UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~Form~~FORM 10-Q

(Mark One)

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

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

For the quarterly period ended ~~March 29,~~December 27, 2014

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

¨	~~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: ~~000-10030~~001-36743

~~APPLE INC.~~

LOGO

Apple Inc.

(Exact name of ~~Registrant~~registrant as specified in its charter)


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

1 Infinite Loop Cupertino, California		95014
(Address of principal executive offices)		(Zip Code)

(408) 996-1010

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No ¨

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


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Yes ¨ No x

~~861,381,000~~5,824,748,000 shares of common stock, par value $0.00001 per share, issued and outstanding as of ~~April 11, 2014~~January 9, 2015

Apple Inc.

Form 10-Q

For the Fiscal Quarter Ended ~~March 29,~~December 27, 2014

TABLE OF CONTENTS


			Page
Part I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
~~Item 4.~~	~~Controls and Procedures~~	37

~~Part II~~
~~Item 1.~~	~~Legal Proceedings~~	38
Item ~~1A.~~4.	~~Risk Factors~~Controls and Procedures	38

Part II
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4950
Item 3.	Defaults Upon Senior Securities	4950
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	4950
Item 6.	Exhibits	5051

PART I. I—FINANCIAL INFORMATION

Item 1.

Financial Statements

~~APPLE INC.~~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				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Net sales	$	45,646	$	43,603	$	103,240	$	98,115	$	74,599	$	57,594
Cost of sales		27,699		27,254		63,447		60,706		44,858		35,748

Gross margin		17,947		16,349		39,793		37,409		29,741		21,846


Operating expenses:
Research and development		1,422		1,119		2,752		2,129		1,895		1,330
Selling, general and administrative		2,932		2,672		5,985		5,512		3,600		3,053

Total operating expenses		4,354		3,791		8,737		7,641		5,495		4,383


Operating income		13,593		12,558		31,056		29,768		24,246		17,463
Other income/(expense), net		225		347		471		809		170		246

Income before provision for income taxes		13,818		12,905		31,527		30,577		24,416		17,709

Provision for income taxes		3,595		3,358		8,232		7,952		6,392		4,637

Net income	$	10,223	$	9,547	$	23,295	$	22,625	$	18,024	$	13,072


Earnings per share:
Basic	$	11.69	$	10.16	$	26.31	$	24.09	$	3.08	$	2.08
Diluted	$	11.62	$	10.09	$	26.16	$	23.90	$	3.06	$	2.07

Shares used in computing earnings per share:
Basic		874,757		939,629		885,415		939,273		5,843,082		6,272,504
Diluted		879,528		946,035		890,490		946,626		5,881,803		6,310,161

Cash dividends declared per common share	$	3.05	$	2.65	$	6.10	$	5.30	$	0.47	$	0.44

See accompanying Notes to Condensed Consolidated Financial Statements.

~~APPLE INC.~~Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Net income	$	10,223		$	9,547		$	23,295		$	22,625		$	18,024		$	13,072

Other comprehensive income/(loss):
Change in foreign currency translation, net of tax		(19	)		(51	)		(86	)		(77	)		(66	)		(67	)

Change in unrecognized gains/losses on derivative instruments:
Change in fair value of derivatives, net of tax		(109	)		457			104			603			1,982			213
Adjustment for net (gains)/losses realized and included in net income, net of tax		(13	)		42			59			154
Adjustment for net losses/(gains) realized and included in net income, net of tax														(565	)		72

Total change in unrecognized gains/losses on derivative instruments, net of tax		(122	)		499			163			757			1,417			285


Change in unrealized gains/losses on marketable securities:
Change in fair value of marketable securities, net of tax		235			(52	)		193			(118	)		(456	)		(42	)
Adjustment for net (gains)/losses realized and included in net income, net of tax		(39	)		(44	)		(50	)		(97	)
Adjustment for net losses/(gains) realized and included in net income, net of tax														(14	)		(11	)

Total change in unrealized gains/losses on marketable securities, net of tax		196			(96	)		143			(215	)		(470	)		(53	)


Total other comprehensive income/(loss)		55			352			220			465			881			165

Total comprehensive income	$	10,278		$	9,899		$	23,515		$	23,090		$	18,905		$	13,237

See accompanying Notes to Condensed Consolidated Financial Statements.

~~APPLE INC.~~Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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


	March 29, 2014			September 28, 2013				December 27, 2014		September 27, 2014
ASSETS:							ASSETS:
Current assets:
Cash and cash equivalents	$	18,949		$	14,259			$	19,478	$	13,844
Short-term marketable securities		22,401			26,287				12,985		11,233
Accounts receivable, less allowances of $88 and $99, respectively		9,700			13,102
Accounts receivable, less allowances of $87 and $86, respectively									16,709		17,460
Inventories		1,829			1,764				2,283		2,111
Deferred tax assets		4,014			3,453				5,046		4,318
Vendor non-trade receivables		6,120			7,539				13,267		9,759
Other current assets		7,528			6,882				13,635		9,806

Total current assets		70,541			73,286				83,403		68,531

Long-term marketable securities		109,239			106,215				145,492		130,162
Property, plant and equipment, net		15,120			16,597				20,392		20,624
Goodwill		2,055			1,577				4,629		4,616
Acquired intangible assets, net		3,928			4,179				4,370		4,142
Other assets		5,106			5,146				3,608		3,764

Total assets	$	205,989		$	207,000			$	261,894	$	231,839


LIABILITIES AND SHAREHOLDERS’ EQUITY:							LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	18,914		$	22,367			$	38,001	$	30,196
Accrued expenses		15,984			13,856				22,724		18,453
Deferred revenue		8,310			7,435				8,987		8,491
Commercial paper									3,899		6,308

Total current liabilities		43,208			43,658				73,611		63,448

Deferred revenue – non-current		3,164			2,625				3,480		3,031
Long-term debt		16,962			16,960				32,504		28,987
Other non-current liabilities		22,476			20,208				28,971		24,826

Total liabilities		85,810			83,451				138,566		120,292


Commitments and contingencies

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 1,800,000 shares authorized; 861,745 and 899,213 shares issued and outstanding, respectively		21,496			19,764
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,826,419 and 5,866,161 shares issued and outstanding, respectively									24,187		23,313
Retained earnings		98,934			104,256				97,178		87,152
Accumulated other comprehensive income/(loss)		(251	)		(471	)			1,963		1,082

Total shareholders’ equity		120,179			123,549				123,328		111,547


Total liabilities and shareholders’ equity	$	205,989		$	207,000			$	261,894	$	231,839

See accompanying Notes to Condensed Consolidated Financial Statements.

~~APPLE INC.~~Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)


	Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Cash and cash equivalents, beginning of the period	$	14,259		$	10,746		$	13,844		$	14,259

Operating activities:
Net income		23,295			22,625			18,024			13,072
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization		4,031			3,280			2,575			2,144
Share-based compensation expense		1,377			1,120			888			681
Deferred income tax expense		2,059			1,957			2,197			1,253
Changes in operating assets and liabilities:
Accounts receivable, net		3,401			3,846			751			(1,098	)
Inventories		(65	)		(454	)		(172	)		(358	)
Vendor non-trade receivables		1,419			1,510			(3,508	)		(3,459	)
Other current and non-current assets		14			1,269			(1,648	)		(319	)
Accounts payable		(2,375	)		(4,422	)		9,003			8,191
Deferred revenue		1,414			1,541			945			1,368
Other current and non-current liabilities		1,638			3,658			4,667			1,195

Cash generated by operating activities		36,208			35,930			33,722			22,670

Investing activities:
Purchases of marketable securities		(90,360	)		(81,163	)		(44,915	)		(48,397	)
Proceeds from maturities of marketable securities		10,869			9,243			2,807			5,556
Proceeds from sales of marketable securities		80,241			49,188			24,166			30,302
Payments made in connection with business acquisitions, net		(559	)		(299	)		(23	)		(525	)
Payments for acquisition of property, plant and equipment		(3,367	)		(4,325	)		(3,217	)		(1,985	)
Payments for acquisition of intangible assets		(163	)		(429	)		(48	)		(59	)
Other		(23	)		(93	)		65			5

Cash used in investing activities		(3,362	)		(27,878	)		(21,165	)		(15,103	)

Financing activities:
Proceeds from issuance of common stock		341			275			80			134
Excess tax benefits from equity awards		363			502			264			280
Taxes paid related to net share settlement of equity awards		(430	)		(588	)		(512	)		(365	)
Dividends and dividend equivalents paid		(5,430	)		(4,984	)		(2,801	)		(2,769	)
Repurchase of common stock		(23,000	)		(1,950	)		(5,030	)		(5,029	)
Proceeds from issuance of long-term debt, net								3,485			0
Repayments of commercial paper, net								(2,409	)		0

Cash used in financing activities		(28,156	)		(6,745	)		(6,923	)		(7,749	)


Increase in cash and cash equivalents		4,690			1,307
Increase/(decrease) in cash and cash equivalents								5,634			(182	)

Cash and cash equivalents, end of the period	$	18,949		$	12,053		$	19,478		$	14,077


Supplemental cash flow disclosure:
Cash paid for income taxes, net	$	5,369		$	4,258		$	3,869		$	3,387
Cash paid for interest	$	161		$	0		$	202		$	161

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, ~~peripherals,~~accessories, networking solutions and third-party digital content and applications. The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, the Company sells a variety of third-party iPhone, iPad, Mac and iPod compatible products, including application software, and various accessories through its online and retail stores. The Company sells to ~~consumers;~~consumers, small and mid-sized ~~businesses;~~businesses and education, enterprise and government customers.

Basis of Presentation and Preparation

The accompanying condensed consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation. In the first quarter of 2015, the Company changed its reportable operating segments and began allocating certain costs to its operating segments that were previously included in other corporate expenses. The Company has reclassified the corresponding prior period amounts to conform to the current period’s presentation as further described in Note 11, “Segment Information and Geographic Data.”

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended September ~~28, 2013,~~27, 2014, included in its Annual Report on Form 10-K (the ~~“2013~~“2014 Form 10-K”). The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters. The Company’s fiscal years ~~2014~~2015 and ~~2013~~2014 each include 52 weeks. Unless otherwise stated, references to particular years, quarters or months refer to the Company’s fiscal years ended in September and the associated quarters or months of those fiscal years.

During the first quarter of 2014, the Company adopted updated accounting standards that (i) required disclosure of additional information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component and (ii) required gross and net disclosures about offsetting assets and liabilities. The adoption of these updated standards only impacted the disclosures in the Notes to the Condensed Consolidated Financial Statements; accordingly, the adoption had no impact on the Company’s financial position or results of operations. The Company has provided these additional disclosures in this Form 10-Q in Note 8, “Comprehensive Income” and Note 2, “Financial Instruments,” respectively.

~~Revenue Recognition~~

In 2013, the Company’s combined best estimates of selling price (“ESPs”) for the unspecified software upgrade rights and the rights to receive the non-software services included with its qualifying hardware devices ranged from $5 to $25. Beginning in the first quarter of 2014, the Company adjusted the combined ESPs for Mac from $20 to $40 to reflect additions to unspecified software upgrade rights related to expansion of bundled essential software.

Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan, unvested restricted stock and unvested restricted stock units (“RSUs”). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table shows the computation of basic and diluted earnings per share for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 ~~(in thousands, except net~~(net income in millions and ~~per share amounts)~~shares in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Numerator:
Net income	$	10,223	$	9,547	$	23,295	$	22,625	$	18,024	$	13,072

Denominator:
Weighted-average shares outstanding		874,757		939,629		885,415		939,273		5,843,082		6,272,504
Effect of dilutive securities		4,771		6,406		5,075		7,353		38,721		37,657

Weighted-average diluted shares		879,528		946,035		890,490		946,626		5,881,803		6,310,161


Basic earnings per share	$	11.69	$	10.16	$	26.31	$	24.09	$	3.08	$	2.08
Diluted earnings per share	$	11.62	$	10.09	$	26.16	$	23.90	$	3.06	$	2.07

Potentially dilutive securities ~~the~~whose effect ~~of which~~ would have been antidilutive were not significant for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~the three- and six-month periods ended March 30,~~December 28, 2013. The Company excluded these securities from the computation of diluted earnings per share.

Note 2 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables show the Company’s cash andavailable-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term marketable securities as of ~~March 29,~~December 27, 2014 and September ~~28, 2013~~27, 2014 (in millions):

   March 29, 2014
   Adjusted
Cost    Unrealized
Gains    Unrealized
Losses    Fair
Value    Cash and
Cash
Equivalents    Short-Term
Marketable
Securities    Long-Term
Marketable
Securities
Cash
   $ 10,948       $ 0       $ 0       $ 10,948       $ 10,948       $ 0       $ 0
Level 1 (a):

Money market funds
   3,203       0       0       3,203       3,203       0       0
Mutual funds
   4,063       0       (213 )    3,850       0       3,850       0














Subtotal
   7,266       0       (213 )    7,053       3,203       3,850       0














Level 2 (b):

U.S. Treasury securities
   24,645       12       (26 )    24,631       1,359       5,445       17,827
U.S. agency securities
   10,766       5       (24 )    10,747       234       1,340       9,173
Non-U.S. government securities
   6,406       42       (109 )    6,339       10       480       5,849
Certificates of deposit and time deposits
   3,344       0       0       3,344       1,735       771       838
Commercial paper
   2,627       0       0       2,627       1,350       1,277       0
Corporate securities
   63,575       351       (145 )    63,781       110       8,373       55,298
Municipal securities
   4,117       32       (3 )    4,146       0       839       3,307
Mortgage- and asset-backed securities
   17,004       34       (65 )    16,973       0       26       16,947














Subtotal
   132,484       476       (372 )    132,588       4,798       18,551       109,239














Total
   $ 150,698       $ 476       $ (585 )    $ 150,589       $ 18,949       $ 22,401       $ 109,239

   September 28, 2013
   Adjusted
Cost    Unrealized
Gains    Unrealized
Losses    Fair
Value    Cash and
Cash
Equivalents    Short-Term
Marketable
Securities    Long-Term
Marketable
Securities
Cash
   $ 8,705       $ 0       $ 0       $ 8,705       $ 8,705       $ 0       $ 0
Level 1 (a):

Money market funds
   1,793       0       0       1,793       1,793       0       0
Mutual funds
   3,999       0       (197 )    3,802       0       3,802       0














Subtotal
   5,792       0       (197 )    5,595       1,793       3,802       0














Level 2 (b):

U.S. Treasury securities
   27,642       24       (47 )    27,619       431       7,554       19,634
U.S. agency securities
   16,878       12       (52 )    16,838       177       3,412       13,249
Non-U.S. government securities
   5,545       35       (137 )    5,443       50       313       5,080
Certificates of deposit and time deposits
   2,344       0       0       2,344       1,264       844       236
Commercial paper
   2,998       0       0       2,998       1,835       1,163       0
Corporate securities
   54,586       275       (252 )    54,609       0       8,077       46,532
Municipal securities
   6,257       45       (22 )    6,280       4       1,114       5,162
Mortgage- and asset-backed securities
   16,396       23       (89 )    16,330       0       8       16,322














Subtotal
   132,646       414       (599 )    132,461       3,761       22,485       106,215














Total
   $ 147,143       $ 414       $ (796 )    $ 146,761       $ 14,259       $ 26,287       $ 106,215


	December 27, 2014
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities

Cash	$	13,757	$	0	$	0		$	13,757	$	13,757	$	0	$	0

Level 1⁽¹⁾:
Money market funds		3,346		0		0			3,346		3,346		0		0
Mutual funds		2,544		0		(159	)		2,385		0		2,385		0

Subtotal		5,890		0		(159	)		5,731		3,346		2,385		0


Level 2⁽²⁾:
U.S. Treasury securities		35,107		16		(58	)		35,065		545		692		33,828
U.S. agency securities		6,788		2		(11	)		6,779		582		291		5,906
Non-U.S. government securities		6,498		58		(105	)		6,451		0		177		6,274
Certificates of deposit and time deposits		2,778		0		0			2,778		272		1,168		1,338
Commercial paper		1,159		0		0			1,159		879		280		0
Corporate securities		92,371		159		(720	)		91,810		97		7,932		83,781
Municipal securities		939		4		(1	)		942		0		0		942
Mortgage- and asset-backed securities		13,501		32		(50	)		13,483		0		60		13,423

Subtotal		159,141		271		(945	)		158,467		2,375		10,600		145,492


Total	$	178,788	$	271	$	(1,104	)	$	177,955	$	19,478	$	12,985	$	145,492


	September 27, 2014
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities

Cash	$	10,232	$	0	$	0		$	10,232	$	10,232	$	0	$	0

Level 1⁽¹⁾:
Money market funds		1,546		0		0			1,546		1,546		0		0
Mutual funds		2,531		1		(132	)		2,400		0		2,400		0

Subtotal		4,077		1		(132	)		3,946		1,546		2,400		0


Level 2⁽²⁾:
U.S. Treasury securities		23,140		15		(9	)		23,146		12		607		22,527
U.S. agency securities		7,373		3		(11	)		7,365		652		157		6,556
Non-U.S. government securities		6,925		69		(69	)		6,925		0		204		6,721
Certificates of deposit and time deposits		3,832		0		0			3,832		1,230		1,233		1,369
Commercial paper		475		0		0			475		166		309		0
Corporate securities		85,431		296		(241	)		85,486		6		6,298		79,182
Municipal securities		940		8		0			948		0		0		948
Mortgage- and asset-backed securities		12,907		26		(49	)		12,884		0		25		12,859

Subtotal		141,023		417		(379	)		141,061		2,066		8,833		130,162


Total	$	155,332	$	418	$	(511	)	$	155,239	$	13,844	$	11,233	$	130,162

~~(a)~~

⁽¹⁾

The fair value of Level 1 securities is estimated based on quoted prices in active markets for identical assets or liabilities.

~~(b)~~

⁽²⁾

The fair value of Level 2 securities is estimated 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.

The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The net realized gains or losses recognized by the Company related to such sales were not significant during the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013. The maturities of the Company’s long-term marketable securities generally range from one to five years.

As of ~~March 29,~~December 27, 2014 and September ~~28, 2013,~~27, 2014, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant.

