UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 001-36743

Apple Inc.
(Exact name of Registrant as specified in its charter)

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

One Apple Park Way

Cupertino California 95014
(Address of principal executive offices) (Zip Code)

(408) 996-1010
(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Yes ☒ No ☐

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

Large accelerated filer ☒ Accelerated filer ☐

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

4,334,335,000 shares of common stock were issued and outstanding as of April 17, 2020.
 Apple Inc.

Form 10-Q
For the Fiscal Quarter Ended March 28, 2020
TABLE OF CONTENTS

Page
Part I
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Controls and Procedures 33
Part II
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 36
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

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

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Net sales:
Products $ 44,965 $ 46,565 $ 124,069 $ 120,000
Services 13,348 11,450 26,063 22,325
Total net sales 58,313 58,015 150,132 142,325

Cost of sales:
Products 31,321 32,047 83,396 80,285
Services 4,622 4,147 9,149 8,188
Total cost of sales 35,943 36,194 92,545 88,473
Gross margin 22,370 21,821 57,587 53,852

Operating expenses:
Research and development 4,565 3,948 9,016 7,850
Selling, general and administrative 4,952 4,458 10,149 9,241
Total operating expenses 9,517 8,406 19,165 17,091

Operating income 12,853 13,415 38,422 36,761

Other income/(expense), net 282 378 631 938
Income before provision for income taxes 13,135 13,793 39,053 37,699
Provision for income taxes 1,886 2,232 5,568 6,173
Net income $ 11,249 $ 11,561 $ 33,485 $ 31,526

Earnings per share:

Basic $ 2.58 $ 2.47 $ 7.63 $ 6.70
Diluted $ 2.55 $ 2.46 $ 7.56 $ 6.66

Shares used in computing earnings per share:

Basic 4,360,101 4,674,071 4,387,570 4,704,945
Diluted 4,404,691 4,700,646 4,429,648 4,736,949

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q2 2020 Form 10-Q | 1

 Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Net income $ 11,249 $ 11,561 $ 33,485 $ 31,526
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax (566) 174 (364) 96

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

Change in fair value of derivatives (143) (50) (32) (384)
Adjustment for net (gains)/losses realized and included in net
income 634 (105) 236 (63)
Total change in unrealized gains/losses on derivative
instruments 491 (155) 204 (447)

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

tax:
Change in fair value of marketable debt securities (2,325) 2,042 (2,200) 2,152
Adjustment for net (gains)/losses realized and included in net
income 29 28 19 65
Total change in unrealized gains/losses on marketable debt
securities (2,296) 2,070 (2,181) 2,217

Total other comprehensive income/(loss) (2,371) 2,089 (2,341) 1,866

Total comprehensive income $ 8,878 $ 13,650 $ 31,144 $ 33,392

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q2 2020 Form 10-Q | 2

 Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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

March 28, September 28,

2020 2019
ASSETS:
Current assets:
Cash and cash equivalents $ 40,174 $ 48,844
Marketable securities 53,877 51,713
Accounts receivable, net 15,722 22,926
Inventories 3,334 4,106
Vendor non-trade receivables 14,955 22,878
Other current assets 15,691 12,352
Total current assets 143,753 162,819

Non-current assets:
Marketable securities 98,793 105,341
Property, plant and equipment, net 35,889 37,378
Other non-current assets 41,965 32,978
Total non-current assets 176,647 175,697
Total assets $ 320,400 $ 338,516

LIABILITIES AND SHAREHOLDERS’ EQUITY:

Current liabilities:
Accounts payable $ 32,421 $ 46,236
Other current liabilities 37,324 37,720
Deferred revenue 5,928 5,522
Commercial paper and repurchase agreement 10,029 5,980
Term debt 10,392 10,260
Total current liabilities 96,094 105,718

Non-current liabilities:
Term debt 89,086 91,807
Other non-current liabilities 56,795 50,503
Total non-current liabilities 145,881 142,310
Total liabilities 241,975 248,028

Commitments and contingencies

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,323,987
and 4,443,236 shares issued and outstanding, respectively 48,032 45,174
Retained earnings 33,182 45,898
Accumulated other comprehensive income/(loss) (2,789) (584)
Total shareholders’ equity 78,425 90,488
Total liabilities and shareholders’ equity $ 320,400 $ 338,516

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q2 2020 Form 10-Q | 3

 Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions, except per share amounts)

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Total shareholders’ equity, beginning balances $ 89,531 $ 117,892 $ 90,488 $ 107,147

Common stock and additional paid-in capital:

Beginning balances 45,972 40,970 45,174 40,201
Common stock issued 428 390 430 390
Common stock withheld related to net share settlement of equity
awards (101) (105) (1,052) (927)
Share-based compensation 1,733 1,546 3,480 3,137
Ending balances 48,032 42,801 48,032 42,801

Retained earnings:
Beginning balances 43,977 80,510 45,898 70,400
Net income 11,249 11,561 33,485 31,526
Dividends and dividend equivalents declared (3,432) (3,499) (6,917) (7,025)
Common stock withheld related to net share settlement of equity
awards (96) (14) (632) (608)
Common stock repurchased (18,516) (24,000) (38,516) (32,236)
Cumulative effects of changes in accounting principles — — (136) 2,501
Ending balances 33,182 64,558 33,182 64,558

