and proceeds from repurchase agreements of $5.2 billion.~~

During the nine months ended June 29, 2019, cash generated by operating activities of $49.5 billion was a result of $41.6 billion of net income and non-cash adjustments to net income of $13.6 billion, partially offset by a decrease in the net change in operating assets and liabilities of $5.6 billion. Cash generated by investing activities of $46.7 billion during the nine months ended June 29, 2019 consisted primarily of proceeds from sales and maturities of marketable securities, net of purchases, of $54.4 billion, partially offset by cash used to acquire property, plant and equipment of $7.7 billion. Cash used in financing activities of $69.9 billion during the nine months ended June 29, 2019 consisted primarily of cash used to repurchase common stock of $49.5 billion, cash used to pay dividends and dividend equivalents of $10.6 billion and cash used to repay term debt of $5.5$2.2 billion.

Debt

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of ~~June 27,~~December 26, 2020, the Company had ~~$6.0~~$5.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of ~~0.77%~~0.10% and maturities generally less than nine months.

Apple Inc. | Q1 2021 Form 10-Q | 27 ~~2020, the Company had $5.2 billion of Repo liabilities outstanding with maturities of less than three months, and had pledged $5.3 billion of marketable securities as collateral.~~

As of ~~June 27,~~December 26, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of ~~$100.1~~$105.9 billion (collectively the “Notes”). During the first ~~nine~~three months of ~~2020,~~2021, the Company ~~issued $10.6 billion and~~ repaid ~~or redeemed $12.6~~$1.0 billion of Notes. The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes. In addition, the Company has entered, and in the future may enter, into foreign currency swaps to manage foreign currency risk on the Notes.

Further information regarding the Company’s debt issuances and related hedging activity can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 3, “Financial Instruments” and Note 6, “Debt.”

Capital Return Program

As of ~~June 27,~~December 26, 2020, the Company’s quarterly cash dividend was ~~$0.82~~$0.205 per share. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

~~Apple Inc. | Q3 2020 Form 10-Q | 31~~

~~Common Stock Split~~

On July 30, 2020, the Company announced a four-for-one split of its common stock to shareholders of record as of the close of business on August 24, 2020. Trading of the Company’s common stock will begin on a split-adjusted basis on August 31, 2020.

Contractual Obligations

Leases

~~As of June 27, 2020, the~~The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space. The Company’s ~~total fixed lease payment obligations were $12.8 billion, of which $8.1 billion was included in~~retail store and other ~~non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company’s~~facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options. The Company’s total fixed lease payment obligation of $13.0 billion as of December 26, 2020 included future payments under leases that had commenced as of December 26, 2020, and were therefore recorded on the Company’s Condensed Consolidated Balance Sheet, as well as leases that had been signed but not yet commenced as of December 26, 2020.

Manufacturing Purchase Obligations

The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of ~~June 27,~~December 26, 2020, the Company expects to pay ~~$30.3~~$45.8 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

Other Purchase Obligations

The Company’s other purchase obligations primarily consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process equipment, and noncancelable obligations related to advertising, ~~licensing, R&D,~~content creation and Internet and telecommunications ~~services, content creation and other activities.~~services. As of ~~June 27,~~December 26, 2020, the Company had other purchase obligations of ~~$10.0~~$7.8 billion.

Deemed Repatriation Tax Payable

As of ~~June 27,~~December 26, 2020, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act (the “Act”) was $29.9 billion, of which $28.1 billion ~~and~~ was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company ~~plans to pay~~pays the deemed repatriation tax payable in installments in accordance with the Act.

Other Non-Current Liabilities

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

Apple Inc. | Q1 2021 Form 10-Q | 28

Critical Accounting Policies and Estimates

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

Note 1, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the ~~2019~~2020 Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the ~~2019~~2020 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the ~~2019~~2020 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the first ~~nine~~three months of ~~2020.~~2021. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the ~~2019~~2020 Form 10-K.

~~Apple Inc. | Q3 2020 Form 10-Q | 32~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of ~~June 27,~~December 26, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the ~~third~~first quarter of ~~2020,~~2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. The Company’s material legal proceedings are described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 10, “Commitments and Contingencies” under the heading “Contingencies.”

The outcome of litigation is inherently uncertain. 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. The Company settled certain matters during the ~~third~~first quarter of ~~2020~~2021 that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.