As of ~~March 29,~~December 27, 2014, the Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature and does not consider any of its investments other-than-temporarily impaired. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. During the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013, the Company did not recognize any significant impairment charges.

Derivative Financial Instruments

The Company uses derivatives to partially offset its business exposure to foreign currency and interest rate ~~risk. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset some of the~~ risk on expected future cash flows, on net investments in certain foreign subsidiaries and on 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 and 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 help 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. The Company’s~~revenue, and subsidiaries whose functional currency is not the U.S. dollar and who sell in local currencies 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 typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

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

~~To help protect against adverse fluctuations in interest rates, the~~ The Company ~~may enter into interest rate swaps, options, or other~~designates these instruments ~~to offset a portion of the changes in income or expense due to fluctuations in interest rates.~~as net investment hedges.

The Company may also enter into non-designated foreign currency ~~forward and option~~ contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities denominated in non-functional currencies. ~~However, the~~

The Company may ~~choose not~~enter into interest rate swaps, options, or other instruments to hedge certain foreign currency exchange exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges willmanage interest rate risk. These instruments may offset ~~more than~~ a portion of changes in income or expense, or changes in fair value of the ~~financial impact resulting from movements in foreign currency exchange rates.~~

Company’s long-term debt or investments. The Company ~~records all derivatives in the Condensed Consolidated Balance Sheets at~~designates these instruments as either cash flow or fair ~~value.~~value hedges. The Company’s ~~accounting treatment for these instruments is based on whether the instruments~~hedged interest rate transactions as of December 27, 2014 are ~~designated as hedge or non-hedge instruments.~~ expected to be recognized within twelve years.

Cash Flow Hedges

The effective portions of cash flow hedges are recorded in ~~AOCI~~accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings. The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and net investment hedges are recorded in other income and expense. 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.

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 ~~as a component of~~in other income/(expense), net in the same period as the related income or expense is recognized.

The ~~Company’s hedged foreign currency transactions~~ineffective portions and ~~hedged interest rate transactions as~~amounts excluded from the effectiveness testing of ~~March 29,~~cash flow hedges are recognized in other income/(expense), net. These amounts were not significant during the three months ended December 27, 2014 ~~are expected to occur within 12 months~~ and ~~five years, respectively.~~December 28, 2013.

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 immediately into other ~~income and expense.~~income/(expense), net. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expense unless they are re-designated as hedges of other transactions. The Company did not recognize any significant net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013.

Net Investment Hedges

The ~~Company’s unrealized net gains and losses on~~effective portions of net investment hedges ~~included~~are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation ~~adjustment account of AOCI, were not significant as of March 29, 2014 and September 28, 2013.~~adjustment. The ineffective portions and amounts excluded from the effectiveness ~~test~~testing of net investment hedges are ~~recorded in other income and expense.~~

~~The gain/loss~~ recognized in other ~~income~~income/(expense), net. These amounts were not significant during the three months ended December 27, 2014 and ~~expense~~December 28, 2013.

Fair Value Hedges

Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item. The ineffective portions and amounts excluded from the effectiveness testing of fair value hedges recognized were not significant during the three months ended December 27, 2014 and December 28, 2013.

Non-Designated Derivatives

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. The net gains and losses recognized for foreign currency forward and option contracts not designated as hedging instruments was not significant during the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013.

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 December 27, 2014 and September 27, 2014 (in millions):


	December 27, 2014
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets⁽¹⁾:
Foreign exchange contracts	$	3,561	$	501	$	4,062
Interest rate contracts	$	201	$	0	$	201

Derivative liabilities⁽²⁾:
Foreign exchange contracts	$	51	$	119	$	170
Interest rate contracts	$	87	$	0	$	87

	September 27, 2014
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets⁽¹⁾:
Foreign exchange contracts	$	1,332	$	222	$	1,554
Interest rate contracts	$	81	$	0	$	81

Derivative liabilities⁽²⁾:
Foreign exchange contracts	$	41	$	40	$	81

⁽¹⁾

The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other 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 recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow, net investment and fair value hedges on OCI and the Condensed Consolidated Statements of Operations for the three months ended December 27, 2014 and December 28, 2013 (in millions):


	Gains/(Losses) Recognized in OCI – Effective Portion					Gains/(Losses) Reclassified from AOCI into Net Income – Effective Portion
	Three Months��Ended					Three Months Ended
	December 27, 2014			December 28, 2013		December 27, 2014			December 28, 2013
Cash flow hedges:
Foreign exchange contracts	$	2,585		$	264	$	762		$	(74	)
Interest rate contracts		(88	)		21		(99	)		(4	)

Total	$	2,497		$	285	$	663		$	(78	)


Net investment hedges:
Foreign exchange contracts	$	118		$	24	$	0		$	0


	Gains/(Losses) on Derivative Instruments					Gains/(Losses) Related to Hedged Items
	Three Months Ended					Three Months Ended
	December 27, 2014			December 28, 2013		December 27, 2014			December 28, 2013
Fair value hedges:
Interest rate contracts	$	117		$	0	$	(117	)	$	0

The following table shows the notional ~~principal~~ amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of ~~March 29,~~December 27, 2014 and September ~~28, 2013~~27, 2014 (in millions):


	March 29, 2014				September 28, 2013				December 27, 2014				September 27, 2014
	Notional Principal		Credit Risk		Notional Principal		Credit Risk		Notional Amount		Credit Risk Amounts		Notional Amount		Credit Risk Amounts
Instruments designated as accounting hedges:
Foreign exchange contracts	$	18,099	$	160	$	35,013	$	159	$	55,761	$	3,561	$	42,945	$	1,333
Interest rate contracts	$	3,000	$	45	$	3,000	$	44	$	15,513	$	201	$	12,000	$	89

Instruments not designated as accounting hedges:
Foreign exchange contracts	$	22,155	$	28	$	16,131	$	25	$	39,872	$	501	$	38,510	$	222

The notional ~~principal~~ 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 onthen-current currency or interest rates at each respective date. The Company’s ~~gross exposure on these transactions may be further mitigated by collateral received from certain counterparties. 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 ~~principal~~ 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.~~values in its Condensed Consolidated Balance Sheets. As of ~~March 29,~~December 27, 2014 and September 27, 2014, the Company received ~~$15 million~~$4.2 billion and $2.1 billion, respectively, of ~~net~~ cash collateral related to the derivative instruments under its collateral security arrangements, which were recorded as other current liabilities within accrued expenses in the Condensed Consolidated Balance Sheet. As of September 28, 2013, the Company posted cash collateral related to the derivative instruments under its collateral security arrangements of $164 million, which it recorded as other current assets in the Condensed Consolidated Balance Sheet.Sheets. The Company did not have any derivative instruments with credit-risk related contingent features that would require it to post additional collateral as of ~~March 29,~~December 27, 2014 orand September ~~28, 2013.~~27, 2014.

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. ~~However, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in its Condensed Consolidated Balance Sheets.~~ As of ~~March 29,~~December 27, 2014 and September ~~28, 2013,~~27, 2014, 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 ~~$166 million~~$4.2 billion and ~~$333 million,~~$1.6 billion, respectively, resulting in net derivative ~~assets~~liabilities of ~~$73~~$184 million and ~~net derivative liabilities of $57~~$549 million, respectively.

The following tables show the Company’s derivative instruments at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of March 29, 2014 and September 28, 2013 (in millions):

   March 29, 2014
   Fair Value of
Derivatives
Designated
as Hedge
Instruments    Fair Value of
Derivatives
Not Designated
as Hedge
Instruments    Total
Fair
Value
Derivative assets (a):

Foreign exchange contracts
   $ 160       $ 28       $ 188
Interest rate contracts
   $ 45       $ 0       $ 45
Derivative liabilities (b):

Foreign exchange contracts
   $ 110       $ 35       $ 145

   September 28, 2013
   Fair Value of
Derivatives
Designated
as Hedge
Instruments    Fair Value of
Derivatives
Not Designated
as Hedge
Instruments    Total
Fair
Value
Derivative assets (a):

Foreign exchange contracts
   $ 145       $ 25       $ 170
Interest rate contracts
   $ 44       $ 0       $ 44
Derivative liabilities (b):

Foreign exchange contracts
   $ 389       $ 46       $ 435

~~(a)~~

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

~~(b)~~

~~The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.~~

The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow and net investment hedges in the Condensed Consolidated Statements of Operations for the three- and six-month periods ended March 29, 2014 and March 30, 2013 (in millions):

Three Months Ended
Gains/(Losses)
Recognized in OCI -
Effective Portion Gains/(Losses)
Reclassified from AOCI
into Net Income -
Effective Portion
Gains/(Losses) Recognized - Ineffective
Portion and Amount Excluded from
Effectiveness Testing

March 29,
2014 March 30,
2013 March 29,
2014 March 30,
2013
Financial Statement Line Item
March 29,
2014 March 30,
2013
Cash flow hedges:

Foreign exchange contracts
$ (121 ) $ 741    $ 22    $ (29 )
Other income/(expense), net
$ (8 ) $ (61 )
Interest rate contracts
(27 ) 0    (4 ) 0
Other income/(expense), net
0    0
Net investment hedges:

Foreign exchange contracts
(19 ) 70    0    0
Other income/(expense), net
0    1

Total
$ (167 ) $ 811    $ 18    $ (29 ) $ (8 ) $ (60 )

Six Months Ended
Gains/(Losses)
Recognized in OCI -
Effective Portion Gains/(Losses)
Reclassified from AOCI
into Net Income -
Effective Portion
Gains/(Losses) Recognized - Ineffective
Portion and Amount Excluded from
Effectiveness Testing

March 29,
2014 March 30,
2013 March 29,
2014 March 30,
2013
Financial Statement Line Item
March 29,
2014 March 30,
2013
Cash flow hedges:

Foreign exchange contracts
$ 143    $ 946    $ (52 ) $ (188 )
Other income/(expense), net
$ (11 ) $ (52 )
Interest rate contracts
(6 ) 0    (8 ) 0
Other income/(expense), net
0    0
Net investment hedges:

Foreign exchange contracts
5    106    0    0    Other income/(expense), net 1    1

Total
$ 142    $ 1,052    $ (60 ) $ (188 ) $ (10 ) $ (51 )

Accounts Receivable

Trade Receivables

The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, value-added resellers, small and mid-sized businesses and education, enterprise and government customers that are not covered by collateral, third-party financing arrangements or credit insurance. As of ~~March 29,~~December 27, 2014, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 13% ~~of the Company’s trade receivables.~~. As of September ~~28, 2013,~~27, 2014, the Company had two customers that represented 10% or more of total trade receivables, one of which accounted for ~~13%~~16% and the other ~~10%~~13%. The Company’s cellular network carriers accounted for ~~59%~~63% and ~~68%~~72% of trade receivables as of ~~March 29,~~December 27, 2014 and September ~~28, 2013,~~27, 2014, respectively.

Vendor Non-Trade Receivables

Additionally, the Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these ~~manufacturing~~ vendors who manufacture sub-assemblies or assemble final products for the Company. Vendor non-trade receivables from three of the Company’s vendors accounted for ~~52%~~57%, ~~22%~~14% and 12% of total vendor non-trade receivables as of ~~March 29,~~December 27, 2014 and three of the Company’s vendors accounted for ~~47%~~51%, ~~21%~~16% and ~~15%~~14% of total vendor non-trade receivables as of September ~~28, 2013.~~27, 2014.

Note 3 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s condensed consolidated financial statement details as of ~~March 29,~~December 27, 2014 and September ~~28, 2013~~27, 2014 (in millions):

Inventories


	March 29, 2014		September 28, 2013		December 27, 2014		September 27, 2014
Components	$	444	$	683	$	228	$	471
Finished goods		1,385		1,081		2,055		1,640

Total inventories	$	1,829	$	1,764	$	2,283	$	2,111

Property, Plant and Equipment, Net


	March 29, 2014			September 28, 2013			December 27, 2014			September 27, 2014
Land and buildings	$	4,029		$	3,309		$	5,152		$	4,863
Machinery, equipment and internal-use software		22,147			21,242			31,010			29,639
Leasehold improvements		4,230			3,968			4,585			4,513

Gross property, plant and equipment		30,406			28,519			40,747			39,015
Accumulated depreciation and amortization		(15,286	)		(11,922	)		(20,355	)		(18,391	)

Net property, plant and equipment	$	15,120		$	16,597
Total property, plant and equipment, net							$	20,392		$	20,624

Accrued Expenses


	March 29, 2014		September 28, 2013		December 27, 2014		September 27, 2014
Accrued warranty and related costs	$	4,368	$	2,967	$	5,195	$	4,159
Accrued marketing and selling expenses						1,960		2,321
Accrued taxes		2,160		1,200		1,642		1,209
Accrued compensation and employee benefits						1,316		1,209
Deferred margin on component sales		1,145		1,262		1,133		1,057
Accrued marketing and selling expenses		1,403		1,291
Accrued compensation and employee benefits		980		959
Other current liabilities		5,928		6,177		11,478		8,498

Total accrued expenses	$	15,984	$	13,856	$	22,724	$	18,453

Other Non-Current Liabilities

   March 29, 2014    September 28, 2013
Deferred tax liabilities
   $ 19,471       $ 16,489
Other non-current liabilities
   3,005       3,719




Total other non-current liabilities
   $ 22,476       $ 20,208


	December 27, 2014		September 27, 2014
Deferred tax liabilities	$	23,371	$	20,259
Other non-current liabilities		5,600		4,567

Total other non-current liabilities	$	28,971	$	24,826

Other ~~Income and Expense~~Income/(Expense), Net

The following table shows the detail of other ~~income and expense~~income/(expense), net for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 (in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Interest and dividend income	$	410		$	420		$	837		$	841		$	654		$	427
Interest expense		(85	)		0			(169	)		0			(131	)		(84	)
Other expense, net		(100	)		(73	)		(197	)		(32	)		(353	)		(97	)

Total other income/(expense), net	$	225		$	347		$	471		$	809		$	170		$	246

Note 4 – Goodwill and Other Intangible Assets

The Company’s acquired intangible assets with definite useful lives primarily consist of patents and licenses and are amortized over periods typically from three to seven years. The following table summarizes the components of gross and net intangible asset balances as of ~~March 29,~~December 27, 2014 and September ~~28, 2013~~27, 2014 (in millions):

   March 29, 2014    September 28, 2013
   Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount    Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount
Definite-lived and amortizable acquired intangible assets
   $ 6,361       $ (2,533 ) $ 3,828       $ 6,081       $ (2,002 ) $ 4,079
Indefinite-lived and non-amortizable acquired intangible assets
   100       0    100       100       0    100








Total acquired intangible assets
   $ 6,461       $ (2,533 ) $ 3,928       $ 6,181       $ (2,002 ) $ 4,179

During the six-months ended March 29, 2014, the Company completed various business acquisitions. The aggregate cash consideration paid, net of cash acquired, was $559 million, of which $474 million was allocated to goodwill, $165 million to acquired intangible assets and $80 million to net liabilities assumed.

   December 27, 2014    September 27, 2014
   Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount    Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount
Definite-lived and amortizable acquired intangible assets
   $ 7,641       $ (3,371 ) $ 4,270       $ 7,127       $ (3,085 ) $ 4,042
Indefinite-lived and non-amortizable acquired intangible assets
   100       0    100       100       0    100








Total acquired intangible assets
   $ 7,741       $ (3,371 ) $ 4,370       $ 7,227       $ (3,085 ) $ 4,142

Note 5 – Income Taxes

As of ~~March 29,~~December 27, 2014, the Company recorded gross unrecognized tax benefits of ~~$3.0~~$4.4 billion, of which $1.6 billion, if recognized, would affect the Company’s effective tax rate. As of September ~~28, 2013,~~27, 2014, the total amount of gross unrecognized tax benefits was ~~$2.7~~$4.0 billion, of which $1.4 billion, if recognized, would ~~affect~~have affected the Company’s effective tax rate. ~~Additionally, the Company had $590 million of gross interest and penalties accrued as of March 29, 2014 and September 28, 2013.~~ The Company’s total gross unrecognized tax benefits ~~interest and penalties are presented net of related tax deposits and~~ are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.

~~During the second quarter~~ The Company had $821 million and $630 million of gross interest and penalties accrued as of December 27, 2014 ~~the U.S. Internal Revenue Service Appeals Office concluded its review of the years 2004 through 2006,~~and September 27, 2014, respectively, which ~~resulted~~are classified as other non-current liabilities in the ~~Company reducing its gross unrecognized tax benefits by $95 million and recognizing a tax benefit of $68 million.~~Condensed Consolidated Balance Sheets.

Management 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 not consistent with management’s expectations, the Company could be required to adjust its provision for income ~~tax~~taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is not certain, the Company ~~believes~~does not believe it is reasonably possible that ~~tax audit resolutions could reduce~~ its unrecognized tax benefits ~~by between $40 million and $70 million~~would materially change in the next 12 months.

Note 6 – ~~Long-Term~~ Debt

Commercial Paper

In ~~May 2013,~~April 2014, the Board of Directors authorized the Company to issue unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company intends to use net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of December 27, 2014 and September 27, 2014, the Company had $3.9 billion and $6.3 billion of Commercial Paper outstanding, respectively, with a weighted-average interest rate of 0.11% and 0.12%, respectively, and maturities generally less than nine months.

The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the three months ended December 27, 2014 (in millions):


Maturities less than 90 days:
Proceeds from (repayments of) commercial paper, net	$	62

Maturities greater than 90 days:
Proceeds from commercial paper		197
Repayments of commercial paper		(2,668	)

Maturities greater than 90 days, net		(2,471	)

Total repayments of commercial paper, net	$	(2,409	)

Long-Term Debt

As of December 27, 2014, the Company has issued floating- and fixed-rate notes with varying maturities for an aggregate principal amount of ~~$17.0~~$32.4 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the domestic floating-rate notes, ~~and~~ semi-annually for the domestic fixed-rate notes and annually for the foreign fixed-rate notes.