Accumulated other comprehensive income/(loss):

Beginning balances (418) (3,588) (584) (3,454)
Other comprehensive income/(loss) (2,371) 2,089 (2,341) 1,866
Cumulative effects of changes in accounting principles — — 136 89
Ending balances (2,789) (1,499) (2,789) (1,499)

Total shareholders’ equity, ending balances $ 78,425 $ 105,860 $ 78,425 $ 105,860

Dividends and dividend equivalents declared per share or RSU $ 0.77 $ 0.73 $ 1.54 $ 1.46

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q2 2020 Form 10-Q | 4

 Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)

Six Months Ended

March 28, March 30,
2020 2019
Cash, cash equivalents and restricted cash, beginning balances $ 50,224 $ 25,913
Operating activities:
Net income 33,485 31,526
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization 5,602 6,435
Share-based compensation expense 3,407 3,073
Deferred income tax benefit (651) (124)
Other (259) (215)
Changes in operating assets and liabilities:
Accounts receivable, net 7,284 8,094
Inventories 699 (1,006)
Vendor non-trade receivables 7,923 14,616
Other current and non-current assets (8,866) (717)
Accounts payable (13,520) (20,024)
Deferred revenue 1,223 (540)
Other current and non-current liabilities 7,500 (3,273)
Cash generated by operating activities 43,827 37,845
Investing activities:
Purchases of marketable securities (66,489) (13,854)
Proceeds from maturities of marketable securities 39,738 16,880
Proceeds from sales of marketable securities 27,762 22,635
Payments for acquisition of property, plant and equipment (3,960) (5,718)
Payments made in connection with business acquisitions, net (1,134) (291)
Purchases of non-marketable securities (146) (490)
Other (426) 30
Cash generated by/(used in) investing activities (4,655) 19,192
Financing activities:
Proceeds from issuance of common stock 430 390
Payments for taxes related to net share settlement of equity awards (1,566) (1,427)
Payments for dividends and dividend equivalents (6,914) (7,011)
Repurchases of common stock (39,280) (32,498)
Proceeds from issuance of term debt, net 2,210 —
Repayments of term debt (5,250) (2,500)
Proceeds from/(Repayments of) commercial paper, net 1,518 (36)
Proceeds from repurchase agreement 2,556 —
Other (51) (51)
Cash used in financing activities (46,347) (43,133)
Increase/(Decrease) in cash, cash equivalents and restricted cash (7,175) 13,904
Cash, cash equivalents and restricted cash, ending balances $ 43,049 $ 39,817
Supplemental cash flow disclosure:
Cash paid for income taxes, net $ 7,505 $ 9,497
Cash paid for interest $ 1,689 $ 1,762
See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q2 2020 Form 10-Q | 5

 Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation and Preparation

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

The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. A 14th week is included in the first fiscal quarter every five
or six years to realign the Company’s fiscal quarters with calendar quarters. The Company’s fiscal years 2020 and 2019 span 52 weeks each. Unless otherwise
stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters,
months and periods of those fiscal years.

Recently Adopted Accounting Pronouncements

Leases
At the beginning of the first quarter of 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update
(“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the
“new leases standard”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for
operating leases and disclosing key information about leasing arrangements. The Company adopted the new leases standard utilizing the modified retrospective
transition method, under which amounts in prior periods presented were not restated. For contracts existing at the time of adoption, the Company elected to not
reassess (i) whether any are or contain leases, (ii) lease classification, and (iii) initial direct costs. Upon adoption, the Company recorded $7.5 billion of right-of-
use (“ROU”) assets and $8.1 billion of lease liabilities on its Condensed Consolidated Balance Sheet.

Hedging
At the beginning of the first quarter of 2020, the Company adopted FASB ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of
hedging instruments, eliminates the separate measurement and presentation of hedge ineffectiveness, and updates disclosure requirements related to hedging.
The Company adopted ASU 2017-12 utilizing the modified retrospective transition method. Upon adoption, the Company recorded a $136 million increase in
accumulated other comprehensive income/(loss) (“AOCI”) and a corresponding decrease in retained earnings in the Condensed Consolidated Statement of
Shareholders’ Equity.

Apple Inc. | Q2 2020 Form 10-Q | 6

Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended March 28, 2020 and March 30,
2019 (net income in millions and shares in thousands):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Numerator:
Net income $ 11,249 $ 11,561 $ 33,485 $ 31,526

Denominator:
Weighted-average basic shares outstanding 4,360,101 4,674,071 4,387,570 4,704,945
Effect of dilutive securities 44,590 26,575 42,078 32,004
Weighted-average diluted shares 4,404,691 4,700,646 4,429,648 4,736,949

Basic earnings per share $ 2.58 $ 2.47 $ 7.63 $ 6.70

Diluted earnings per share $ 2.55 $ 2.46 $ 7.56 $ 6.66

Potentially dilutive securities representing 31.1 million and 30.0 million shares of common stock were excluded from the computation of diluted earnings per
share for the three- and six-month periods ended March 30, 2019, respectively, because their effect would have been antidilutive.