Item 1A. Risk Factors

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the ~~2019~~2020 Form 10-K ~~and Part II, Item 1A of the Form 10-Q for the quarter ended March 28, 2020 (the “second quarter 2020 Form 10-Q”), in each case~~ under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. ~~Except for the risk factor disclosed in Part II, Item 1A of the~~ ~~second quarter 2020 Form 10-Q, which is hereby incorporated by reference into this Part II, Item 1A of this Form 10-Q, there~~There have been no material changes to the Company’s risk factors since the ~~2019~~2020 Form 10-K.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 3329

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity during the three months ended ~~June 27,~~December 26, 2020 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):


Periods	Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)		Periods	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
March 29, 2020 to May 2, 2020:
September 27, 2020 to October 31, 2020:										September 27, 2020 to October 31, 2020:
Open market and privately negotiated purchases	Open market and privately negotiated purchases	—		$	—	—				Open market and privately negotiated purchases	25,810	$	116.23	25,810

May 3, 2020 to May 30, 2020:
November 2019 ASR		4,828		⁽²⁾		4,828
May 2020 ASR		15,155	⁽³⁾	⁽³⁾		15,155	⁽³⁾
November 1, 2020 to November 28, 2020:										November 1, 2020 to November 28, 2020:
Open market and privately negotiated purchases	Open market and privately negotiated purchases	20,953		$	310.22	20,953				Open market and privately negotiated purchases	87,247	$	117.48	87,247

May 31, 2020 to June 27, 2020:
November 29, 2020 to December 26, 2020:										November 29, 2020 to December 26, 2020:
Open market and privately negotiated purchases	Open market and privately negotiated purchases	10,380		$	337.20	10,380				Open market and privately negotiated purchases	86,632	$	124.09	86,632
Total	Total	51,316						$	74,353	Total	199,689				$	32,353

(1)As of ~~June 27,~~December 26, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a share repurchase program announced on April 30, 2020, of which ~~$150.6~~$192.6 billion had been utilized. The remaining ~~$74.4~~$32.4 billion in the table represents the amount available to repurchase shares under the authorized repurchase program as of ~~June 27,~~December 26, 2020. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

~~(2)~~In November 2019, the Company entered into an ASR to purchase up to $10.0 billion of the Company’s common stock. In May 2020, the purchase period for this ASR ended and an additional 4.8 million shares were delivered and retired. In total, 35.2 million shares were delivered under this ASR at an average repurchase price of $283.89.

~~(3)~~In May 2020, the Company entered into a new ASR to purchase up to $6.0 billion of the Company’s common stock. In exchange for up-front payments totaling $6.0 billion, the financial institutions that are party to the arrangement committed to deliver shares to the Company during the ASR’s purchase period, which will end in or before August 2020. The total number of shares ultimately delivered, and therefore the average price paid per share, will be determined at the end of the applicable purchase period based on the volume-weighted average price of the Company’s common stock during that period.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 3430

Item 6. Exhibits

Incorporated by Reference

Exhibit
Number
Exhibit Description Form Exhibit Filing Date/
Period End Date
4.1
Officer’s Certificate of the Registrant, dated as of May 11, 20 20 , including forms of global notes representing the 0 .7 5 0% Notes due 202 3 , 1.125 % Notes due 202 5 , 1.6 50% Notes due 20 30 and 2.65 0% Notes due 20 50 .
8-K 4.1 5/11/20
31.1*
Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2*
Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1**
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101* Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104* Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

Exhibit

Filing Date/
Period End Date

10.1*

Form of CEO Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of September 27, 2020.

10.2*

Form of CEO Performance Award Agreement under 2014 Employee Stock Plan effective as of September 27, 2020.

31.1*

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

31.2*

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

32.1**

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.

101*

Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

104*

Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

* Filed herewith.

** Furnished herewith.

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 3531

SIGNATURE

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

~~July 30, 2020~~January 27, 2021

Apple Inc.

By:

/s/ Luca Maestri

Luca Maestri

Senior Vice President,
Chief Financial Officer

Apple Inc. | ~~Q3 2020~~Q1 2021 Form 10-Q | 3632


	Operating Leases		Finance Leases		Total
2020 (remaining three months)	$	309	$	5	$	314
2021	1,504		41		1,545
2022	1,356		39		1,395
2023	1,183		50		1,233
2024	994		27		1,021
Thereafter	4,511		920		5,431
Total undiscounted liabilities	9,857		1,082		10,939
Less: Imputed interest	(1,044)		(432)		(1,476)
Total lease liabilities	$	8,813	$	650	$	9,463