The ~~principal amounts and associated effective interest rates~~following table provides a summary of the ~~Notes~~Company’s long-term debt as of ~~March 29,~~December 27, 2014 ~~are as follows:~~and September 27, 2014:

   Amount
(in millions)    Effective
Interest
Rate
Floating-rate notes, due 2016
   $ 1,000       0.51 %
Floating-rate notes, due 2018
   2,000       1.10 %
Fixed-rate 0.45% notes due 2016
   1,500       0.51 %
Fixed-rate 1.00% notes due 2018
   4,000       1.08 %
Fixed-rate 2.40% notes due 2023
   5,500       2.44 %
Fixed-rate 3.85% notes due 2043
   3,000       3.91 %



Total
   $ 17,000


	December 27, 2014					September 27, 2014
	Amount (in millions)			Effective Interest Rate		Amount (in millions)			Effective Interest Rate
Floating-rate notes due 2016⁽¹⁾	$	1,000			0.51%	$	1,000			0.51%
Floating-rate notes due 2017⁽²⁾		1,000			0.30%		1,000			0.31%
Floating-rate notes due 2018⁽¹⁾		2,000			1.10%		2,000			1.10%
Floating-rate notes due 2019⁽²⁾		1,000			0.53%		1,000			0.54%
Fixed-rate 0.45% notes due 2016⁽¹⁾		1,500			0.51%		1,500			0.51%
Fixed-rate 1.05% notes due 2017⁽²⁾		1,500			0.30%		1,500			0.30%
Fixed-rate 1.00% notes due 2018⁽¹⁾		4,000			1.08%		4,000			1.08%
Fixed-rate 2.10% notes due 2019⁽²⁾		2,000			0.53%		2,000			0.53%
Fixed-rate 2.85% notes due 2021⁽²⁾		3,000			0.78%		3,000			0.79%
Fixed-rate 1.00% Euro-denominated notes due 2022⁽³⁾		1,709			2.94%		0			0
Fixed-rate 2.40% notes due 2023⁽¹⁾		5,500			2.44%		5,500			2.44%
Fixed-rate 3.45% notes due 2024⁽²⁾		2,500			0.89%		2,500			0.90%
Fixed-rate 1.63% Euro-denominated notes due 2026⁽³⁾		1,709			3.45%		0			0
Fixed-rate 3.85% notes due 2043⁽¹⁾		3,000			3.91%		3,000			3.91%
Fixed-rate 4.45% notes due 2044⁽²⁾		1,000			4.48%		1,000			4.48%

Total borrowings		32,418					29,000

Unamortized discount		(69	)				(52	)
Hedge accounting fair value adjustments		155					39

Total long-term debt	$	32,504				$	28,987

⁽¹⁾

Tranche relates to the $17.0 billion debt issuance in the third quarter of 2013.

⁽²⁾

Tranche relates to the $12.0 billion debt issuance in the third quarter of 2014.

⁽³⁾

Tranche relates to Euro-denominated debt issuance of€2.8 billion in the first quarter of 2015.

The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes. Such swaps allow the Company to effectively convert fixed-rate payments into floating-rate ~~notes due 2016~~payments or floating-rate payments into fixed-rate payments. In addition, the Company has entered, and ~~2018 bear interest at~~in the ~~three-month London InterBank Offered Rate (“LIBOR”) plus 0.05% and 0.25%, respectively.~~future may enter, into currency swaps to manage foreign currency risk on the Notes.

In the first quarter of 2015, the Company issued€2.8 billion of Euro-denominated long-term debt. To manage ~~the~~foreign currency risk ~~of fluctuations in interest rates~~ associated with ~~the floating-rate notes,~~this issuance, the Company entered into ~~interest rate~~currency swaps with an aggregate notional amount of ~~$3.0~~$3.5 billion, ~~designated as cash flow hedges of its floating-rate notes. These hedges~~which effectively ~~convert~~converted the ~~floating interest rate on the floating-rate~~Euro-denominated notes to a fixed interest rate. The gains and losses related to changes in the fair value of the interest rate swaps are recorded in OCI with a portion reclassified to interest expense each period to offset changes in interest rates on the floating-rateU.S. dollar-denominated notes.

The effective rates for the Notes include the interest on the Notes, amortization of the discount and, if applicable, adjustments related to hedging. The Company recognized ~~$84~~$128 million and ~~$168~~$84 million of interest expense on its long-term debt for the ~~three-~~three months ended December 27, 2014 and ~~six-month periods ended March 29, 2014,~~December 28, 2013, respectively. ~~As of March 29, 2014, the aggregate unamortized discount for the Company’s Notes was $38 million.~~

Future principal payments for the Company’s Notes as of ~~March 29,~~December 27, 2014 are as follows (in millions):


2014	$	0
2015		0	$	0
2016		2,500		2,500
2017		0		2,500
2018		6,000		6,000
2019				3,000
Thereafter		8,500		18,418

Total	$	17,000
Total future principal payments			$	32,418

As of ~~March 29,~~December 27, 2014 and September 27, 2014, the fair value of the Company’s Notes, based on Level 2 inputs, was ~~$16.2 billion.~~$32.4 billion and $28.5 billion, respectively.

Note 7 – Shareholders’ Equity

~~Preferred and Common Stock~~

During the second quarter of 2014, the Company’s shareholders approved amendments (the “Amendments”) to the Company’s Restated Articles of Incorporation. The Amendments included the elimination of the Board of Directors’ authority to issue preferred stock and established a par value for the Company’s common stock of $0.00001 per share.

Dividends

The Company declared and paid cash dividends per common share during the periods presented as follows:


	Dividends Per Share		Amount (in millions)		Dividends Per Share		Amount (in millions)
2014:
Second quarter	$	3.05	$	2,655
2015:
First quarter		3.05		2,739	$	0.47	$	2,750

Total	$	6.10	$	5,394


2013:
2014:
Fourth quarter	$	3.05	$	2,763	$	0.47	$	2,807
Third quarter		3.05		2,789		0.47		2,830
Second quarter		2.65		2,490		0.44		2,655
First quarter		2.65		2,486		0.44		2,739

Total	$	11.40	$	10,528
Total cash dividends declared and paid					$	1.82	$	11,031

Future dividends are subject to declaration by the Board of Directors.

Share Repurchase Program

In ~~2012, the Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock beginning in 2013. In April 2013,~~2014, the Company’s Board of Directors increased the share repurchase authorization ~~from $10 billion~~ to ~~$60~~$90 billion of ~~which $45.9~~the Company’s common stock. As of December 27, 2014, $72.9 billion of the $90 billion had been ~~utilized as of March 29, 2014.~~utilized. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Company has entered, and in the future may enter, into ~~three~~ accelerated share repurchase arrangements (“ASRs”) with financial ~~institutions beginning in August 2012.~~institutions. In exchange for up-front payments, the financial institutions deliver shares of the Company’s common stock during the purchase periods of each ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, ~~will be~~is determined at the end of the applicable purchase period of each ASR based on the volume weighted-average price of the Company’s common stock during that period. The shares received are retired in the periods they are delivered, and the up-front payments are accounted for as a reduction to shareholders’ equity in the Company’s Condensed Consolidated Balance Sheet in the periods the payments are made. The Company reflects the ASRs as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to its own common stock. The ASRs met all of the applicable criteria for equity classification, and therefore, were not accounted for as derivative instruments.

~~The following table presents~~

A summary of the Company’s ~~ASRs:~~ASR activity and related information during the periods presented, is as follows:

   Purchase
Period End
Date    Number of
Shares
(in thousands)    Average
Repurchase
Price Per
Share    ASR Amount
(in millions)
January 2014 ASR
   (a)       19,178 (a)       (a)       $ 12,000
April 2013 ASR
   March 2014       24,650 (b)       $ 486.82       $ 12,000
August 2012 ASR
   April 2013       4,078            $ 478.20       $ 1,950


	Purchase Period End Date		Number of Shares (in thousands)		Average Repurchase Price Per Share		ASR Amount (in millions)
August 2014 ASR		⁽¹⁾		68,273 ⁽¹⁾		⁽¹⁾	$	9,000
January 2014 ASR		December 2014		134,247	$	89.39	$	12,000
April 2013 ASR		March 2014		172,548	$	69.55	$	12,000

~~(a)~~

⁽¹⁾

~~The number~~Includes 8.3 million net shares delivered and retired under the August 2014 ASR in the first quarter of ~~shares~~2015. “Number of Shares” represents those shares delivered in ~~the second quarter~~advance of ~~2014~~settlement and does not represent the final number of shares to be delivered under the ~~January 2014 ASR.~~ASRs. The total number of shares ultimately delivered, ~~under the January 2014 ASR,~~ and therefore the average repurchase 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. The ~~January~~August 2014 ASR purchase period will end in or before ~~December 2014.~~February 2015.

~~(b)~~

~~In April 2013,~~Additionally, the Company entered into an ASR to purchase up to $12 billion of the Company’s common stock. In March 2014, the purchase period for this ASR ended and an additional 1.1 million shares were delivered and retired.

~~The~~ Company repurchased shares of its common stock in the open market, which were retired upon repurchase, during the periods presented as follows:


	Number of Shares (in thousands)		Average Repurchase Price Per Share		Amount (in millions)		Number of Shares (in thousands)		Average Repurchase Price Per Share		Amount (in millions)
2015:
First quarter								45,704	$	109.40	$	5,000

2014:
Fourth quarter								81,255	$	98.46	$	8,000
Third quarter								58,661	$	85.23		5,000
Second quarter		11,392	$	526.67	$	6,000		79,749	$	75.24		6,000
First quarter		9,550	$	523.51		5,000		66,847	$	74.79		5,000

Total		20,942			$	11,000
Total open market common stock repurchases								286,512			$	24,000

Note 8 – Comprehensive Income

Comprehensive income consists of two components, net income and ~~other comprehensive income. Other comprehensive income~~OCI. OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s ~~other comprehensive income~~OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable securities classified as available-for-sale.

The following table shows the gross amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations and the associated financial statement line item, for the ~~three-~~three months ended December 27, 2014 and ~~six-month periods ended March 29, 2014~~December 28, 2013 (in millions):


		Three Months Ended			Six Months Ended
Comprehensive Income Components	Financial Statement Line Item	March 29, 2014						Financial Statement Line Item	December 27, 2014			December 28, 2013
Unrecognized gains/losses on derivative instruments:
Foreign exchange contracts	Revenue	$	119		$	303		Revenue	$	(449	)	$	184
	Cost of sales		(141	)		(251	)	Cost of sales		(313	)		(110	)
	Other income/expense, net		4			14		Other income/expense, net		0			10
Interest rate contracts	Other income/expense, net		4			8		Other income/expense, net		99			4

			(14	)		74				(663	)		88

Unrealized gains/losses on marketable securities	Other income/expense, net		(60	)		(77	)	Other income/expense, net		(22	)		(17	)

Total amounts reclassified from AOCI		$	(74	)	$	(3	)		$	(685	)	$	71

The following table shows the changes in AOCI by component for the ~~six~~three months ended ~~March 29,~~December 27, 2014 (in millions):


	Cumulative Foreign Currency Translation			Unrecognized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total			Cumulative Foreign Currency Translation			Unrecognized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total
September 28, 2013	$	(105	)	$	(175	)	$	(191	)	$	(471	)
Balance at September 27, 2014													$	(242	)	$	1,364		$	(40	)	$	1,082

Other comprehensive income/(loss) before reclassifications		(103	)		125			297			319			(114	)		2,390			(707	)		1,569
Amounts reclassified from AOCI		0			74			(77	)		(3	)		0			(663	)		(22	)		(685	)
Tax effect		17			(36	)		(77	)		(96	)		48			(310	)		259			(3	)

Other comprehensive income/(loss)		(86	)		163			143			220			(66	)		1,417			(470	)		881

March 29, 2014	$	(191	)	$	(12	)	$	(48	)	$	(251	)
Balance at December 27, 2014													$	(308	)	$	2,781		$	(510	)	$	1,963

Note 9 – Benefit Plans

Stock Plans

The Company had ~~approximately 70.3~~436.9 million shares reserved for future issuance under its stock plans as of ~~March 29,~~December 27, 2014. RSUs granted ~~reduce~~generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. Each share issued with respect to RSUs granted under the Company’s stock plans reduces the number of shares available for grant under the ~~Company’s stock plans utilizing a factor of~~plan by two ~~times the number of RSUs granted. Similarly,~~shares. RSUs cancelled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the ~~Company’s stock~~ plans utilizing a factor of two times the number of RSUs cancelled or shares withheld. Stock options count against the number of shares available for grant on a one-for-one basis.

~~2014 Employee Stock Plan~~

In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”). The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of stock options, stock appreciation rights, stock grants and RSUs, as well as cash bonus awards. RSUs granted under the 2014 Plan are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. Upon approval of the 2014 Plan, the Company reserved 55 million shares plus any shares that were reserved but not issued under the 2003 Plan for future issuance.

Rule 10b5-1 Trading Plans

During the three months ended ~~March 29,~~December 27, 2014, Section 16 officers Timothy D. Cook, ~~Peter Oppenheimer, D. Bruce Sewell,~~Angela Ahrendts, Luca Maestri and Daniel Riccio ~~and Jeffrey E. 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 pursuant to the Company’s employee and director equity plans.

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the ~~six~~three months ended ~~March 29,~~December 27, 2014, is as follows:


	Number of RSUs (in thousands)			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in millions)		Number of RSUs (in thousands)			Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value (in millions)
Balance at September 28, 2013		13,326		$	435.70
Balance at September 27, 2014									103,822		$	70.98
RSUs granted		6,964		$	496.99				36,294		$	101.41
RSUs vested		(2,626	)	$	383.21				(16,759	)	$	64.30
RSUs cancelled		(440	)	$	469.00				(1,815	)	$	71.49

Balance at March 29, 2014		17,224		$	467.61	$	9,247
Balance at December 27, 2014									121,542		$	80.98	$	13,855

RSUs that vested during the ~~three-~~three months ended December 27, 2014 and six-month periods ended March 29, 2014 had fair values of $198 million and $1.3 billion, respectively, as of the vesting date. RSUs that vested during the three- and six-month periods ended March 30,December 28, 2013 had a fair ~~values~~value of ~~$151 million~~$1.7 billion and ~~$1.7~~$1.1 billion, respectively, as of the vesting date.

Stock Options

The Company had ~~2.4~~3.5 million stock options outstanding as of ~~March 29,~~December 27, 2014, with a weighted average exercise price per share of ~~$157.93~~$19.61 and weighted average remaining contractual term of ~~1.1~~2.2 years, substantially all of which are exercisable. The aggregate intrinsic value of the stock options outstanding as of ~~March 29,~~December 27, 2014 was ~~$926.0~~$330 million, which represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding.

The total intrinsic value of options at the time of exercise was ~~$148~~$248 million and ~~$707~~$559 million for the ~~three-~~three months ended December 27, 2014 and ~~six-month periods ended March 29, 2014, respectively, and $211 million and $558 million for the three- and six-month periods ended March 30,~~December 28, 2013, respectively.

Share-Based Compensation

Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant. Share-based compensation cost for stock options and employee stock purchase plan rights (“stock purchase rights”) is measured at the grant date and offering date, respectively, based on the fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM option-pricing model incorporates various assumptions including expected volatility, estimated expected life and interest rates. The Company recognizes share-based compensation cost over the award’s requisite service period on a straight-line basis for time-based RSUs and on a graded basis for RSUs that are contingent on the achievement of performance metrics.

The following table shows a summary of the share-based compensation expense included in the Condensed Consolidated Statements of Operations for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 (in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Cost of sales	$	110	$	87	$	219	$	172	$	140	$	109
Research and development		300		239		589		463		374		289
Selling, general and administrative		286		249		569		485		374		283

Total share-based compensation expense	$	696	$	575	$	1,377	$	1,120	$	888	$	681

The income tax benefit related to share-based compensation expense was ~~$230~~$351 million and ~~$495~~$265 million for the ~~three-~~three months ended December 27, 2014 and ~~six-month periods ended March 29, 2014, respectively, and was $195 million and $409 million for the three- and six-month periods ended March 30,~~December 28, 2013, respectively. As of ~~March 29,~~December 27, 2014, the total unrecognized compensation cost related to outstanding stock options and RSUs expected to vest was ~~$6.4~~$8.8 billion, which the Company expects to recognize over a weighted-average period of ~~3.0~~3.1 years.

Note 10 – Commitments and Contingencies

Accrued Warranty and Indemnification

The following table shows changes in the Company’s accrued warranties and related costs for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 (in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Beginning accrued warranty and related costs	$	3,980		$	2,310		$	2,967		$	1,638		$	4,159		$	2,967
Cost of warranty claims		(865	)		(847	)		(1,929	)		(1,533	)		(1,044	)		(1,064	)
Accruals for product warranty		1,253			1,551			3,330			2,909			2,080			2,077

Ending accrued warranty and related costs	$	4,368		$	3,014		$	4,368		$	3,014		$	5,195		$	3,980

The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights. Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party. However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual property rights. The Company did not record a liability for infringement costs related to indemnification as of ~~March 29,~~December 27, 2014 or September ~~28, 2013.~~27, 2014.

The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not been material.

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, a number of components are currently obtained from single or limited sources. In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers. 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 pricing fluctuations that ~~can~~could materially adversely affect the Company’s financial condition and operating results.

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 manufacturing capacity has increased. If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers concentrated on the production of common components instead of components customized to meet the Company’s requirements.

The Company has entered into ~~various~~ 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. Therefore, the Company remains subject to significant risks of supply shortages and price increases that ~~can~~could materially adversely affect its financial condition and operating results.

Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s purchase commitments typically cover its requirements for periods up to 150 days.

Other Off-Balance Sheet Commitments

Operating Leases

The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off-balance sheet financing arrangements. The major facility leases are typically for terms not exceeding 10 years and generally ~~provide~~contain multi-year renewal ~~options for terms not exceeding five additional years.~~options. As of December 27, 2014, the Company had a total of 447 retail stores. Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of ~~March 29,~~December 27, 2014, the Company’s total future minimum lease payments under noncancelable operating leases were $4.8 billion, of which ~~$3.6~~$3.5 billion related to leases for retail space.