Note 2 – Revenue Recognition

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

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

For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct, the Company
allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses
observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the
selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without
observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including,
where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and
the estimated cost to provide the performance obligation.

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

Apple Inc. | Q2 2020 Form 10-Q | 7

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

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue
based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products
including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring
acceptability of the product. For third-party applications sold through the App Store®, Mac App Store, TV App Store and Watch App Store and certain digital
content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer.
Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.

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

Deferred Revenue
As of March 28, 2020 and September 28, 2019, the Company had total deferred revenue of $9.4 billion and $8.1 billion, respectively. As of March 28, 2020, the
Company expects 63% of total deferred revenue to be realized in less than a year, 28% within one-to-two years, 7% within two-to-three years and 2% in greater
than three years.

Disaggregated Revenue
Net sales disaggregated by significant products and services for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (in
millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
iPhone (1) $ 28,962 $ 31,051 $ 84,919 $ 83,033
Mac (1) 5,351 5,513 12,511 12,929
iPad (1) 4,368 4,872 10,345 11,601
Wearables, Home and Accessories (1)(2) 6,284 5,129 16,294 12,437
Services (3) 13,348 11,450 26,063 22,325
Total net sales (4) $ 58,313 $ 58,015 $ 150,132 $ 142,325

(1) Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2) Wearables, Home and Accessories net sales include sales of AirPods®, Apple TV®, Apple Watch®, Beats® products, HomePod™, iPod touch® and Apple-branded
and third-party accessories.
(3) Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare®, licensing and other services. Services net sales also
include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV + services, which are bundled in the sales price of certain products.

(4) Includes $1.9 billion of revenue recognized in the three months ended March 28, 2020 that was included in deferred revenue as of December 28, 2019, $1.9 billion of
revenue recognized in the three months ended March 30, 2019 that was included in deferred revenue as of December 29, 2018, $3.0 billion of revenue recognized in
the six months ended March 28, 2020 that was included in deferred revenue as of September 28, 2019, and $3.8 billion of revenue recognized in the six months
ended March 30, 2019 that was included in deferred revenue as of September 29, 2018.

The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment
Information and Geographic Data” for the three- and six-month periods ended March 28, 2020 and March 30, 2019.

Apple Inc. | Q2 2020 Form 10-Q | 8

Note 3 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

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

March 28, 2020

Cash and Current Non-Current
Adjusted Unrealized Unrealized Fair Cash Marketable Marketable
Cost Gains Losses Value Equivalents Securities Securities
Cash $ 24,405 $ — $ — $ 24,405 $ 24,405 $ — $ —
Level 1 (1):

Money market funds 4,473 — — 4,473 4,473 — —

Subtotal 4,473 — — 4,473 4,473 — —
Level 2 (2):
U.S. Treasury securities 18,755 405 — 19,160 1,042 6,736 11,382
U.S. agency securities 6,079 12 (9) 6,082 129 1,478 4,475
Non-U.S. government securities 18,548 97 (693) 17,952 652 2,348 14,952
Certificates of deposit and time
deposits 10,616 — — 10,616 3,661 6,319 636
Commercial paper 15,690 — — 15,690 5,653 10,037 —
Corporate debt securities 82,153 207 (2,177) 80,183 159 25,708 54,316
Municipal securities 974 9 (1) 982 — 53 929
Mortgage- and asset-backed securities 13,066 278 (43) 13,301 — 1,198 12,103
Subtotal 165,881 1,008 (2,923) 163,966 11,296 53,877 98,793
Total (3) $ 194,759 $ 1,008 $ (2,923) $ 192,844 $ 40,174 $ 53,877 $ 98,793

September 28, 2019

Cash and Current Non-Current
Adjusted Unrealized Unrealized Fair Cash Marketable Marketable
Cost Gains Losses Value Equivalents Securities Securities
Cash $ 12,204 $ — $ — $ 12,204 $ 12,204 $ — $ —
Level 1 (1):
Money market funds 15,897 — — 15,897 15,897 — —
Subtotal 15,897 — — 15,897 15,897 — —
Level 2 (2):

U.S. Treasury securities 30,293 33 (62) 30,264 6,165 9,817 14,282

U.S. agency securities 9,767 1 (3) 9,765 6,489 2,249 1,027
Non-U.S. government securities 19,821 337 (50) 20,108 749 3,168 16,191
Certificates of deposit and time
deposits 4,041 — — 4,041 2,024 1,922 95
Commercial paper 12,433 — — 12,433 5,193 7,240 —
Corporate debt securities 85,383 756 (92) 86,047 123 26,127 59,797
Municipal securities 958 8 (1) 965 — 68 897
Mortgage- and asset-backed securities 14,180 67 (73) 14,174 — 1,122 13,052
Subtotal 176,876 1,202 (281) 177,797 20,743 51,713 105,341
Total (3) $ 204,977 $ 1,202 $ (281) $ 205,898 $ 48,844 $ 51,713 $ 105,341

(1) Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or
similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
(3) As of March 28, 2020 and September 28, 2019, total marketable securities included $17.6 billion and $18.9 billion, respectively, that was restricted from general use,
related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements. Additionally, as of March 28, 2020, $2.6 billion of marketable securities
were pledged as collateral under a repurchase agreement (refer to Note 6, “Debt”).

Apple Inc. | Q2 2020 Form 10-Q | 9

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit
risk, duration and asset allocation. The maturities of the Company’s non-current marketable debt securities generally range from one to five years.

The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment
policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each
individual security in the investment portfolio. When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors
such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the
Company’s intent to sell, or whether it will more likely than not be required to sell the security before recovery of its amortized cost basis. As of March 28, 2020,
the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.

Non-Marketable Securities
The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values. As of March 28, 2020 and
September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $2.8 billion and $2.9 billion, respectively.

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

March 28, September 28,

2020 2019
Cash and cash equivalents $ 40,174 $ 48,844
Restricted cash included in other current assets 1,077 23
Restricted cash included in other non-current assets 1,798 1,357
Cash, cash equivalents and restricted cash $ 43,049 $ 50,224

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

Derivative Financial Instruments

The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net
investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a
variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no
assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.

To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar
may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted
inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other
instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign
currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward
and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In
addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain
foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.

Apple Inc. | Q2 2020 Form 10-Q | 10

To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company
may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement
gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of March 28, 2020, the
Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 22 years.

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

To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into
interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value.
The Company designates these instruments as either cash flow or fair value hedges. As of March 28, 2020, the Company’s hedged interest rate transactions
are expected to be recognized within eight years.

Cash Flow Hedges

Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in AOCI until the hedged item is recognized in earnings.
Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the
related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of
sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are
recognized in other income/(expense), net (“OI&E”) in the same period as the related income or expense is recognized. Generally, for options designated as
cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge
relates on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are
recognized in other comprehensive income/(loss) (“OCI”).

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in
the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments
are reclassified into OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they
are re-designated as hedges of other transactions.

Net Investment Hedges

Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation
adjustment. For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of
hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the
assessment of hedge effectiveness are recognized in OCI.

Fair Value Hedges

Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a
corresponding loss or gain related to the change in value of the hedged item in the same line in the Condensed Consolidated Statements of Operations. For
foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and
recognized in OI&E on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge
effectiveness are recognized in OCI. Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $126
million and $254 million for the three- and six-month periods ended March 28, 2020, respectively.

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

Apple Inc. | Q2 2020 Form 10-Q | 11

The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative
instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of March 28, 2020 and
September 28, 2019 (in millions):

March 28, 2020

Fair Value of Fair Value of
Derivatives Designated Derivatives Not Designated Total
as Hedge Instruments as Hedge Instruments Fair Value
Derivative assets (1):
Foreign exchange contracts $ 2,803 $ 1,425 $ 4,228
Interest rate contracts $ 1,709 $ — $ 1,709

Derivative liabilities (2):

Foreign exchange contracts $ 2,645 $ 1,518 $ 4,163
Interest rate contracts $ 66 $ — $ 66

September 28, 2019

Fair Value of Fair Value of
Derivatives Designated Derivatives Not Designated Total
as Hedge Instruments as Hedge Instruments Fair Value
Derivative assets (1):
Foreign exchange contracts $ 1,798 $ 323 $ 2,121
Interest rate contracts $ 685 $ — $ 685

Derivative liabilities (2):

Foreign exchange contracts $ 1,341 $ 160 $ 1,501
Interest rate contracts $ 105 $ — $ 105

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

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

Apple Inc. | Q2 2020 Form 10-Q | 12

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and net investment
hedges in OCI and the Condensed Consolidated Statements of Operations for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in
millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Gains/(Losses) recognized in OCI – included in effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts $ (462) $ (64) $ (191) $ (542)
Interest rate contracts (66) — (66) —
Total $ (528) $ (64) $ (257) $ (542)

Net investment hedges:

Foreign currency debt $ 11 $ (7) $ 35 $ (23)

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

effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts $ (817) $ 134 $ (326) $ 16
Interest rate contracts (1) (2) (3) (3)
Total $ (818) $ 132 $ (329) $ 13

Amounts excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI were gains of $258 million and $169 million for the
three- and six-month periods ended March 28, 2020, respectively.

The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for the three-
and six-month periods ended March 28, 2020 and March 30, 2019 and as of March 28, 2020 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Gains/(Losses) on derivative instruments (1):
Foreign exchange contracts $ 436 $ 243 $ 253 $ 645
Interest rate contracts 1,290 465 1,128 1,122
Total $ 1,726 $ 708 $ 1,381 $ 1,767

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

Marketable securities $ (436) $ (242) $ (253) $ (644)
Fixed-rate debt (1,290) (465) (1,128) (1,122)
Total $ (1,726) $ (707) $ (1,381) $ (1,766)

Apple Inc. | Q2 2020 Form 10-Q | 13

 March 28,
2020
Carrying amounts of hedged assets/(liabilities):
Marketable securities (2) $ 15,080
Fixed-rate debt (3) $ (27,439)

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

Marketable securities carrying amount increases/(decreases) $ (877)
Fixed-rate debt carrying amount (increases)/decreases $ (1,708)

(1) Gains and losses related to fair value hedges are included in OI&E in the Condensed Consolidated Statements of Operations.
(2) The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-
current marketable securities in the Condensed Consolidated Balance Sheet.
(3) The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term
debt in the Condensed Consolidated Balance Sheet.