Other Commitments

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. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts and open orders based on projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of ~~March 29,~~December 27, 2014, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase commitments of ~~$12.6~~$21.6 billion.

In addition to the commitments mentioned above, the Company had ~~additional~~other off-balance sheet obligations of ~~$2.8~~$3.9 billion as of ~~March 29,~~December 27, 2014, which were comprised ~~mainly~~ of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to advertising, research and development (“R&D”), Internet and telecommunications services, energy and other obligations.

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 adjudicated, certain of which are discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings” and in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.” 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 in excess of a recorded accrual, with respect to loss contingencies. However, the outcome of litigation is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Apple Inc. v. Samsung Electronics Co., Ltd, et al.

On August 24, 2012, a jury returned a verdict awarding the Company $1.05 billion in its lawsuit against Samsung Electronics Co., Ltd and affiliated parties in the United States District Court, Northern District of California, San Jose Division. On March 6, 2014, the District Court entered final judgment in favor of the Company in the amount of approximately $930 million. Because the award is now subject to appeal, the Company has not recognized the award in its results of operations.

~~VirnetX, Inc. v. Apple Inc. et al.~~

On August 11, 2010, VirnetX, Inc. filed an action against the Company alleging that certain of its products infringed on four patents relating to network communications technology. On November 6, 2012, a jury returned a verdict against the Company, and awarded damages of $368 million. On March 3, 2014, the Court entered a ruling awarding a royalty of 0.98% against adjudicated products and products not colorably different than those adjudicated at trial. The Company has appealed the verdict, believes it has valid defenses and has not recorded a loss accrual at this time.

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 operating segments.

The Company manages its business primarily on a geographic basis. ~~The~~As the Company continues to expand its business, management believes collaboration across its online, retail and indirect channels is integral to better serving its customers and optimizing its financial results. In the first quarter of 2015, management began reporting business performance and making decisions primarily on a geographic basis, including the results of its retail stores in each respective geographic segment. Accordingly, to align with the way the business is currently managed, the Company’s reportable operating segments now consist of the Americas, Europe, Greater China, Japan and Rest of Asia ~~Pacific and~~Pacific. Retail ~~operations.~~is no longer reported as a separate reportable operating segment. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and Asian countries, other than those countries included in the Company’s other operating segments. ~~The results of the Company’s geographic segments do not include results of the Retail segment.~~ Each operating segment provides similar hardware and software products and similar services. 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 ~~Company’s 2013~~2014 Form 10-K.

The Company evaluates the performance of its operating segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers ~~while Retail segment net sales are based on~~and sales through the Company’s retail ~~stores.~~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. In the first quarter of 2015, the Company also began allocating certain costs to its operating segments that were previously included in other corporate expenses, including certain share-based compensation costs. 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 operating segments. Costs excluded from segment operating income include various corporate expenses such as ~~research and development,~~R&D, corporate marketing expenses, certain share-based compensation expense, income taxes, various nonrecurring charges and other separately managed general and administrative ~~costs and certain manufacturing period expenses.~~costs. The Company does not include intercompany transfers between segments for management reporting purposes.

The following table shows information by operating segment for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 (in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Americas:
Net sales	$	14,310	$	14,052	$	34,408	$	34,393	$	30,566	$	24,789
Operating income	$	5,433	$	5,148	$	12,699	$	12,497	$	10,701	$	8,069

Europe:
Net sales	$	10,230	$	9,800	$	23,303	$	22,264	$	17,214	$	14,335
Operating income	$	3,753	$	3,449	$	8,329	$	7,858	$	5,882	$	4,623

Greater China:
Net sales	$	9,289	$	8,213	$	18,133	$	15,043	$	16,144	$	9,496
Operating income	$	3,524	$	2,787	$	6,664	$	5,331	$	6,366	$	3,247

Japan:
Net sales	$	3,963	$	3,135	$	8,911	$	7,578	$	5,448	$	5,045
Operating income	$	1,892	$	1,555	$	4,271	$	3,815	$	2,488	$	2,330

Rest of Asia Pacific:
Net sales	$	2,627	$	3,162	$	6,260	$	7,155	$	5,227	$	3,929
Operating income	$	898	$	1,034	$	2,227	$	2,369	$	1,849	$	1,368

Retail:
Net sales	$	5,227	$	5,241	$	12,225	$	11,682
Operating income	$	1,151	$	1,092	$	2,895	$	2,649

A reconciliation of the Company’s segment operating income to the ~~condensed consolidated financial statements~~Condensed Consolidated Statements of Operations for the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 is as follows (in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Segment operating income	$	16,651		$	15,065		$	37,085		$	34,519		$	27,286		$	19,637
Share-based compensation expense		(696	)		(575	)		(1,377	)		(1,120	)
Research and development expense														(1,895	)		(1,330	)
Other corporate expenses, net		(2,362	)		(1,932	)		(4,652	)		(3,631	)		(1,145	)		(844	)

Total operating income	$	13,593		$	12,558		$	31,056		$	29,768		$	24,246		$	17,463

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 contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also ~~can~~ 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 theforward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September ~~28, 2013~~27, 2014 (the ~~“2013~~“2014 Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar. Unless otherwise stated, references in this report to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months, or periods of those fiscal years. Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly-owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Available Information

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website atinvestor.apple.com/sec.cfm when such reports are available on the SEC’s website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC atwww.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

Overview and Highlights

Company Background

The Company designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, ~~peripherals,~~accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone^®, iPad^®, Mac^®, iPod^®, Apple TV^®, a portfolio of consumer and professional software applications, the iOS and OS X^® operating systems, iCloud^®, Apple Pay™ and a variety of accessory, service and support offerings. In September 2014, the Company announced Apple Watch™, which is expected to be available in early calendar year 2015. The Company also sells and delivers digital content and applications through the iTunes Store^®, App Store™, ~~iBooks Store™, and~~ Mac App ~~Store.~~Store and iBooks Store™ (collectively “iTunes”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, the Company sells a variety of third-party iPhone, iPad, Mac and iPod compatible products, including application software, and various accessories through its online and retail stores. The Company sells to ~~consumers;~~consumers, small and mid-sized ~~businesses;~~businesses and education, enterprise and government customers.

Business Strategy

The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers ~~new~~ products and solutions with innovative design, superior ease-of-use and seamless integration, and innovative design. The Company believes continual investment in research and development, marketing and advertising is critical to the development and sale of innovative products and technologies.integration. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of ~~third-party~~ digital content and applications through ~~the~~ iTunes, ~~Store. As part of the iTunes Store, the Company’s App Store and iBooks Store allow~~which allows customers to discover and download digital content, iOS and Mac applications, and books through either a Mac or Windows-based computer or through ~~“iOS devices,” namely~~ iPhone, iPad and iPod touch^® devices (“iOS devices”). ~~The Company’s Mac App Store allows customers to easily discover, download and install Mac applications.~~ The Company also supports a community for the development of third-party software and hardware products and digital content that complement the Company’s offerings. The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers. Therefore, the Company’s strategy also includes ~~enhancing~~building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience. The Company believes ongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products and technologies.

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 introductions can significantly impact net sales, product costs and operating expenses. Product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new product inventory following a product introduction, and often, channel inventory of a particular product declines as the next related major product launch approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction. However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of the Company’s future pattern of product introductions, future net sales or financial performance.

~~Second~~First Quarter Fiscal ~~2014~~2015 Highlights

Net sales rose $230% or $17.0 billion induring the ~~second~~first quarter of ~~2014~~2015 compared to the same ~~period~~quarter in ~~2013, representing growth of 5%.~~2014. Net sales and unit sales increased for iPhone and Mac following the launches of new ~~iPhones~~iPhone and ~~upgraded Macs in the latter half of calendar 2013,~~Mac models, and net sales of ~~iTunes~~^®~~, Software and~~ Services ~~grew~~increased primarily due to ~~increased revenue~~growth from ~~sales of~~ iOS ~~Apps, AppleCare~~^®apps sales and licensing. ~~Net~~This growth was partially offset by lower net sales and unit sales ~~for iPad declined in the second quarter of 2014 compared to the same period in 2013 due in large part to year-over-year differences in the timing~~ of iPad ~~product launches in certain countries~~ and ~~changes in channel inventory in 2014 versus 2013. Growth in total net sales during the second quarter of 2014 was also negatively impacted~~ by weakness in ~~some~~most foreign currencies ~~particularly~~relative to the ~~Japanese Yen, and by the continuing decline of iPod net sales.~~

~~Growth in~~U.S. dollar. Total net sales ~~was~~increased in each of the Company’s operating segments, with particularly strong growth in Greater China ~~and Japan, with both operating segments reporting double-digit year-over-year growth, while~~where net sales ~~in the Rest of Asia Pacific segment declined~~increased 70% year-over-year.

During the ~~second~~first quarter of ~~2014,~~2015, the Company introduced iPad Air^® 2, iPad mini™ 3, iMac^® with Retina^® 5K Display and an updated Mac mini; and released OS X Yosemite.

The Company utilized ~~$18~~$5.0 billion to repurchase its common stock and paid dividends of ~~$2.7~~$2.8 billion or ~~$3.05~~$0.47 per common ~~share.~~share during the first quarter of 2015. Additionally, the Company issued€2.8 billion of Euro-denominated long-term debt.

Sales Data

In the first quarter of 2015, the Company changed its reportable operating segments and categorization of product-level net sales reporting to align with the way its business is managed and to better reflect its evolving products and services. The following table shows net sales by operating segment and net sales and unit sales by product during the ~~three- and six-month periods~~three months ended ~~March 29,~~December 27, 2014 and ~~March 30,~~December 28, 2013 (dollars in millions and units in thousands):

   Three Months Ended    Six Months Ended
   March 29,
2014    March 30,
2013    Change    March 29,
2014    March 30,
2013    Change
Net Sales by Operating Segment:

Americas
   $ 14,310       $ 14,052       2%       $ 34,408       $ 34,393       0%
Europe
   10,230       9,800       4%       23,303       22,264       5%
Greater China (a)
   9,289       8,213       13%       18,133       15,043       21%
Japan
   3,963       3,135       26%       8,911       7,578       18%
Rest of Asia Pacific
   2,627       3,162       (17)%       6,260       7,155       (13)%
Retail
   5,227       5,241       0%       12,225       11,682       5%









Total net sales
   $ 45,646       $ 43,603       5%       $ 103,240       $ 98,115       5%









Net Sales by Product:

iPhone (b)
   $ 26,064       $ 22,955       14%       $ 58,562       $ 53,615       9%
iPad (b)
   7,610       8,746       (13)%       19,078       19,420       (2)%
Mac (b)
   5,519       5,447       1%       11,914       10,966       9%
iPod (b)
   461       962       (52)%       1,434       3,105       (54)%
iTunes, Software and Services (c)
   4,573       4,114       11%       8,970       7,801       15%
Accessories (d)
   1,419       1,379       3%       3,282       3,208       2%









Total net sales
   $ 45,646       $ 43,603       5%       $ 103,240       $ 98,115       5%









Unit Sales by Product:

iPhone
   43,719       37,430       17%       94,744       85,219       11%
iPad
   16,350       19,477       (16)%       42,385       42,337       0%
Mac
   4,136       3,952       5%       8,973       8,013       12%
iPod
   2,761       5,633       (51)%       8,810       18,312       (52)%


	Three Months Ended
	December 27, 2014		December 28, 2013		Change
Net Sales by Operating Segment:
Americas	$	30,566	$	24,789		23%
Europe		17,214		14,335		20%
Greater China		16,144		9,496		70%
Japan		5,448		5,045		8%
Rest of Asia Pacific		5,227		3,929		33%

Total net sales	$	74,599	$	57,594		30%

Net Sales by Product:
iPhone⁽¹⁾	$	51,182	$	32,498		57%
iPad⁽¹⁾		8,985		11,468		(22)%
Mac⁽¹⁾		6,944		6,395		9%
Services⁽²⁾		4,799		4,397		9%
Other Products⁽¹⁾⁽³⁾		2,689		2,836		(5)%

Total net sales	$	74,599	$	57,594		30%

Unit Sales by Product:
iPhone		74,468		51,025		46%
iPad		21,419		26,035		(18)%
Mac		5,519		4,837		14%

~~(a)~~

~~Greater China includes China, Hong Kong and Taiwan.~~

~~(b)~~⁽¹⁾

Includes deferrals and amortization of related non-software services and software upgrade rights.

~~(c)~~

⁽²⁾

Includes revenue from ~~sales on the~~ iTunes, ~~Store, the App Store, the Mac App Store, and the iBooks Store, and revenue from sales of~~ AppleCare^®, Apple Pay, licensing and other services.

~~(d)~~

⁽³⁾

Includes sales of ~~hardware peripherals~~iPod, Apple TV, Beats Electronics and Apple-branded and third-party ~~accessories for iPhone, iPad, Mac and iPod.~~accessories.

Product Performance

iPhone

The following table presents iPhone net sales and unit sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions and units in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	26,064	$	22,955		14%	$	58,562	$	53,615		9%	$	51,182	$	32,498		57%
Percentage of total net sales		57%		53%				57%		55%				69%		56%
Unit sales		43,719		37,430		17%		94,744		85,219		11%		74,468		51,025		46%

The year-over-year growth in iPhone net sales and unit sales resulted from the launch of new iPhones at the end of 2014 and in the ~~second~~first quarter ~~and first six months~~ of ~~2014 resulted from strong customer acceptance of iPhone 5s and 5c, continued demand for the Company’s entry-priced iPhone~~2015; and expanded distribution. Demand for iPhone ~~net sales~~6 and ~~unit sales growth were particularly strong in~~6 Plus was greater than available supply during the ~~Greater China~~first quarter of 2015, and ~~Japan segments.~~overall iPhone channel inventory decreased slightly from levels at the beginning of the quarter. Overall average selling prices (“ASPs”) for iPhone ~~were down slightly during~~increased by 8% in the ~~second~~first quarter ~~and first six months~~ of ~~2014~~2015 compared to the ~~same periods~~first quarter of 2014 due to the introduction of iPhone 6 Plus and an increased mix of higher storage capacity iPhones, which was partially offset by the effect of weakness in ~~2013.~~most foreign currencies relative to the U.S. dollar.

iPad

The following table presents iPad net sales and unit sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions and units in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	7,610	$	8,746		(13)%	$	19,078	$	19,420		(2)%	$	8,985	$	11,468		(22)%
Percentage of total net sales		17%		20%				18%		20%				12%		20%
Unit sales		16,350		19,477		(16)%		42,385		42,337		0%		21,419		26,035		(18)%

~~Net sales and unit sales for iPad declined in the second quarter of 2014 and were relatively flat in the first six months of 2014 compared to the same periods in 2013. The decline in~~ iPad net sales and unit sales declined on a year-over-year basis. The Company believes the decline in sales is due in part to a longer repurchase cycle for iPads and some level of cannibalization from the ~~second quarter of 2014 was primarily due to changes in~~Company’s other products. Additionally, while iPad channel inventory ~~and also reflects a slight decline~~ in ~~iPad unit sell-through to end users. iPad channel inventory increased from the beginning to the end~~all of the second quarter of 2013 as the Company met pent-up demand for new iPads introduced in the first quarter of 2013 and supplied distribution channels to achieve appropriate channel inventory levels. In contrast, the Company entered the second quarter of 2014 near supply and demand balance for iPad, and channel inventory declinedCompany’s operating segments increased from the beginning to the end of the quarter to ~~achieve appropriate~~support new product introductions and seasonal demand, it was less than the increase in iPad channel inventory ~~levels based on anticipated future demand. Partially offsetting these factors,~~during the first quarter of 2014. iPad ASPs ~~increased approximately 4%~~declined by 5% during the ~~second~~first quarter of ~~2014~~2015 compared to the ~~second~~first quarter of ~~2013~~2014 primarily as a result of a shift in mix ~~towards iPad mini with Retina display~~to lower-priced iPads and ~~iPad Air. iPad ASPs were down slightly for~~ the ~~first six months~~effect of ~~2014 compared~~weakness in most foreign currencies relative to the ~~same period in 2013.~~U.S. dollar.

Mac

The following table presents Mac net sales and unit sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions and units in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	5,519	$	5,447		1%	$	11,914	$	10,966		9%	$	6,944	$	6,395		9%
Percentage of total net sales		12%		12%				12%		11%				9%		11%
Unit sales		4,136		3,952		5%		8,973		8,013		12%		5,519		4,837		14%

The year-over-year growth in Mac net sales and unit sales ~~for the second quarter and first six months of 2014~~ was driven by ~~increased sales~~the launch of new Mac desktops and strong demand for MacBook ~~Pro~~^® ~~and MacBook Air~~^®.Air. Mac ASPs ~~decreased~~declined by 5% during the ~~second~~first quarter of 2015 compared to the first quarter of 2014 ~~and first six months~~primarily as a result of ~~2014 compared to the same periods in 2013 primarily due to~~ price reductions on ~~certain~~ Mac ~~models~~portables in the second half of 2014 and the ~~shift~~effect of weakness in ~~mix towards Mac portable systems.~~most foreign currencies relative to the U.S. dollar.

~~iTunes, Software and~~ Services

The following table presents net sales information of ~~iTunes, Software and~~ Services for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						��	Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change			March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	4,573	$	4,114		11%		$	8,970	$	7,801		15%	$	4,799	$	4,397		9%
Percentage of total net sales		10%		9%					9%		8%				6%		8%

The increase in net sales of ~~iTunes, Software and~~ Services in the ~~second~~first quarter ~~and first six months~~ of ~~2014~~2015 compared to the ~~same periods in 2013~~first quarter of 2014 was primarily due to growth ~~in net sales~~ from ~~the~~ iTunes ~~Store, AppleCare~~ and licensing. ~~The~~ iTunes ~~Store~~ generated a total of $2.6 billion ~~and $5.1 billion~~ in net sales during the ~~second~~first quarter ~~and first six months~~ of ~~2014, respectively,~~2015 compared to $2.4 billion ~~and $4.6 billion~~ during the ~~second~~first quarter ~~and first six months~~ of ~~2013, respectively.~~2014. Growth ~~in net sales~~ from ~~the~~ iTunes ~~Store, which includes the App Store, the Mac App Store and the iBooks Store,~~ was driven by increases in revenue from ~~App~~iOS app sales reflecting continued growth in the installed base of iOS devices, ~~and~~ the expansion in ~~the number of~~ third-party iOS ~~Apps available. This was~~apps available, and increased volume of in-app purchases; partially offset by a ~~decline~~7% year-over-year decrease in net sales of digital ~~music.~~media consisting of music, movies, TV shows and books.