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

March 28, 2020 September 28, 2019

Notional Credit Risk Notional Credit Risk
Amount Amount Amount Amount
Instruments designated as accounting hedges:
Foreign exchange contracts $ 59,198 $ 2,803 $ 61,795 $ 1,798
Interest rate contracts $ 27,350 $ 1,709 $ 31,250 $ 685

Instruments not designated as accounting hedges:

Foreign exchange contracts $ 91,165 $ 1,425 $ 76,868 $ 323

The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the
Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative
instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or
interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.
Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated
with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments,
together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the
same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or
posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets
and derivative liabilities at their gross fair values in its Condensed Consolidated Balance Sheets. As of March 28, 2020 and September 28, 2019, the net cash
collateral received by the Company related to derivative instruments under its collateral security arrangements was $2.0 billion and $1.6 billion, respectively,
which were included in other current liabilities in the Condensed Consolidated Balance Sheets.

Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions
with a single net amount payable by one party to the other. As of March 28, 2020 and September 28, 2019, the potential effects of these rights of set-off
associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of
$6.4 billion and $2.7 billion, respectively, resulting in net derivative liabilities of $279 million and $407 million, respectively.

Apple Inc. | Q2 2020 Form 10-Q | 14

Accounts Receivable

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

As of both March 28, 2020 and September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables. The
Company’s cellular network carriers accounted for 41% and 51% of total trade receivables as of March 28, 2020 and September 28, 2019, respectively.

Vendor Non-Trade Receivables

The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture
sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of March 28, 2020, the
Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 53% and 16%. As of
September 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 59%
and 14%.

Note 4 – Condensed Consolidated Financial Statement Details

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

Property, Plant and Equipment, Net

March 28, September 28,

2020 2019
Land and buildings $ 17,856 $ 17,085
Machinery, equipment and internal-use software 71,273 69,797
Leasehold improvements 9,614 9,075
Gross property, plant and equipment 98,743 95,957
Accumulated depreciation and amortization (62,854) (58,579)
Total property, plant and equipment, net $ 35,889 $ 37,378

Other Non-Current Liabilities

March 28, September 28,

2020 2019
Long-term taxes payable $ 28,188 $ 29,545
Other non-current liabilities 28,607 20,958
Total other non-current liabilities $ 56,795 $ 50,503

Apple Inc. | Q2 2020 Form 10-Q | 15

Other Income/(Expense), Net
The following table shows the detail of OI&E for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Interest and dividend income $ 1,049 $ 1,358 $ 2,094 $ 2,665
Interest expense (757) (1,010) (1,542) (1,900)
Other income/(expense), net (10) 30 79 173
Total other income/(expense), net $ 282 $ 378 $ 631 $ 938

Note 5 – Income Taxes

Uncertain Tax Positions

As of March 28, 2020, the total amount of gross unrecognized tax benefits was $16.7 billion, of which $8.9 billion, if recognized, would impact the Company’s
effective tax rate. The Company had accrued $1.3 billion of gross interest and penalties related to income tax matters as of March 28, 2020.

The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The U.S. Internal
Revenue Service concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 remain open in
certain major foreign jurisdictions and are subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for
any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the
Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the
period such resolution occurs. Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its
gross unrecognized tax benefits could decrease in the next 12 months by as much as $2.3 billion.

European Commission State Aid Decision

On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and
2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered
Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to
be €13.1 billion, plus interest of €1.2 billion. On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery
amount for certain taxes paid to other countries. As of March 28, 2020, the adjusted recovery amount was €12.9 billion, excluding interest. Irish legislative
changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be
without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company
believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to
any foreign tax credit limitations in the U.S. Tax Cuts and Jobs Act. The adjusted recovery amount plus interest is funded into escrow, where it will remain
restricted from general use pending the conclusion of all appeals. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial
Instruments” for more information.

Apple Inc. | Q2 2020 Form 10-Q | 16

Note 6 – Debt

Commercial Paper and Repurchase Agreement

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds
from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of March 28, 2020 and September 28,
2019, the Company had $7.5 billion and $6.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The
weighted-average interest rate of the Company’s Commercial Paper was 1.39% and 2.24% as of March 28, 2020 and September 28, 2019, respectively. The
following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended March 28, 2020
and March 30, 2019 (in millions):

Six Months Ended

March 28, March 30,
2020 2019
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net $ 1,377 $ (2,484)

Maturities greater than 90 days:

Proceeds from commercial paper 4,797 10,235
Repayments of commercial paper (4,656) (7,787)
Proceeds from commercial paper, net 141 2,448

Total proceeds from/(repayments of) commercial paper, net $ 1,518 $ (36)

In the second quarter of 2020, the Company entered into an agreement to sell certain of its marketable securities with a promise to repurchase the securities at
a specified time and amount (“Repo”). Due to the Company’s continuing involvement with the marketable securities, the Company accounts for the Repo as a
collateralized borrowing. As of March 28, 2020, the Company had a $2.6 billion Repo liability with a maturity of less than six months, and had pledged $2.6
billion of marketable securities as collateral.