Segment Operating Performance

The Company manages its business primarily on a geographic basis. ~~Accordingly,~~As the Company ~~determined~~continues to expand its business, management believes collaboration across its online, retail and indirect channels is integral to better serve its customers and optimize its financial results. In the first quarter of 2015, the Company’s management began reporting business performance and making decisions primarily on a geographic basis, including the results of its retail stores in each respective geographic segment. Accordingly, to align with the way the business is currently managed, the Company’s reportable operating segments ~~which are generally based on the nature and location~~now consist of ~~its customers, to be~~ the Americas, Europe, Greater China, Japan and Rest of Asia ~~Pacific and Retail.~~Pacific. Retail is no longer reported as a separate reportable operating segment. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and Asian countries, other than those countries included in the Company’s other operating segments. ~~The results of the Company’s geographic segments do not include results of the Retail segment.~~ Each operating segment provides similar hardware and software products and similar services. Further information regarding the Company’s operating segments may 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” in Notes to Condensed Consolidated Financial Statements of this Form 10-Q.~~Data.”

Americas

The following table presents Americas net sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	14,310	$	14,052		2%	$	34,408	$	34,393		0%	$	30,566	$	24,789		23%
Percentage of total net sales		31%		32%				33%		35%				41%		43%

The year-over-year increase in Americas ~~experienced increases~~net sales was driven primarily by growth in net sales and unit sales of iPhone and ~~iTunes, Software and Services in the second quarter and first six months of 2014 compared to the same periods in 2013. This growth was largely~~Mac, partially offset by a decline in net sales and unit sales of ~~both iPod and~~ iPad and ~~weakness in foreign currencies~~a stronger U.S. dollar, particularly relative to ~~the U.S. dollar. The decline in iPad~~Latin American currencies. Net sales ~~was due in part to channel inventory changes. iPad channel inventory increased~~ from ~~the beginning to the end of the second quarter and first six months of 2013 as the Company met pent-up demand for new iPads introduced~~Services in the ~~first quarter~~Americas increased due to continued strong sales of 2013 and supplied distribution channels to achieve appropriate channel inventory levels. In contrast, channel inventory declined from the beginning to the end of the second quarter of 2014 and increased much less significantly from the beginning to the end of the first six months of 2014 compared to the same periods in 2013 to achieve appropriate channel inventory levels based on anticipated future demand.iOS apps, partially offset by lower digital media sales.

Europe

The following table presents Europe net sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	10,230	$	9,800		4%	$	23,303	$	22,264		5%	$	17,214	$	14,335		20%
Percentage of total net sales		22%		23%				23%		23%				23%		25%

The increase in Europe net sales during the ~~second~~first quarter ~~and first six months~~ of ~~2014~~2015 compared to the ~~same periods~~first quarter of ~~2013~~2014 primarily reflects ~~increases~~strong growth in net sales ofand unit sales in iPhone ~~Mac~~ and ~~iTunes, Software and Services,~~Mac, partially offset by a decline in net sales and unit sales of ~~iPod~~iPad and ~~iPad. Net sales growth in~~weaker European currencies relative to the ~~second quarter~~U.S. dollar. iPhone channel inventory declined from the end of 2014 as demand for new iPhones was ~~experienced in both developed and emerging markets within Europe, while net sales growth in the first six months of 2014 was driven primarily by increased demand in emerging markets.~~greater than available supply.

Greater China

The following table presents Greater China net sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	9,289	$	8,213		13%	$	18,133	$	15,043		21%	$	16,144	$	9,496		70%
Percentage of total net sales		20%		19%				18%		15%				22%		16%

During the ~~second~~first quarter ~~and first six months~~ of ~~2014,~~2015, Greater China experienced a year-over-year ~~increases~~increase in net sales ~~that were~~ significantly higher than those experienced by the Company overall. ~~The second quarter growth compared to the same period in 2013 was driven by higher~~iPhone and Mac net sales and unit sales of iPhone and Mac and higher net sales of iTunes, Software and Services, partially offset by lower net sales and unit sales of iPad and iPod. The growth in the first six months of 2014 was driven by higher net sales and unit sales of all major product categories except iPod. Higher iPhone net sales and unit sales resulted fromgrew strongly following the launch of new ~~iPhones~~iPhone models and Mac desktops in Greater ~~China at the end of 2013, increased demand for the Company’s entry-priced iPhone, and the~~China. The addition of a significant new carrier in the second quarter of ~~2014. Net~~2014 also contributed to the higher year-over-year iPhone net sales and unit sales growth. Additionally, Greater China experienced strong growth in net sales from Services primarily due to increased sales of iOS apps. This growth was partially offset by a decline in net sales and unit sales of iPad grew year-over-year in the first six months of 2014 due to strong demand for iPad Air and iPad mini with Retina display which were launched in China during the first quarter of 2014. Net sales and unit sales of iPad declined year-over-year in the second quarter of 2014 due to differences in timing of new product launches in 2014 versus 2013. iPad channel inventory increased significantly from the beginning to the end of the second quarter of 2013 to support demand for new iPads launched in China near the end of the first quarter of 2013. In contrast, new iPads were launched in China in the early part of the first quarter of 2014 and channel inventory declined from the beginning to the end of the second quarter of 2014 to achieve appropriate channel inventory levels based on anticipated demand.iPad.

Japan

The following table presents Japan net sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	3,963	$	3,135		26%	$	8,911	$	7,578		18%	$	5,448	$	5,045		8%
Percentage of total net sales		9%		7%				9%		8%				7%		9%

The increase in Japan ~~generated strong year-over-year increases in~~ net sales ~~that were significantly higher than those experienced by~~during the ~~Company overall. The growth~~first quarter of 2015 compared to the first quarter of 2014 reflects higher ~~net sales of every major product category except iPod and growth in net sales of iTunes, Software and Service. iPhone~~ net sales and unit sales ~~were particularly strong in Japan~~of iPhone and iPad following the ~~launch~~Company’s recent product launches, partially offset by lower net sales and unit sales of ~~new iPhones~~Mac and ~~the addition of~~ a significant new carrier in the fourth quarter of 2013. iPad unit sales were down slightly in the second quarter of 2014 and relatively flat in the first six months of 2014 due in part to changes in channel inventory year-over-year. iPhone channel inventory declinedadverse impact from the beginning to the end of the second quarter and first six months of 2014 and iPad channel inventory was relatively flat in the second quarter of 2014 but increased from the beginning to the end of the first six months of 2014 to achieve appropriate channel inventory levels based on anticipated demand. The increases in overall product net sales were partially offset by weakness in the Japanese Yen relative to the U.S. dollar. iPad net sales and unit sales increased in Japan primarily due to the introduction of new iPad models and strong cellular network carrier performance. The increase in Japan net sales was also driven by strong growth in Services primarily due to higher sales of iOS apps.

Rest of Asia Pacific

The following table presents Rest of Asia Pacific net sales information for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ (dollars in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 29, 2014		March 30, 2013		Change		March 29, 2014		March 30, 2013		Change		December 27, 2014		December 28, 2013		Change
Net sales	$	2,627	$	3,162		(17)%	$	6,260	$	7,155		(13)%	$	5,227	$	3,929		33%
Percentage of total net sales		6%		7%				6%		7%				7%		7%

~~During the second quarter and first six months of 2014,~~The increase in Rest of Asia Pacific ~~experienced year-over-year declines~~net sales during the first quarter of 2015 compared to the first quarter of 2014 primarily reflects strong growth in net sales and unit sales in all major product categories except Mac, and experienced declines in net sales in most countries included in the segment. Net sales were negatively affected by several factors including the impact of weakness in several currencies relative to the U.S. dollar, including the Australian dollar. Net sales were also negatively impacted by changes in iPhone channel inventory, which grew from the beginning to the end of the second quarter and first six months of 2013 following the launch of new iPhones but declined from the beginning to the end of second quarter of 2014 and increased much less significantly from the beginning to the end of the first six months of 2014 compared to the same periods in 2013. iPad channel inventory increased less significantly from the beginning to the end of the second quarter of 2014 compared to the second quarter of 2013, but iPad channel inventory increased more significantly from the beginning to the end of the first six months of 2014 than from the beginning to the end of the first six months of 2013.

~~Retail~~

The following tables present Retail net sales information for the three- and six-month periods ended March 29, 2014 and March 30, 2013 and Retail store and headcount information as of March 29, 2014 and March 30, 2013 (dollars in millions):

   Three Months Ended    Six Months Ended
   March 29,
2014    March 30,
2013    Change    March 29,
2014    March 30,
2013    Change
Net sales
   $ 5,227       $ 5,241       0%       $ 12,225       $ 11,682       5%
Percentage of total net sales
   11%       12%          12%       12%

   March 29, 2014    March 30, 2013
U.S. stores
   254       251
International stores
   169       151




Total store count
   423       402




Headcount
   42,400       42,600

~~Growth in Retail net sales and unit sales of~~ iPhone and Mac, ~~in the second quarter and first six months of 2014 were~~partially offset ~~in the second quarter and first six months of 2014~~ by ~~declines~~a decline in net sales and unit sales of ~~iPad. With an average of 422~~iPad and ~~401 stores open~~weaker foreign currencies relative to the U.S. dollar. iPhone channel inventory increased sequentially during the ~~second quarters of 2014~~quarter to support recent product launches and 2013, respectively, average revenue per store declined to $12.4 million in the second quarter of 2014 from $13.1 million in the second quarter of 2013. Average revenue per store declined to $29.1 million in the first six months of 2014 from $29.4 million in the first six months of 2013.seasonal demand.

Retail reported operating income of $1.2 billion during the second quarter of 2014 compared to $1.1 billion in the second quarter of 2013, and reported operating income of $2.9 billion during the first six months of 2014 compared to $2.6 billion in the first six months of 2013. The year-over-year increase in Retail operating income during the second quarter and first six months of 2014 was primarily attributable to higher gross margin.

Gross Margin

Gross margin for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ was as follows (dollars in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Net sales	$	45,646	$	43,603	$	103,240	$	98,115	$	74,599	$	57,594
Cost of sales		27,699		27,254		63,447		60,706		44,858		35,748

Gross margin	$	17,947	$	16,349	$	39,793	$	37,409	$	29,741	$	21,846

Gross margin percentage		39.3%		37.5%		38.5%		38.1%		39.9%		37.9%

The increase in the gross margin percentage during the ~~second~~first quarter ~~and first six months~~ of ~~2014~~2015 compared to the ~~same periods in 2013~~first quarter of 2014 was driven by multiple factors including a favorable shift in mix to products with higher margins, ~~lower commodity costs, and~~ improved leverage on fixed costs from higher net ~~sales. The impact of these factors~~sales and lower commodity costs for some components, which was partially offset by higher cost structures on new products and ~~by changes~~the weakness in ~~some~~most foreign ~~currency exchange rates.~~currencies relative to the U.S. dollar.

The Company anticipates gross margin during the ~~third~~second quarter of ~~2014~~2015 to be between ~~37%~~38.5% and ~~38%~~39.5%. The foregoing statement regarding the Company’s expected gross margin percentage in the ~~third~~second quarter of ~~2014~~2015 is forward-looking and could differ from actual results. The Company’s future gross margins can be impacted by multiple factors including, but not limited to, those set forth in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors” and those described in this paragraph. In general, the Company believes gross margins will remain under downward pressure due to a variety of factors, including continued industry wide global product pricing pressures, increased competition, compressed product life cycles, product transitions, potential increases in the cost of components, and potential strengthening of the U.S. dollar, as well as potential increases in the costs of outside manufacturing services and a potential shift in the Company’s sales mix towards products with lower gross margins. In response to competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins. Gross margins could also be affected by the Company’s ability to manage product quality and warranty costs effectively and to stimulate demand for certain of its products. Due to the Company’s significant international operations, financial results can be significantly affected by fluctuations in exchange rates.

Operating Expenses

Operating expenses for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ were as follows (dollars in millions):

   Three Months Ended    Six Months Ended
   March 29,
2014    March 30,
2013    March 29,
2014    March 30,
2013
Research and development expense
   $ 1,422       $ 1,119       $ 2,752       $ 2,129
Percentage of net sales
   3.1%       2.6%       2.7%       2.2%
Selling, general and administrative expense
   $ 2,932       $ 2,672       $ 5,985       $ 5,512
Percentage of net sales
   6.4%       6.1%       5.8%       5.6%
Total operating expenses
   $ 4,354       $ 3,791       $ 8,737       $ 7,641
Percentage of net sales
   9.5%       8.7%       8.5%       7.8%


	Three Months Ended
	December 27, 2014		December 28, 2013		Change
Research and development	$	1,895	$	1,330		42%
Percentage of total net sales		2.5%		2.3%

Selling, general and administrative	$	3,600	$	3,053		18%
Percentage of total net sales		4.8%		5.3%

Total operating expenses	$	5,495	$	4,383		25%
Percentage of total net sales		7.4%		7.6%

Research and Development ~~(“R&D”) Expense~~

The growth in R&D expense during the ~~second~~first quarter ~~and the first six months~~ of ~~2014~~2015 compared to the ~~same periods in 2013~~first quarter of 2014 was driven primarily by an increase in headcount and related expenses, including share-based compensation costs, and machinery and equipment to support expanded R&D activities. The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related to timely development of new and enhanced products that are central to the Company’s core business strategy. As such, the Company expects to make further investments in R&D to remain competitive.

Selling, General and Administrative ~~(“SG&A”) Expense~~

The growth in ~~SG&A~~selling, general and administrative expense during the ~~second~~first quarter ~~and the first six months~~ of ~~2014~~2015 compared to the ~~same periods in 2013~~first quarter of 2014 was primarily due to increased headcount and related expenses, including share-based compensation costs; higher spending on marketing and advertising; and the Company’s continued expansion of its ~~Retail segment, increased headcount and related expenses, and higher spending on marketing and professional services.~~

~~Other Income and Expense~~retail stores.

Other ~~income and expense~~Income/(Expense), Net

Other income/(expense), net for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013~~ was as follows (dollars in millions):


	Three Months Ended								Six Months Ended								Three Months Ended
	March 29, 2014			March 30, 2013			Change		March 29, 2014			March 30, 2013			Change		December 27, 2014			December 28, 2013			Change
Interest and dividend income	$	410		$	420				$	837		$	841				$	654		$	427
Interest expense		(85	)		0					(169	)		0					(131	)		(84	)
Other expense, net		(100	)		(73	)				(197	)		(32	)				(353	)		(97	)

Total other income/(expense), net	$	225		$	347			(35)%	$	471		$	809			(42)%	$	170		$	246			(31)%

The decrease in other ~~income and expense~~income/(expense), net during the ~~second~~first quarter ~~and first six months~~ of ~~2014~~2015 compared to the ~~same periods in 2013~~first quarter of 2014 was due primarily to ~~interest expense on debt,~~ higher expenses associated with foreign exchange rate movements, ~~and lower realized gains from investment sales, partially offset by lower~~higher premium expenses on foreign exchange ~~contracts.~~contracts and higher interest expense on debt, partially offset by higher interest income. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was ~~1.04%~~1.41% and ~~1.05% in the second quarter of 2014 and 2013, respectively, and~~ 1.03% ~~and 1.06%~~ in the first ~~six months~~quarter of 2015 and 2014, ~~and 2013,~~ respectively.

Provision for Income Taxes

Provision for income taxes and effective tax rates for the ~~three-~~first quarter of 2015 and ~~six-month periods ended March 29,~~ 2014 ~~and March 30, 2013 was~~were as follows (dollars in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013		December 27, 2014		December 28, 2013
Provision for income taxes	$	3,595	$	3,358	$	8,232	$	7,952	$	6,392	$	4,637
Effective tax rate		26.0%		26.0%		26.1%		26.0%		26.2%		26.2%

The Company’s effective tax rates for ~~both periods~~the first quarter of 2015 and 2014 differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings, a substantial portion of which was generated by subsidiaries organized in Ireland, for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. Additionally, the passage of the Tax Increase Prevention Act of 2014, which temporarily reinstated the research tax credit, reduced the effective tax rate for the first quarter of 2015.

The U.S. Internal Revenue Service ~~(the “IRS”)~~ is currently examining the years ~~2007~~2010 through 2012. ~~All IRS audit issues for years prior to 2007 have been resolved.~~ In addition, the Company is subject to audits by state, local and foreign tax authorities. Management believes that adequate provisions have 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 not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2018. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of ~~March 29,~~and during the three months ended December 27, 2014 and September ~~28, 2013 and during the first six months of~~27, 2014 ~~and 2013~~ (in millions):

   March 29, 2014    September 28, 2013
Cash, cash equivalents and marketable securities
   $ 150,589       $ 146,761
Property, plant and equipment, net
   $ 15,120       $ 16,597
Long-term debt
   $ 16,962       $ 16,960
Working capital
   $ 27,333       $ 29,628


							December 27, 2014			September 27, 2014
Cash, cash equivalents and marketable securities							$	177,955		$	155,239
Property, plant and equipment, net							$	20,392		$	20,624
Long-term debt							$	32,504		$	28,987
Commercial paper							$	3,899		$	6,308
Working capital							$	9,792		$	5,083

	Six Months Ended						Three Months Ended
	March 29, 2014			March 30, 2013			December 27, 2014			December 28, 2013
Cash generated by operating activities	$	36,208		$	35,930		$	33,722		$	22,670
Cash used in investing activities	$	(3,362	)	$	(27,878	)	$	(21,165	)	$	(15,103	)
Cash used in financing activities	$	(28,156	)	$	(6,745	)	$	(6,923	)	$	(7,749	)

The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations over the next 12 months. ~~To provide additional flexibility in managing liquidity, the Company plans to access the commercial paper markets beginning in 2014.~~ The Company currently anticipates the cash used for future dividends and the share repurchase program will come from its current domestic cash, cash generated from on-going U.S. operating activities and from borrowings.

As of ~~March 29,~~December 27, 2014 and September ~~28, 2013, $132.2~~27, 2014, $157.8 billion and ~~$111.3~~$137.1 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S.dollar-denominated holdings. Amounts held by foreign subsidiaries are ~~typically~~generally subject to U.S. income taxation on repatriation to the U.S. The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy ~~generally~~ requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.

During the ~~six~~three months ended ~~March 29,~~December 27, 2014, cash generated from operating activities of ~~$36.2~~$33.7 billion was a result of ~~$23.3~~$18.0 billion of net income, non-cash adjustments to net income of ~~$7.5~~$5.7 billion and an increase in the net change in operating assets and liabilities of ~~$5.4~~$10.0 billion. Cash used in investing activities of ~~$3.4~~$21.2 billion during the ~~six~~three months ended ~~March 29,~~December 27, 2014 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $17.9 billion and cash used to acquire property, plant and equipment of ~~$3.4~~$3.2 billion. Cash used in financing activities of $6.9 billion during the ~~six~~three months ended ~~March 29,~~December 27, 2014 consisted primarily of cash used to repurchase common stock of ~~$23.0~~$5.0 billion, cash used to pay dividends and dividend equivalents of $2.8 billion and cash used for repayments of commercial paper, net of proceeds, of $2.4 billion, partially offset by proceeds from the issuance of long-term debt of $3.5 billion.

During the three months ended December 28, 2013, cash generated from operating activities of $22.7 billion was a result of $13.1 billion of net income, non-cash adjustments to net income of $4.1 billion and an increase in the net change in operating assets and liabilities of $5.5 billion. Cash used in investing activities of $15.1 billion during the three months ended December 28, 2013 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $12.5 billion and cash used to acquire property, plant and equipment of $2.0 billion. Cash used in financing activities of $7.7 billion during the three months ended December 28, 2013 consisted primarily of cash used to repurchase common stock of $5.0 billion and cash used to pay dividends and dividend equivalents of ~~$5.4~~$2.8 billion.

During the six months ended March 30, 2013, cash generated from operating activities of $35.9 billion was a result of $22.6 billion of net income, non-cash adjustments to net income of $6.4 billion and an increase in net change in operating assets and liabilities of $6.9 billion. Cash used in investing activities of $27.9 billion during the six months ended March 30, 2013 consisted primarily of cash used for purchases, net of sales and maturities, of marketable securities of $22.7 billion and cash used to acquire property, plant and equipment of $4.3 billion. Cash used in financing activities during the six months ended March 30, 2013 consisted primarily of cash used to pay dividends and dividend equivalents of $5.0 billion and cash used to repurchase common stock of $1.95 billion.

Capital Assets

The Company’s capital expenditures were ~~$2.0~~$2.1 billion during the first ~~six months~~quarter of ~~2014 consisting of $198 million for retail store facilities and $1.8~~2015. The Company anticipates utilizing approximately $13.0 billion for ~~other~~ capital expenditures ~~including~~during 2015, which includes product tooling and manufacturing process ~~equipment, and other corporate facilities and infrastructure. The Company’s actual cash payments for capital expenditures during the first six months of 2014 were $3.4 billion.~~

The Company anticipates utilizing approximately $11.0 billion for capital expenditures during 2014, including approximately $550 million for retail store facilities and approximately $10.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, andequipment; data centers; corporate facilities and infrastructure, including information systems hardware, software and ~~enhancements.~~enhancements; and retail store facilities.

~~During~~Debt

In April 2014, the Board of Directors authorized the Company to issue unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company intends to use the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of December 27, 2014, the Company ~~expects to open about 30 new retail stores,~~had $3.9 billion of Commercial Paper outstanding, with ~~approximately two-thirds located outside~~a weighted-average interest rate of ~~the U.S. During~~0.11% and maturities generally less than nine months.

As of December 27, 2014, the Company ~~also expects~~has issued floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $32.4 billion (collectively the “Notes”). The Company has entered, and in the future may enter, into interest rate swaps to ~~remodel approximately 20 of its existing stores.~~

~~Long-Term Debt~~

manage interest rate risk on the Notes. Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments. In addition, the Company has entered, and in the future may enter, into currency swaps to manage foreign currency risk on the Notes. In the ~~third~~first quarter of ~~2013,~~2015, the Company issued ~~$17.0~~€2.8 billion of Euro-denominated long-term ~~debt, which included $3.0 billion of floating-rate notes.~~debt. To manage ~~the~~foreign currency risk ~~of adverse fluctuations in interest rates~~ associated with ~~the floating-rate notes,~~this issuance, the Company entered into ~~interest rate~~currency swaps with an aggregate notional amount of ~~$3.0~~$3.5 billion, which ~~in effect, fixed~~effectively converted the ~~interest rate of the floating-rate~~Euro-denominated notes to U.S. dollar-denominated notes. ~~Of the aggregate principal amount of $17.0 billion, $2.5 billion is due in 2016 and $14.5 billion is due in 2018 through 2043.~~

~~Dividend and Share Repurchase~~Capital Return Program

In April ~~2013,~~2014, the Company’s Board of Directors ~~authorized a~~increased the share repurchase program authorization from $60 billion to ~~repurchase up to $60~~$90 billion of the Company’s common stock, of which ~~$45.9~~$72.9 billion had been utilized as of ~~March 29,~~December 27, 2014. The share repurchase program is expected to be completed by the end of December 2015. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

The ~~following table presents~~increase to the Company’s ~~dividends, dividend equivalents,~~ share ~~repurchases and net share settlement activity from the start~~repurchase program authorization resulted in a total capital return program of over $130 billion. The Company expects to complete the capital return program ~~in August 2012 through the second quarter of 2014 (in millions):~~

   Dividends
and
Dividend
Equivalents
Paid    Accelerated
Share
Repurchases    Open
Market
Share
Repurchases    Taxes
Related to
Settlement
of Equity
Awards    Total
2012
   $ 2,488       $ 0       $ 0       $ 56       $ 2,544
2013
   10,564       13,950       9,000       1,082       34,596
Q1 2014
   2,769       0       5,000       365       8,134
Q2 2014
   2,661       12,000       6,000       65       20,726










Total
   $ 18,482       $ 25,950       $ 20,000       $ 1,568       $ 66,000

On April 23, 2014, the Company announced that the Board of Directors raised the cash dividend by approximately 8% to $3.29 per common share, beginning with the dividend to be paid during the third quarter of 2014. The Company expects to pay approximately $2.8 billion in quarterly dividends to common shareholders during the third quarter of 2014. The Company also plans to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

Additionally, the Company announced that the Board of Directors increased the share repurchase authorization from $60 billion to $90 billion, increasing the total capital return program from $100 billion to over $130 billion, which the Company expects to execute by the end of December 2015 by paying dividends and dividend equivalents, repurchasing shares and remitting withheld taxes related to net share settlement of restricted stock units. To assist in funding its capital return program, the Company expects to access the ~~public~~ debt markets, ~~during 2014,~~ both domestically and ~~internationally, for an amount~~internationally.

The following table presents the Company’s dividends, dividend equivalents, share repurchases and net share settlement activity from the start of ~~term debt similar to what the Company raised during 2013.~~

~~In addition to the announced changes to~~ the capital return program in August 2012 through December 2014 (in millions):


	Dividends and Dividend Equivalents Paid		Accelerated Share Repurchases		Open Market Share Repurchases		Taxes Related to Settlement of Equity Awards		Total
Q1 2015	$	2,801	$	0	$	5,000	$	512	$	8,313
2014		11,126		21,000		24,000		1,158		57,284
2013		10,564		13,950		9,000		1,082		34,596
2012		2,488		0		0		56		2,544

Total	$	26,979	$	34,950	$	38,000	$	2,808	$	102,737

In November 2014, the Company ~~also announced that~~paid cash dividends of $0.47 per common share, totaling $2.8 billion. The Company plans to increase its dividend on an annual basis subject to declaration by the Board of Directors approved a seven-for-one split of its common stock. Effective at the close of business on June 6, 2014, shareholders of record will receive six additional shares for each share held on June 2, 2014.Directors.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or R&D services with the Company.

~~Lease Commitments~~Operating Leases

The Company’s major facility leases are typically for terms not exceeding 10 years and generally ~~provide~~contain multi-year renewal ~~options for terms not exceeding five additional years.~~options. As of December 27, 2014, the Company had a total of 447 retail stores. Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of ~~March 29,~~December 27, 2014, the Company’s total future minimum lease payments under noncancelable operating leases were $4.8 billion, of which ~~$3.6~~$3.5 billion related to leases for retail space.

Purchase Commitments ~~with Outsourcing Partners and Component Suppliers~~

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. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of ~~March 29,~~December 27, 2014, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase commitments of ~~$12.6~~$21.6 billion.

Other Obligations

In addition to the commitments mentioned above, the Company had ~~additional~~other off-balance sheet obligations of ~~$2.8~~$3.9 billion as of ~~March 29,~~December 27, 2014, that were comprised ~~mainly~~ of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to advertising, ~~research and development,~~R&D, Internet and telecommunications services, energy and other obligations.

The Company’s other non-current liabilities in the Condensed Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross unrecognized tax benefits and the related gross interest and penalties. As of ~~March 29,~~December 27, 2014, the Company had non-current deferred tax liabilities of ~~$19.5~~$23.4 billion. Additionally, as of ~~March 29,~~December 27, 2014, the Company had gross unrecognized tax benefits of ~~$3.0~~$4.4 billion and an additional ~~$590~~$821 million for gross interest and penalties classified as non-current liabilities. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments due to uncertainties in the timing of tax audit outcomes.

Indemnification

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) 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 in its condensed consolidated financial statements and accompanying notes. 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 ~~Company’s 2013~~2014 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. 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.

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, valuation and impairment of marketable securities, inventory valuation and valuation of manufacturing-related assets and estimated purchase commitment cancellation fees, warranty costs, income taxes, and legal and other contingencies. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Audit and Finance Committee of the Company’s Board of Directors.

Revenue Recognition

Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, ~~peripherals,~~accessories, and service and support contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable. Product is considered delivered to the customer once it has been shipped and title, ~~and~~ risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. For payment terms in excess of the Company’s standard payment terms, revenue is recognized as payments become due unless the Company has positive evidence that the sales price is fixed or determinable, such as a successful history of collection, without concession, on comparable arrangements. The Company recognizes revenue from the sale of hardware products, software bundled with hardware that is essential to the functionality of the hardware and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.

For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality, undelivered software elements that relate to the hardware product’s essential software and/or undelivered non-software services, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.

For sales of qualifying versions of iOS devices, Mac and Apple TV, the Company has indicated it may from time to time provide future unspecified software upgrades and features free of charge to customers. The Company also provides various non-software services to owners of qualifying versions of iOS devices and Mac. Because the Company has neither VSOE nor TPE for the unspecified software upgrade rights or the non-software services, revenue is allocated to these rights and services based on the Company’s ESPs. Revenue allocated to the unspecified software upgrade rights and non-software services based on the Company’s ESPs is deferred and recognized on a straight-line basis over the estimated period the software upgrades and non-software services are expected to be provided for each of these devices, which ranges from two to four years.

The Company’s process for determining ESPs involves management’s judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable. Should future facts and circumstances change, the Company’s ESPs and the future rate of related amortization for software upgrades and non-software services related to future sales of these devices could change. Factors subject to change include the unspecified software upgrade rights offered, the estimated value of unspecified software upgrade rights, the estimated or actual costs incurred to provide non-software services and the estimated period software upgrades and non-software services are expected to be provided.

The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded, provided the refund amount can be reasonably and reliably estimated and the other conditions for revenue recognition have been met. The Company’s policy requires that, if refunds cannot be reliably estimated, revenue is not recognized until reliable estimates can be made or the price protection lapses. For the Company’s other customer incentive programs, the estimated cost is recognized at the later of the date at which the Company has sold the product or the date at which the program is offered. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. Future market conditions and product transitions may require the Company to increase customer incentive programs that could result in reductions to future revenue. Additionally, certain customer incentive programs require management to estimate the number of customers who will actually redeem the incentive. Management’s estimates are based on historical experience and the specific terms and conditions of particular incentive programs. If a greater than estimated proportion of customers redeems such incentives, the Company would be required to record additional reductions to revenue, which would have an adverse impact on the Company’s results of operations.

Valuation and Impairment of Marketable Securities

The Company’s investments in available-for-sale securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of securities are recognized in accumulated other comprehensive income, net of tax, in the Company’s Condensed Consolidated Balance Sheets. Changes in the fair value of available-for-sale securities impact the Company’s net income only when such securities are sold or an other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis. The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period any such determination is made. In making this judgment, the Company evaluates, among other things, the duration and extent to which the fair value of a 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. The Company’s assessment on whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security.

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

The Company must order components for its products and build inventory in advance of product shipments and has invested in manufacturing process equipment, including capital assets held at its suppliers’ facilities. In addition, the Company has made prepayments to certain of its suppliers associated with long-term supply agreements to secure supply of inventory components. The Company records a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. The Company performs a detailed review of inventory that considers multiple factors including demand forecasts, product life cycle status, product development plans, current sales levels and component cost trends. The Company also reviews its manufacturing-related capital assets and inventory prepayments for impairment whenever events or circumstances indicate the carrying amount of such assets may not be recoverable. If the Company determines that an asset is not recoverable, it records an impairment loss equal to the amount by which the carrying value of such an asset exceeds its fair value.

The industries in which the Company competes are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. In certain circumstances the Company may be required to record additional write-downs of inventory, inventory prepayments and/or manufacturing-related capital assets. These circumstances include future demand or market conditions for the Company’s products being less favorable than forecasted, unforeseen technological changes or changes to the Company’s product development plans that negatively impact the utility of any of these assets, or significant deterioration in the financial condition of one or more of the Company’s suppliers that hold any of the Company’s manufacturing process equipment or to whom the Company has made an inventory prepayment. Such write-downs would adversely affect the Company’s results of operations in the period when the write-downs were recorded.

The Company records accruals for estimated cancellation fees related to component orders that have been cancelled or are expected to be cancelled. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts and open orders in each case based on projected demand. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. Purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for periods up to 150 days. If there is an abrupt and substantial decline in demand for one or more of the Company’s products, if the Company’s product development plans change, or if there is an unanticipated change in technological requirements for any of the Company’s products, then the Company may be required to record additional accruals for cancellation fees that would adversely affect its results of operations in the period when the cancellation fees are identified and recorded.

Warranty Costs

The Company provides for the estimated cost of warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost-per-claim and knowledge of specific product failures that are outside of the Company’s typical experience. Each quarter, the Company ~~reevaluates~~re-evaluates these estimates to assess the adequacy of its recorded warranty liabilities considering the size of the installed base of products subject to warranty protection and adjusts the amounts as necessary. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the Company’s results of operations.

Income Taxes

The Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the deferred tax assets. In the event that the Company determines all or part of the net deferred tax assets are not realizable in the future, the Company will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.

Legal and Other Contingencies

As discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings” and in ~~Note 10, “Commitments and Contingencies”~~Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements, ~~of this Form 10-Q,~~in Note 10, “Commitments and Contingencies,” the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. 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 in excess of a recorded accrual, with respect to loss contingencies for legal and other contingencies. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

~~The~~In the first quarter of 2015, the Company issued€2.8 billion of Euro-denominated long-term debt. To manage foreign currency risk associated with this issuance, the Company entered into currency swaps with an aggregate notional amount of $3.5 billion, which effectively converted the Euro-denominated notes to U.S. dollar-denominated notes. Notwithstanding the resulting foreign currency risk applicable to the long-term debt, there have been no material changes to the Company’s market risk during the first quarter of 2015. 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 ~~its 2013~~the 2014 Form ~~10-K have not changed materially for the first six months of 2014.~~10-K.

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 ~~March 29,~~December 27, 2014 to ensure 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 ~~second~~first quarter of ~~2014,~~2015, 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.~~ II—OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is subject to the various legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. 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 in excess of a recorded accrual, with respect to loss contingencies. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. See the risk factor “The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights” in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.” The Company settled certain matters during the ~~second~~first quarter of ~~2014~~2015 that did not individually or in the aggregate have a material impact on the Company’s financial condition or results of operations.

The Apple iPod iTunes Antitrust Litigation (formerly Charoensak v. Apple Computer, Inc. and Tucker v. Apple Computer, Inc.)

These related cases were filed on January 3, 2005 and July 21, 2006 in the United States District Court for the Northern District of California on behalf of a purported class of direct purchasers of iPods and iTunes Store content, alleging various claims including alleged unlawful tying of music and video purchased on the iTunes Store with the purchase of iPods and unlawful acquisition or maintenance of monopoly market power under §§1 and 2 of the Sherman Act, the Cartwright Act, California Business & Professions Code §17200 (unfair competition), the California Consumer Legal Remedies Act and California monopolization law. ~~Plaintiffs are seeking unspecified compensatory and punitive damages for~~After a three week trial in December 2014, the ~~class, treble damages, injunctive relief, disgorgement~~jury returned a verdict in favor of ~~revenues and/or profits and attorneys fees. Plaintiffs are also seeking digital rights management free versions of any songs downloaded from iTunes or an order requiring~~ the Company ~~to license its digital rights management to~~and, on January 5, 2015, the District Court entered judgment in favor of the Company, dismissing all ~~competing music players. The cases are currently pending.~~claims against it with prejudice.

Apple eBooks Antitrust Litigation (United States of America v. Apple Inc., et al.)