Term Debt
As of March 28, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $98.0 billion
(collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the
Company’s term debt as of March 28, 2020 and September 28, 2019:

March 28, 2020 September 28, 2019

Maturities Amount Effective Amount Effective
(calendar year) (in millions) Interest Rate (in millions) Interest Rate
2013 – 2019 debt issuances:
Floating-rate notes 2020 – 2022 $ 3,250 1.80% – 2.81% $ 4,250 2.25% – 3.28%
Fixed-rate 0.350% – 4.650% notes 2020 – 2049 92,554 0.28% – 4.78% 97,429 0.28% – 4.78%

First quarter 2020 debt issuance of €2.0 billion:

Fixed-rate 0.000% – 0.500% notes 2025 – 2031 2,164 0.03% – 0.56% — —%
Total term debt 97,968 101,679

Unamortized premium/(discount) and issuance

costs, net (220) (224)
Hedge accounting fair value adjustments 1,730 612
Less: Current portion of term debt (10,392) (10,260)
Total non-current portion of term debt $ 89,086 $ 91,807

To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to
effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to
manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert
these notes to U.S. dollar–denominated notes.

Apple Inc. | Q2 2020 Form 10-Q | 17

A portion of the Company’s Japanese yen–denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a
foreign operation. As of March 28, 2020 and September 28, 2019, the carrying value of the debt designated as a net investment hedge was $663 million and
$1.0 billion, respectively. For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of
Note 3, “Financial Instruments.”

The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to
hedging. The Company recognized $725 million and $1.5 billion of interest cost on its term debt for the three- and six-month periods ended March 28, 2020,
respectively. The Company recognized $828 million and $1.6 billion of interest cost on its term debt for the three- and six-month periods ended March 30, 2019,
respectively.

As of March 28, 2020 and September 28, 2019, the fair value of the Company’s Notes, based on Level 2 inputs, was $105.6 billion and $107.5 billion,
respectively.

Note 7 – Shareholders’ Equity

As of March 28, 2020, the Company was authorized to purchase up to $175 billion of the Company’s common stock under a share repurchase program, of
which $134.6 billion had been utilized. During the six months ended March 28, 2020, the Company repurchased 135.0 million shares of its common stock for
$38.5 billion, including 30.4 million shares initially delivered under a $10.0 billion accelerated share repurchase arrangement (“ASR”) dated November 2019. On
April 30, 2020, the Company announced the Board of Directors increased the share repurchase program authorization by $50 billion. The Company’s share
repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated
and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).

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

Note 8 – Comprehensive Income

The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net
deferred gains and losses on certain derivative instruments accounted for as hedges, and unrealized gains and losses on marketable debt securities classified
as available-for-sale.

The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial
statement line items, for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
Comprehensive Income Components Financial Statement Line Items 2020 2019 2020 2019
Unrealized (gains)/losses on derivative
instruments:
Foreign exchange contracts Total net sales $ 34 $ (97) $ (63) $ (34)
Total cost of sales 12 (76) (159) (451)
Other income/(expense), net 771 52 548 448
Interest rate contracts Other income/(expense), net 1 2 3 3
818 (119) 329 (34)
Unrealized (gains)/losses on marketable debt
securities Other income/(expense), net 37 36 24 83
Total amounts reclassified from AOCI $ 855 $ (83) $ 353 $ 49

Apple Inc. | Q2 2020 Form 10-Q | 18

The following table shows the changes in AOCI by component for the six months ended March 28, 2020 (in millions):

Cumulative Unrealized Unrealized

Foreign Gains/Losses Gains/Losses
Currency on Derivative on Marketable Debt
Translation Instruments Securities Total
Balances as of September 28, 2019 $ (1,463) $ 172 $ 707 $ (584)
Other comprehensive income/(loss) before reclassifications (356) (151) (2,860) (3,367)
Amounts reclassified from AOCI — 329 24 353
Tax effect (8) 26 655 673
Other comprehensive income/(loss) (364) 204 (2,181) (2,341)
Cumulative effect of change in accounting principle (1) — 136 — 136
Balances as of March 28, 2020 $ (1,827) $ 512 $ (1,474) $ (2,789)

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

Note 9 – Benefit Plans

Stock Plans
The Company had 193.7 million shares reserved for future issuance under its stock plans as of March 28, 2020. Restricted stock units (“RSUs”) granted under
the Company’s stock plans generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common
stock on a one-for-one basis. RSUs granted under the Company’s stock plans reduce the number of shares available for grant under the plans by a factor of two
times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant
under the plans utilizing a factor of two times the number of RSUs canceled or shares withheld.

Rule 10b5-1 Trading Plans

During the three months ended March 28, 2020, Section 16 officers Timothy D. Cook, Chris Kondo, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had
equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the
amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares
acquired under the Company’s employee and director equity plans.

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the six months ended March 28, 2020 is as follows:

Number of Weighted-Average Aggregate

RSUs Grant Date Fair Fair Value
(in thousands) Value Per RSU (in millions)
Balance as of September 28, 2019 81,517 $ 169.18
RSUs granted 35,639 $ 225.14
RSUs vested (19,660) $ 151.02
RSUs canceled (2,316) $ 187.21
Balance as of March 28, 2020 95,180 $ 193.45 $ 23,580

The fair value as of the respective vesting dates of RSUs was $558 million and $4.8 billion for the three- and six-month periods ended March 28, 2020,
respectively, and was $348 million and $4.4 billion for the three- and six-month periods ended March 30, 2019, respectively.

Apple Inc. | Q2 2020 Form 10-Q | 19

Share-Based Compensation
The following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of
Operations for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Share-based compensation expense $ 1,697 $ 1,514 $ 3,407 $ 3,073
Income tax benefit related to share-based compensation expense $ (444) $ (331) $ (1,202) $ (1,081)

As of March 28, 2020, the total unrecognized compensation cost related to outstanding RSUs and stock options was $14.5 billion, which the Company expects
to recognize over a weighted-average period of 2.8 years.

Note 10 – Commitments and Contingencies

Accrued Warranty and Guarantees

The following table shows changes in the Company’s accrued warranties and related costs for the three- and six-month periods ended March 28, 2020 and
March 30, 2019 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Beginning accrued warranty and related costs $ 3,873 $ 3,819 $ 3,570 $ 3,692
Cost of warranty claims (689) (915) (1,604) (1,911)
Accruals for product warranty 739 583 1,957 1,706
Ending accrued warranty and related costs $ 3,923 $ 3,487 $ 3,923 $ 3,487

The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and mainland China.
The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain
conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right,
with subsequent changes to the guarantee liability recognized within net sales.

Concentrations in the Available Sources of Supply of Materials and Product

Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from
single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers,
tablets and other electronic devices. Therefore, many components used by the Company, including those that are available from multiple sources, are at times
subject to industry-wide shortage and significant commodity pricing fluctuations.

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

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

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

Apple Inc. | Q2 2020 Form 10-Q | 20

Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase
obligations”). The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, Internet and telecommunication
services, intellectual property licenses and content creation. As of March 28, 2020, the Company’s total future payments under noncancelable unconditional
purchase obligations having a remaining term in excess of one year were $9.9 billion.

Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The
outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above
management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. In the
opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a
recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters:

VirnetX
VirnetX, Inc. (“VirnetX”) filed two lawsuits in the U.S. District Court for the Eastern District of Texas (the “Eastern Texas District Court”) against the Company
alleging that certain Company products infringe four patents (the “VirnetX Patents”) relating to network communications technology (“VirnetX I” and “VirnetX II”).
On September 30, 2016, a jury returned a verdict in VirnetX I against the Company and awarded damages of $302 million, which later increased to $440 million
in post-trial proceedings. The Company appealed the VirnetX I verdict to the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”). On April 11,
2018, a jury returned a verdict in VirnetX II against the Company and awarded damages of $503 million. The Company appealed the VirnetX II verdict to the
Federal Circuit, and on November 22, 2019, the Federal Circuit affirmed-in-part, reversed-in-part, and remanded VirnetX II back to the Eastern Texas District
Court. The Company has challenged the validity of the VirnetX Patents at the U.S. Patent and Trademark Office (the “PTO”). In response, the PTO has declared
the VirnetX Patents invalid. VirnetX appealed the invalidity decision of the PTO to the Federal Circuit. The Federal Circuit consolidated the Company’s appeal of
the Eastern Texas District Court VirnetX I verdict and VirnetX’s appeals from the PTO invalidity proceedings. On January 15, 2019, the Federal Circuit affirmed
the VirnetX I verdict, which the Company subsequently paid, including damages and interest. On July 8, 2019, the Federal Circuit remanded one of VirnetX’s
two appeals of the PTO’s invalidity decisions back to the PTO for further proceedings. On August 1, 2019, the Federal Circuit affirmed-in-part, vacated-in-part,
and remanded back to the PTO portions of VirnetX’s second appeal.

iOS Performance Management Cases

Various civil litigation matters have been filed in state and federal courts in the U.S. and in various international jurisdictions alleging violation of consumer
protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating
systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2. The claims seek monetary damages and other non-monetary relief. On April 5, 2018,
several U.S. federal actions were consolidated through a Multidistrict Litigation process into a single action in the U.S. District Court for the Northern District of
California (the “Northern California District Court”). On February 28, 2020, the parties in the Multidistrict Litigation reached a settlement to resolve the U.S.
federal and California state class actions. Under the terms of the settlement, which is subject to the Northern California District Court’s approval, the Company
has agreed to pay up to $500 million in the aggregate to certain U.S. owners of iPhones if certain conditions are met. The final amount of the settlement will be
determined based on the number of consumers who file valid claims and the attorneys’ fee award. However, the Company has agreed to pay at least $310
million to settle the claims. In addition to civil litigation, the Company is also responding to governmental investigations and requests for information relating to
the performance management feature. The Company continues to believe that its iPhones were not defective, that the performance management feature
introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading
statements or fail to disclose any material information. The Company has accrued its best estimate for the ultimate resolution of these matters.