On April 11, 2012, the U.S. Department of Justice filed a civil antitrust action against the Company and five major book publishers in the U.S. District Court for the Southern District of New York, alleging an unreasonable restraint of interstate trade and commerce in violation of §1 of the Sherman Act and seeking, among other things, injunctive relief, the District Court’s declaration that the Company’s agency agreements with the publishers are null and void and/or the District Court’s reformation of such agreements. On July 10, 2013, the District Court found, following a bench trial, that the Company conspired to restrain trade in violation of §1 of the Sherman Act and relevant state statutes to the extent those laws are congruent with §1 of the Sherman Act. The District Court entered a permanent injunction, which took effect on October 6, 2013 and will be in effect for five years unless the judgment is overturned on appeal. The Company has taken the necessary steps to comply with the terms of the District Court’s order, including renegotiating agreements with the five major eBook publishers, updating its antitrust training program and hiring an antitrust compliance monitor. ~~A damages trial is set for July 2014.~~ The Company ~~has~~ appealed the District Court’s decision. Pursuant to a settlement agreement reached by the parties in June 2014, any damages the Company may be obligated to pay will be determined by the outcome of the appellate decision.

Item 1A.

Risk Factors

The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with the Company’s business previously disclosed in Part I, Item 1A of the ~~Company’s 2013~~2014 Form 10-K ~~and in Part II, Item 1A of the Form 10-Q for the quarter ended December 28, 2013, in each case~~ under the heading “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 below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and common stock price.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this Form 10-Q or elsewhere. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Global and regional economic conditions could materially adversely affect the Company.

The Company’s operations and performance depend significantly on global and regional economic conditions. Uncertainty about global and regional economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, higher unemployment, financial market volatility, government austerity programs, negative financial news, declines in income or asset values and/or other factors. These worldwide and regional economic conditions could have a material adverse effect on demand for the Company’s products and services. Demand also could differ materially from the Company’s expectations as a result of currency fluctuations because the Company generally raises prices on goods and services sold outside the U.S. to correspond with the effect of a strengthening of the U.S. dollar. Other factors that could influence worldwide or regional demand include increases in fuel and other energy costs, conditions in the real estate and mortgage markets, unemployment, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could materially adversely affect demand for the Company’s products and services.

In the event of ~~further~~ financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, currency and equity markets. This could have a number of effects on the Company’s business, including the insolvency or financial instability of outsourcing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products resulting in product delays; inability of customers, including channel partners, to obtain credit to finance purchases of the Company’s products; failure of derivative counterparties and other financial institutions; and ~~restricting~~restrictions on the Company’s ability to issue new debt. Other income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances; volatility in foreign exchange rates; and changes in fair value of derivative instruments. Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them.

Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.

The Company’s products and services compete in highly competitive global markets characterized by aggressive price cutting and resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption of technological and product advancements by competitors and price sensitivity on the part of consumers.

The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products and technologies to the marketplace. The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services. As a result, the Company must make significant investments in ~~research and development.~~R&D. The Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks. In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the Company’s products and infringing on its intellectual property. If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.

The Company markets certain mobile communication and media devices based on the iOS mobile operating system and also markets related third-party digital content and applications. The Company faces substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships; and the Company has a minority market share in the smartphone market. Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. The Company also competes with illegitimate ways to obtain third-party digital content and ~~applications.~~applications and with business models that include content provided to users for free. Some of the Company’s competitors have greater experience, product breadth and distribution channels than the Company. Because some current and potential competitors have substantial resources and/or experience and a lower cost structure, they may be able to provide products and services at little or no profit or even at a loss. The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing components seamlessly within their individual offerings or work collaboratively to offer integrated solutions. The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve iOS and iOS devices in order to maintain their functional and design advantages.

The Company is the only authorized maker of hardware using OS X, which has a minority market share in the personal computer market. This market has been contracting and is dominated by computer makers using competing operating systems, most notably Windows. In the market for personal computers and ~~peripherals,~~accessories, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products and a larger installed customer base. Historically, consolidation in this market has resulted in larger competitors. Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins. An increasing number of Internet-enabled devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products. The Company’s financial condition and operating results also depend on its ability to continually improve the Mac platform to maintain its functional and design advantages.

There can be no assurance the Company will be able to continue to provide products and services that compete effectively.

To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.

Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products. The success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies in the early stages of introduction. Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.

The Company depends on the performance of distributors, carriers and other resellers.

The Company distributes its products through cellular network carriers, wholesalers, national and regional retailers, and value-added resellers, many of whom distribute products from competing manufacturers. The Company also sells its products and third-party products in most of its major markets directly to education, enterprise and government customers, and consumers and small and mid-sized businesses through its online and retail stores.

Carriers providing cellular network service for iPhone typically subsidize users’ purchases of the device. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.

Many resellers have narrow operating margins and have been adversely affected in the past by weak economic conditions. Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors and resellers of the Company’s products. Such a perception could discourage resellers from investing resources in the distribution and sale of the Company’s products or lead them to limit or cease distribution of those products. The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays. These programs could require a substantial investment while providing no assurance of return or incremental revenue. The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.

The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.

The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components. The Company also reviews its long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable. If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair value. Although the Company believes its provisions related to inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company competes.

The Company must order components for its products and build inventory in advance of product announcements and shipments. Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts and open orders, in each case based on projected demand. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. Purchase commitments typically cover forecasted component and manufacturing requirements for periods up to 150 days. Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.

Future operating results depend upon the Company’s ability to obtain components in sufficient quantities.

Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations. While the Company has entered into ~~various~~ agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all. A number of suppliers of components may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components. The follow-on effects from global economic conditions on the Company’s suppliers, described in “Global and regional economic conditions could materially adversely affect the Company” above, also could affect the Company’s ability to obtain components.Therefore, the Company remains subject to significant risks of supply shortages and price increases.

The Company and other participants in the markets for mobile communication and media devices and personal computers also compete for various components with other industries that have experienced increased demand for their products. The Company uses some custom components that are not common to the rest of these industries. The Company’s new products 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 manufacturing capacity has increased. Continued availability of these components at acceptable prices, or at all, may be affected for any number of reasons, including if those suppliers ~~decided~~decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements. The supply of components for a new or existing product could be delayed or constrained, or a key manufacturing vendor could delay shipments of completed products to the Company.

The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of whom are located outside of the U.S.

Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners located primarily in Asia. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. Although arrangements with these partners may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects and could experience an unanticipated product defect or warranty liability. While the Company relies on its partners to adhere to its supplier code of conduct, material violations of the supplier code of conduct could occur.

The Company relies on sole-sourced outsourcing partners in the U.S., Asia and Europe to supply and manufacture many critical components, and on outsourcing partners primarily located in Asia, ~~and to a much lesser extent the United States,~~ for final assembly of substantially all of the Company’s hardware products. Any failure of these partners to perform may have a negative impact on the Company’s cost or supply of components or finished goods. In addition, manufacturing or logistics in these locations or transit to final destinations may be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions or economic, business, labor, environmental, public health, or political issues.

The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply agreements. While these arrangements help ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems or other disruptions in their business, such continued supply could be reduced or terminated and the net realizable value of these assets could be negatively impacted.

The Company’s products and services may experience quality problems from time to time that can result in decreased sales and operating margin and harm to the Company’s reputation.

The Company sells complex hardware and software products and services that can contain design and manufacturing defects. Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the software’s intended operation. The Company’s online services may from time to time experience outages, service slowdowns, or errors. Defects may also occur in components and products the Company purchases from third parties. There can be no assurance the Company will be able to detect and fix all defects in the hardware, software and services it sells. Failure to do so could result in lost revenue, significant warranty and other expenses and harm to the Company’s reputation.

The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.

The Company contracts with numerous third parties to offer their digital content through the iTunes Store. This includes the right to make available music, movies, TV shows and books currently available through the iTunes Store. The licensing or other distribution arrangements with these third parties are ~~short-term~~for relatively short terms and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers and distributors currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license or otherwise distribute their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the cost of, such content. The Company may be unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach. Failure to obtain the right to make available third-party digital content, or to make available such content on commercially reasonable terms, could have a material adverse impact on the Company’s financial condition and operating results.

Some third-party digital content providers require the Company to provide digital rights management and other security solutions. If requirements change, the Company may have to develop or license new technology to provide these solutions. There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In addition, certain countries have passed or may propose and adopt legislation that would force the Company to license its digital rights management, which could lessen the protection of content and subject it to piracy and also could negatively affect arrangements with the Company’s content providers.

The Company’s future performance depends in part on support fromthird-party software developers.

The Company believes decisions by customers to purchase its hardware products depend in part on the availability ofthird-party software applications and services. There is no assurance that third-party developers will continue to develop and maintain software applications and services for the Company’s products. If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.

With respect to its Mac products, the Company believes the availability ofthird-party software applications and services depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software for the Company’s products compared to Windows-based products. This analysis may be based on factors such as the market position of the Company and its products, the anticipated revenue that may be generated, expected future growth of Mac sales and the costs of developing such applications and services. If the Company’s minority share of the global personal computer market causes developers to question the ~~Company’s~~Mac’s prospects, developers could be less inclined to develop or upgrade software for the Company’s Mac products and more inclined to devote their resources to developing and upgrading software for the larger Windows market.

With respect to iOS devices, the Company relies on the continued availability and development of compelling and innovative software applications, which are distributed through a single distribution channel, the App Store. iOS devices are subject to rapid technological change, and, if third-party developers are unable to or choose not to keep up with this pace of change, third-party applications might not successfully operate and may result in dissatisfied customers. As with applications for the Company’s Mac products, the availability and development of these applications also depend on developers’ perceptions and analysis of the relative benefits of developing software for the Company’s ~~products~~iOS devices rather than its competitors’ platforms, such as Android. If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s iOS devices may suffer.

The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.

Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties. Based on past experience and industry practice, the Company believes such licenses generally can be obtained on reasonable terms. There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could preclude the Company from selling certain products or otherwise have a material adverse impact on the Company’s financial condition and operating results.

The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights.

The Company is subject to various legal proceedings and claims that have not yet been fully resolved and that have arisen in the ordinary course of business, and additional claims may arise in the future.

For example, technology companies, including many of the Company’s competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. As the Company has grown, the intellectual property rights claims against it have increased and may continue to increase. In particular, the Company’s cellular enabled products compete with products from mobile communication and media device companies that hold significant patent portfolios, and the number of patent claims against the Company has significantly increased. The Company is vigorously defending infringement actions in courts in a number of U.S. jurisdictions and before the U.S. International Trade Commission, as well as internationally in various countries. The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation. If the Company is found to infringe one or more patents or other intellectual property rights, regardless of whether it can develop non-infringing technology, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from marketing or selling certain products.

In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Company’s operating expenses.

Regardless of the merit of particular claims, litigation may be expensive, time-consuming, disruptive to the Company’s operations and distracting to management. In recognition of these considerations, the Company may enter into arrangements to settle litigation.

In management’s opinion, there is not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies, including matters related to infringement of intellectual property rights. However, the outcome of litigation is inherently uncertain.

Although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company that could materially adversely affect its financial condition and operating results.

The Company is subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.

The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of labor, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, quality of services, telecommunications, mobile communications and media, television, intellectual property ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental, health and safety.

By way of example, laws and regulations related to mobile communications and media devices in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes could include, among others, restrictions on the production, manufacture, distribution and use of devices, locking devices to a carrier’s network, or mandating the use of devices on more than one carrier’s network. These devices are also subject to certification and regulation by governmental and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications, or delays in product shipment dates, or could preclude the Company from selling certain products.

Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s products and services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or the Company’s policies and procedures.

The Company’s business is subject to the risks of international operations.

The Company derives a significant portion of its revenue and earnings from its international operations. Compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, environmental laws, labor laws and anti-competition regulations, increases the costs of doing business in foreign jurisdictions. Although the Company has implemented policies and procedures to comply with these laws and regulations, a violation by the Company’s employees, contractors, or agents could nevertheless occur.

The Company also could be significantly affected by other risks associated with international activities including, but not limited to, economic and labor conditions, increased duties, taxes and other costs and political instability. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by international trade regulations, including duties, tariffs and antidumping penalties. The Company is also exposed to credit and collectability risk on its trade receivables with customers in certain international markets. There can be no assurance the Company can effectively limit its credit risk and avoid losses.

The Company’s ~~Retail segment has~~retail stores have required and will continue to require a substantial investment and commitment of resources and isare subject to numerous risks and uncertainties.

The Company’s retail stores have required substantial investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has entered into substantial operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high cost structure associated with the ~~Retail segment,~~Company’s retail stores, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and severance costs.

Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties. These risks and uncertainties include, but are not limited to, macro-economic factors that could have an adverse effect on general retail activity, as well as the Company’s inability to manage costs associated with store construction and operation, the Company’s failure to manage relationships with its existing retail ~~channel~~ partners, more challenging environments in managing retail operations outside the U.S., costs associated with unanticipated fluctuations in the value of retail inventory, and the Company’s inability to obtain and renew leases in quality retail locations at a reasonable cost.

Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks not originally contemplated.

The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital and unidentified issues not discovered in the Company’s due diligence. These new ventures are inherently risky and may not be successful.

The Company’s business and reputation may be impacted by information technology system failures or network disruptions.

The Company may be subject to information technology system failures and network disruptions. These may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or other events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online stores and services, preclude retail store transactions, compromise Company or customer data, and result in delayed or cancelled orders. System failures and disruptions could also impede the manufacturing and shipping of products, delivery of online services, transactions processing and financial reporting.

There may be breaches of the Company’s information technology systems that materially damage business partner and customer relationships, curtail or otherwise adversely impact access to online stores and services, or subject the Company to significant reputational, financial, legal and operational consequences.

The Company’s business requires it to use and store customer, employee and business partner personally identifiable information (“PII”). This may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers and payment account information. Although malicious attacks to gain access to PII affect many companies across various industries, the Company is at a relatively greater risk of being targeted because of its high profile and the amount of PII it manages.

The Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company data or accounts. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access the Company’s information technology systems. To help protect customers and the Company, the Company monitors accounts and systems for unusual activity and may freeze accounts under suspicious circumstances, which may result in the delay or loss of customer orders.

The Company devotes significant resources to network security, data encryption and other security measures to protect its systems and data, but these security measures cannot provide absolute security. To the extent the Company was to experience a breach of its systems and was unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise adversely impact access to online stores and services. Moreover, if a computer security breach affects the Company’s systems or results in the unauthorized release of PII, the Company’s reputation and brand could be materially damaged, use of the Company’s products and services could decrease, and the Company could be exposed to a risk of loss or litigation and possible liability. While the Company maintains insurance coverage that, subject to policy terms and conditions and subject to a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding data protection.

The Company is subject to federal, state and international laws relating to the collection, use, retention, security and transfer of PII. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between the Company and its subsidiaries, and among the Company, its subsidiaries and other parties with which the Company has commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to change its business practices. Noncompliance could result in penalties or significant legal liability.

The Company’s privacy policy, which includes related practices concerning the use and disclosure of data, is posted on its website. Any failure by the Company, its suppliers or other parties with whom the Company does business to comply with its posted privacy policy or with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against the Company by governmental entities or others.

The Company is also subject to payment card association rules and obligations under its contracts with payment card processors. Under these rules and obligations, if information is compromised, the Company could be liable to payment card issuers for associated expenses and penalties. In addition, if the Company fails to follow payment card industry security standards, even if no customer information is compromised, the Company could incur significant fines or experience a significant increase in payment card transaction costs.

The Company’s success depends largely on the continued service and availability of key personnel.

Much of the Company’s future success depends on the continued availability and service of key personnel, including its Chief Executive Officer, executive team and other highly skilled employees. Experienced personnel in the technology industry are in high demand and competition for their talents is intense, especially in Silicon Valley, where most of the Company’s key personnel are located.

The Company’s business may be impacted by political events, war, terrorism, public health issues, natural disasters and other business interruptions.

War, terrorism, geopolitical uncertainties, public health issues and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a material adverse effect on the Company, its suppliers, logistics providers, manufacturing vendors and customers, including channel partners. The Company’s business operations are subject to interruption by, among others, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents, terrorist attacks and other hostile acts, labor disputes, public health issues and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult or impossible for the Company to make and deliver products to its customers, including channel partners, or to receive components from its suppliers, and create delays and inefficiencies in the Company’s supply chain. Should major public health issues, including pandemics, arise, the Company could be adversely affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products and disruptions in the operations of the Company’s manufacturing vendors and component suppliers. The majority of the Company’s ~~research and development~~R&D activities, its corporate headquarters, information technology systems and other critical business operations, including certain component suppliers and manufacturing vendors, are in locations that could be affected by natural disasters. In the event of a natural disaster, the Company could incur significant losses, require substantial recovery time and experience significant expenditures in order to resume operations.

The Company expects its quarterly revenue and operating results to fluctuate.

The Company’s profit margins vary across its products and distribution channels. The Company’s software, accessories, and service and support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the Company’s hardware products vary across product lines and can change over time as a result of product transitions, pricing and configuration changes, and component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher associated gross margins than its indirect sales through its channel partners. In addition, the Company’s gross margin and operating margin percentages, as well as overall profitability, may be materially adversely impacted as a result of a shift in product, geographic or channel mix, component cost increases, the strengthening U.S. dollar, price competition, or the introduction of new products, including those that have higher cost structures with flat or reduced pricing.

The Company has typically experienced higher net sales in its first quarter compared to other quarters due in part to seasonal holiday demand. Additionally, new product introductions can significantly impact net sales, product costs and operating expenses. The Company could be subject to unexpected developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, issues with new product introductions, an internal systems failure, or failure of one of the Company’s logistics, components supply, or manufacturing partners.

The Company’s stock price is subject to volatility.

The Company’s stock ~~continues to experience~~price has experienced substantial price ~~volatility.~~volatility in the past and may continue to do so in the future. Additionally, the Company, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to these companies’ operating performance. Price volatility over a given period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time. The Company believes its stock price reflects expectations of future growth and profitability. The Company also believes its stock price reflects expectations that its cash dividend will continue at current levels or grow and that its current share repurchase program will be fully consummated. Future dividends are subject to declaration by the Company’s Board of Directors, and the Company’s share repurchase program does not obligate it to acquire any specific number of shares. If the Company fails to meet ~~any of these~~ expectations related to future growth, profitability, dividends, share repurchases or other market expectations, its stock price may decline significantly, which could have a material adverse impact on investor confidence and employee retention.

The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.

The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products. Margins on sales of the Company’s products in foreign countries and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign currency-denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its foreign currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.

The Company uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.

Given the global nature of its business, the Company has both domestic and international investments. Credit ratings and pricing of the Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of the Company’s cash, cash equivalents and marketable securities may fluctuate substantially. Therefore, although the Company has not realized any significant losses on its cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized loss.

The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.

The Company distributes its products through third-party cellular network carriers, wholesalers, retailers and value-added resellers. The Company also sells its products directly to small and mid-sized businesses and education, enterprise and government customers. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral, third-party financing arrangements or credit insurance. The Company’s exposure to credit and collectability risk on its trade receivables is higher in certain international markets and its ability to mitigate such risks may be limited. The Company also has unsecured vendor non-trade receivables resulting from purchases of components by outsourcing partners and other vendors that manufacture sub-assemblies or assemble final products for the Company. In addition, the Company has made prepayments associated with long-term supply agreements to secure supply of inventory components. As of ~~March 29,~~December 27, 2014, a significant portion of the Company’s trade receivables was concentrated within cellular network carriers, and its vendor non-trade receivables and prepayments related to long-term supply agreements were concentrated among a few individual vendors located primarily in Asia. While the Company has procedures to monitor and limit exposure to credit risk on its trade and vendor non-trade receivables, as well as long-term prepayments, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.

The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.

The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, including Ireland, where a number of the Company’s subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including in the U.S. and Ireland. For example, in June 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Ireland with regard to the corporate income tax to be paid by two of the Company’s Irish subsidiaries comply with European Union rules on state aid. If the European Commission were to take a final decision against Ireland, it could require Ireland to recover from the Company past taxes reflective of the disallowed state aid.

The Company is also subject to the examination of its tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations. If the Company’s effective tax rates were to increase, particularly in the U.S. or Ireland, or if the ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows and financial condition could be adversely affected.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Share repurchase activity during the three months ended ~~March 29,~~December 27, 2014 was as ~~follows:~~follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):

Q2 2014 Fiscal Periods
   Total Number
of Shares
Purchased
(in thousands)    Average
Price Paid
Per Share    Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
(in thousands)    Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under the Plans
or Programs
(in millions) (a)
December 29, 2013 to February 1, 2014:

January 2014 ASR
   19,178 (b)       (b)       19,178 (b)
Open Market Purchases
   2,150             $ 523.09       2,150
February 2, 2014 to March 1, 2014:

Open Market Purchases
   8,117             $ 526.73       8,117
March 2, 2014 to March 29, 2014:

April 2013 ASR
   1,142 (c)       (c)       1,142 (c)
Open Market Purchases
   1,125            $ 533.17       1,125






Total
   31,712               31,712            $ 14,050


Q1 Fiscal 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⁾
September 28, 2014 to November 1, 2014:
Open market and privately negotiated purchases		16,246	$	104.02		16,246

November 2, 2014 to November 29, 2014:
August 2014 ASR		6,500⁽²⁾		⁽²⁾		6,500⁽²⁾
Open market and privately negotiated purchases		24,664	$	112.31		24,664

November 30, 2014 to December 27, 2014:
August 2014 ASR		1,850⁽²⁾		⁽²⁾		1,850⁽²⁾
Open market and privately negotiated purchases		4,794	$	112.64		4,794

Total		54,054					$	17,050

~~(a)~~

⁽¹⁾

In 2012, the Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock beginning in 2013. ~~In April 2013, the~~The Company’s Board of Directors increased the ~~share~~authorization to repurchase ~~authorization~~the Company’s common stock to $60 billion in April 2013 and to $90 billion in April 2014. As of ~~which $45.9~~December 27, 2014, $72.9 billion of the $90 billion had been ~~utilized as of March 29, 2014.~~utilized. The remaining ~~$14.1~~$17.1 billion in the table represents the amount available to repurchase shares under the authorized repurchase program as of ~~March 29,~~December 27, 2014. ~~On April 23, 2014, the Company announced that the Board of Directors further increased the share repurchase authorization from $60 billion to $90 billion.~~ The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

~~(b)~~

⁽²⁾

In ~~January~~August 2014, the Company entered into a new accelerated share repurchase arrangement (“ASR”) to purchase up to ~~$12~~$9.0 billion of the Company’s common stock. In exchange for up-front payments totaling ~~$12~~$9.0 billion, the financial institutions committed to deliver shares during the ASR’s purchase period, which will end in or before ~~December 2014.~~February 2015. 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~~weighted-average price of the Company’s common stock during that period. During the ~~second~~first quarter of ~~2014, 19,178,136~~2015, 8.3 million net shares were delivered and retired under the August 2014 ASR, and the final number of shares to be delivered ~~under this ASR~~ will be determined at the conclusion of the purchase period.

~~(c)~~

In April 2013, the Company entered into an ASR to purchase up to $12 billion of the Company’s common stock. In March 2014, the purchase period for this ASR ended and an additional 1.1 million shares were delivered and retired. In total, 24.6 million shares were delivered under the April 2013 ASR at an average repurchase price of $486.82 per share.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

~~None.~~

Effective January 26, 2015, the Company appointed Chris Kondo, the Company’s Senior Director of Corporate Accounting, to the role of Principal Accounting Officer, replacing Luca Maestri in such role effective as of the same date. Mr. Kondo, age 48, joined the Company in January 2010 and has previously served as the Company’s Director of Technical Accounting. Prior to joining the Company, Mr. Kondo was an audit partner with KPMG LLP.

With respect to the disclosure required pursuant to Item 401(d) of Regulation S-K, there are no family relationships between Mr. Kondo and any director or executive officer of the Company. With respect to Item 404(a) of Regulation S-K, there are no transactions between Mr. Kondo and the Company that would be required to be disclosed.

Item 6.

Exhibits

Index to Exhibits

Incorporated by
Reference
Exhibit
Number

Exhibit Description

Form

Exhibit

Filing Date/
Period End
Date
    3.1
   Amended and Restated Articles of Incorporation of the Registrant effective as of February 28, 2014.    8-K    3.1    3/5/14
    3.2
   Amended and Restated Bylaws of the Registrant effective as of February 28, 2014.    8-K    3.2    3/5/14
    4.1
   Form of Common Stock Certificate of the Registrant.    10-Q    4.1    12/30/06
    4.2
   Indenture, dated as of April 29, 2013, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee.    S-3    4.1    4/29/13
    4.3
   Officer’s Certificate of the Registrant, dated as of May 3, 2013, including forms of global notes representing the Floating Rate Notes due 2016, Floating Rate Notes due 2018, 0.45% Notes due 2016, 1.00% Notes due 2018, 2.40% Notes due 2023 and 3.85% Notes due 2043.    8-K    4.1    5/3/13
  10.1*
   Amended Employee Stock Purchase Plan, effective as of March 8, 2010.    10-Q    10.1    3/27/10
  10.2*
   Form of Indemnification Agreement between the Registrant and each director and executive officer of the Registrant.    10-Q    10.2    6/27/09
  10.3*
   1997 Director Stock Plan, as amended through August 23, 2012.    10-Q    10.3    12/28/13
  10.4*
   2003 Employee Stock Plan, as amended through February 25, 2010.    8-K    10.1    3/1/10
  10.5*
   Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 11, 2008.    10-Q    10.10    12/27/08
  10.6*
   Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 16, 2010.    10-Q    10.10    12/25/10
  10.7*
   Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of April 6, 2012.    10-Q    10.8    3/31/12
  10.8*
   Summary Description of Amendment, effective as of May 24, 2012, to certain Restricted Stock Unit Award Agreements outstanding as of April 5, 2012.    10-Q    10.8    6/30/12
  10.9*
   2014 Employee Stock Plan.    8-K    10.1    3/5/14
  10.10*
   Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan as of February 28, 2014.    8-K    10.2    3/5/14
  10.11*
   Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of February 28, 2014.    8-K    10.3    3/5/14
  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.INS**
   XBRL Instance Document.
101.SCH**
   XBRL Taxonomy Extension Schema Document.
101.CAL**
   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**
   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**
   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**
   XBRL Taxonomy Extension Presentation Linkbase Document.


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date

3.1	Restated Articles of Incorporation of the Registrant effective as of June 6, 2014.	8-K	3.1	6/6/14

3.2	Amended and Restated Bylaws of the Registrant effective as of February 28, 2014.	8-K	3.2	3/5/14

4.1	Form of Common Stock Certificate of the Registrant.	10-Q	4.1	12/30/06

4.2	Indenture, dated as of April 29, 2013, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee.	S-3	4.1	4/29/13

4.3	Officer’s Certificate of the Registrant, dated as of May 3, 2013, including forms of global notes representing the Floating Rate Notes due 2016, Floating Rate Notes due 2018, 0.45% Notes due 2016, 1.00% Notes due 2018, 2.40% Notes due 2023 and 3.85% Notes due 2043.	8-K	4.1	5/3/13

4.4	Officer’s Certificate of the Registrant, dated as of May 6, 2014, including forms of global notes representing the Floating Rate Notes due 2017, Floating Rate Notes due 2019, 1.05% Notes due 2017, 2.10% Notes due 2019, 2.85% Notes due 2021, 3.45% Notes due 2024 and 4.45% Notes due 2044.	8-K	4.1	5/6/14

4.5	Officer’s Certificate of the Registrant, dated as of November 10, 2014, including forms of global notes representing the 1.00% Notes due 2022 and 1.625% Notes due 2026.	8-K	4.1	11/10/14

10.1*	Amended Employee Stock Purchase Plan, effective as of March 8, 2010.	10-Q	10.1	3/27/10

10.2*	Form of Indemnification Agreement between the Registrant and each director and executive officer of the Registrant.	10-Q	10.2	6/27/09

10.3*	1997 Director Stock Plan, as amended through August 23, 2012.	10-Q	10.3	12/28/13

10.4*	2003 Employee Stock Plan, as amended through February 25, 2010.	8-K	10.1	3/1/10

10.5*	Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 16, 2010.	10-Q	10.10	12/25/10

10.6*	Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of April 6, 2012.	10-Q	10.8	3/31/12

10.7*	Summary Description of Amendment, effective as of May 24, 2012, to certain Restricted Stock Unit Award Agreements outstanding as of April 5, 2012.	10-Q	10.8	6/30/12

10.8*	2014 Employee Stock Plan.	8-K	10.1	3/5/14

10.9*	Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan as of February 28, 2014.	8-K	10.2	3/5/14

10.10*	Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of February 28, 2014.	8-K	10.3	3/5/14

10.11*	Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014.	10-K	10.11	9/27/14

10.12*	Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of August 26, 2014.	10-K	10.12	9/27/14

10.13*	Form of Amendment, effective as of August 26, 2014, to Restricted Stock Unit Award Agreements and Performance Award Agreements outstanding as of August 26, 2014.	10-K	10.13	9/27/14


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date

10.14, *	Offer Letter, dated August 1, 2013, from the Registrant to Angela Ahrendts.

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.INS**	XBRL Instance Document.

101.SCH**	XBRL Taxonomy Extension Schema Document.

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.

Indicates management contract or compensatory plan or arrangement.

Filed herewith.

***

Furnished herewith.

SIGNATURE

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

5153


	March 29, 2014
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities

Cash	$	10,948	$	0	$	0		$	10,948	$	10,948	$	0	$	0

Level 1 (a):
Money market funds		3,203		0		0			3,203		3,203		0		0
Mutual funds		4,063		0		(213	)		3,850		0		3,850		0

Subtotal		7,266		0		(213	)		7,053		3,203		3,850		0


Level 2 (b):
U.S. Treasury securities		24,645		12		(26	)		24,631		1,359		5,445		17,827
U.S. agency securities		10,766		5		(24	)		10,747		234		1,340		9,173
Non-U.S. government securities		6,406		42		(109	)		6,339		10		480		5,849
Certificates of deposit and time deposits		3,344		0		0			3,344		1,735		771		838
Commercial paper		2,627		0		0			2,627		1,350		1,277		0
Corporate securities		63,575		351		(145	)		63,781		110		8,373		55,298
Municipal securities		4,117		32		(3	)		4,146		0		839		3,307
Mortgage- and asset-backed securities		17,004		34		(65	)		16,973		0		26		16,947

Subtotal		132,484		476		(372	)		132,588		4,798		18,551		109,239


Total	$	150,698	$	476	$	(585	)	$	150,589	$	18,949	$	22,401	$	109,239


	March 29, 2014
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets (a):
Foreign exchange contracts	$	160	$	28	$	188
Interest rate contracts	$	45	$	0	$	45

Derivative liabilities (b):
Foreign exchange contracts	$	110	$	35	$	145


	Three Months Ended
	Gains/(Losses) Recognized in OCI - Effective Portion					Gains/(Losses) Reclassified from AOCI into Net Income - Effective Portion						Gains/(Losses) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	March 29, 2014			March 30, 2013		March 29, 2014			March 30, 2013			Financial Statement Line Item	March 29, 2014			March 30, 2013
Cash flow hedges:
Foreign exchange contracts	$	(121	)	$	741	$	22		$	(29	)	Other income/(expense), net	$	(8	)	$	(61	)
Interest rate contracts		(27	)		0		(4	)		0		Other income/(expense), net		0			0
Net investment hedges:
Foreign exchange contracts		(19	)		70		0			0		Other income/(expense), net		0			1

Total	$	(167	)	$	811	$	18		$	(29	)		$	(8	)	$	(60	)


	March 29, 2014							September 28, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived and amortizable acquired intangible assets	$	6,361	$	(2,533	)	$	3,828	$	6,081	$	(2,002	)	$	4,079
Indefinite-lived and non-amortizable acquired intangible assets		100		0			100		100		0			100

Total acquired intangible assets	$	6,461	$	(2,533	)	$	3,928	$	6,181	$	(2,002	)	$	4,179


	Amount (in millions)		Effective Interest Rate
Floating-rate notes, due 2016	$	1,000		0.51	%
Floating-rate notes, due 2018		2,000		1.10	%
Fixed-rate 0.45% notes due 2016		1,500		0.51	%
Fixed-rate 1.00% notes due 2018		4,000		1.08	%
Fixed-rate 2.40% notes due 2023		5,500		2.44	%
Fixed-rate 3.85% notes due 2043		3,000		3.91	%

Total	$	17,000


	Purchase Period End Date		Number of Shares (in thousands)		Average Repurchase Price Per Share		ASR Amount (in millions)
January 2014 ASR		(a)		19,178 (a)		(a)	$	12,000
April 2013 ASR		March 2014		24,650 (b)	$	486.82	$	12,000
August 2012 ASR		April 2013		4,078	$	478.20	$	1,950


	March 29, 2014		March 30, 2013
U.S. stores		254		251
International stores		169		151

Total store count		423		402

Headcount		42,400		42,600


	Dividends and Dividend Equivalents Paid		Accelerated Share Repurchases		Open Market Share Repurchases		Taxes Related to Settlement of Equity Awards		Total
2012	$	2,488	$	0	$	0	$	56	$	2,544
2013		10,564		13,950		9,000		1,082		34,596
Q1 2014		2,769		0		5,000		365		8,134
Q2 2014		2,661		12,000		6,000		65		20,726

Total	$	18,482	$	25,950	$	20,000	$	1,568	$	66,000


Q2 2014 Fiscal Periods	Total Number of Shares Purchased (in thousands)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands)		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) (a)
December 29, 2013 to February 1, 2014:
January 2014 ASR		19,178 (b)		(b)		19,178 (b)
Open Market Purchases		2,150	$	523.09		2,150

February 2, 2014 to March 1, 2014:
Open Market Purchases		8,117	$	526.73		8,117

March 2, 2014 to March 29, 2014:
April 2013 ASR		1,142 (c)		(c)		1,142 (c)
Open Market Purchases		1,125	$	533.17		1,125


Total		31,712				31,712	$	14,050


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date

3.1	Amended and Restated Articles of Incorporation of the Registrant effective as of February 28, 2014.	8-K	3.1	3/5/14

3.2	Amended and Restated Bylaws of the Registrant effective as of February 28, 2014.	8-K	3.2	3/5/14

4.1	Form of Common Stock Certificate of the Registrant.	10-Q	4.1	12/30/06

4.2	Indenture, dated as of April 29, 2013, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee.	S-3	4.1	4/29/13

4.3	Officer’s Certificate of the Registrant, dated as of May 3, 2013, including forms of global notes representing the Floating Rate Notes due 2016, Floating Rate Notes due 2018, 0.45% Notes due 2016, 1.00% Notes due 2018, 2.40% Notes due 2023 and 3.85% Notes due 2043.	8-K	4.1	5/3/13

10.1*	Amended Employee Stock Purchase Plan, effective as of March 8, 2010.	10-Q	10.1	3/27/10

10.2*	Form of Indemnification Agreement between the Registrant and each director and executive officer of the Registrant.	10-Q	10.2	6/27/09

10.3*	1997 Director Stock Plan, as amended through August 23, 2012.	10-Q	10.3	12/28/13

10.4*	2003 Employee Stock Plan, as amended through February 25, 2010.	8-K	10.1	3/1/10

10.5*	Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 11, 2008.	10-Q	10.10	12/27/08

10.6*	Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of November 16, 2010.	10-Q	10.10	12/25/10

10.7*	Form of Restricted Stock Unit Award Agreement under 2003 Employee Stock Plan effective as of April 6, 2012.	10-Q	10.8	3/31/12

10.8*	Summary Description of Amendment, effective as of May 24, 2012, to certain Restricted Stock Unit Award Agreements outstanding as of April 5, 2012.	10-Q	10.8	6/30/12

10.9*	2014 Employee Stock Plan.	8-K	10.1	3/5/14

10.10*	Form of Restricted Stock Unit Award Agreement under 2014 Employee Stock Plan as of February 28, 2014.	8-K	10.2	3/5/14

10.11*	Form of Performance Award Agreement under 2014 Employee Stock Plan effective as of February 28, 2014.	8-K	10.3	3/5/14

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.INS**	XBRL Instance Document.

101.SCH**	XBRL Taxonomy Extension Schema Document.

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.

~~April 24, 2014~~January 28, 2015

~~APPLE INC.~~Apple Inc.

/s/ ~~Peter Oppenheimer~~Luca Maestri

~~Peter Oppenheimer~~Luca Maestri
Senior Vice President,
Chief Financial Officer