French Competition Authority

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

Apple Inc. | Q2 2020 Form 10-Q | 21

Note 11 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by
management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China,
Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and
Africa. Greater China includes China, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s
other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed
separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.
The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of the Notes to
Consolidated Financial Statements in Part II, Item 8 of the 2019 Form 10-K.

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

The following table shows information by reportable segment for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Americas:
Net sales $ 25,473 $ 25,596 $ 66,840 $ 62,536
Operating income $ 7,261 $ 7,687 $ 20,353 $ 18,887

Europe:
Net sales $ 14,294 $ 13,054 $ 37,567 $ 33,417
Operating income $ 4,528 $ 4,026 $ 12,247 $ 10,684

Greater China:
Net sales $ 9,455 $ 10,218 $ 23,033 $ 23,387
Operating income $ 3,758 $ 3,607 $ 9,121 $ 8,921

Japan:
Net sales $ 5,206 $ 5,532 $ 11,429 $ 12,442
Operating income $ 2,236 $ 2,390 $ 5,014 $ 5,404

Rest of Asia Pacific:

Net sales $ 3,885 $ 3,615 $ 11,263 $ 10,543
Operating income $ 1,290 $ 1,096 $ 4,021 $ 3,656

Apple Inc. | Q2 2020 Form 10-Q | 22

A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three- and six-month periods
ended March 28, 2020 and March 30, 2019 is as follows (in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Segment operating income $ 19,073 $ 18,806 $ 50,756 $ 47,552
Research and development expense (4,565) (3,948) (9,016) (7,850)
Other corporate expenses, net (1,655) (1,443) (3,318) (2,941)
Total operating income $ 12,853 $ 13,415 $ 38,422 $ 36,761

Note 12 – Leases
The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space. These leases
typically have original terms not exceeding 10 years and generally contain multi-year renewal options, some of which are reasonably certain of exercise. The
Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease
components as a single lease component for leases of retail, corporate, and data center facilities.

Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments are primarily based on purchases of output of the
underlying leased assets. Lease costs associated with fixed payments on the Company’s operating leases were $363 million and $732 million for the three- and
six-month periods ended March 28, 2020, respectively. Lease costs associated with variable payments on the Company’s leases were $1.9 billion and $4.8
billion for the three- and six-month periods ended March 28, 2020, respectively.

For the three- and six-month periods ended March 28, 2020, the Company made $353 million and $702 million of fixed cash payments related to operating
leases, respectively. Non-cash activities involving ROU assets obtained in exchange for lease liabilities were $1.2 billion and $9.3 billion for the three- and six-
month periods ended March 28, 2020, respectively, including the impact of adopting the new leases standard in the first quarter of 2020.

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of March 28, 2020 (in millions):

March 28,
Lease-Related Assets and Liabilities Financial Statement Line Items 2020
Right-of-use assets:
Operating leases Other non-current assets $ 8,097
Finance leases Property, plant and equipment, net 631
Total right-of-use assets $ 8,728

Lease liabilities:
Operating leases Other current liabilities $ 1,185
Other non-current liabilities 7,421
Finance leases Other current liabilities 19
Other non-current liabilities 629
Total lease liabilities $ 9,254

Apple Inc. | Q2 2020 Form 10-Q | 23

Lease liability maturities as of March 28, 2020, are as follows (in millions):

Operating Finance
Leases Leases Total
2020 (remaining six months) $ 559 $ 14 $ 573
2021 1,428 40 1,468
2022 1,298 38 1,336
2023 1,091 49 1,140
2024 951 26 977
Thereafter 4,269 920 5,189
Total undiscounted liabilities 9,596 1,087 10,683
Less: Imputed interest (990) (439) (1,429)
Total lease liabilities $ 8,606 $ 648 $ 9,254

The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of March 28, 2020 were 10.7 years and 2.2%,
respectively. The Company’s lease discount rates are generally based on estimates of its incremental borrowing rate, as the discount rates implicit in the
Company’s leases cannot be readily determined.

As of March 28, 2020, the Company had $1.8 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not
yet commenced. These leases will commence between 2020 and 2022, with lease terms ranging from less than 1 year to 21 years.

Apple Inc. | Q2 2020 Form 10-Q | 24

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

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

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

Quarterly Highlights

Business Seasonality and Product Introductions

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

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

During February 2020, following the initial outbreak of the virus in China, the Company experienced disruptions to its manufacturing, supply chain and logistical
services provided by outsourcing partners, resulting in temporary iPhone supply shortages that affected sales worldwide. Also, the Company’s sales of its
products in China were adversely affected as public health measures and other actions to curb the spread of the virus, including the temporary closure of the
Company’s retail stores and channel partner points of sale, were put in place.

The virus spread further around the world as the quarter progressed, and social distancing measures and shelter-in-place orders were introduced in many
countries. Effective March 13, 2020, the Company temporarily closed all of its retail stores outside of China. The Company has also required substantially all of
its employees in all of its offices outside of China to work remotely. Additionally, many of the Company’s channel partner points of sale outside of China
temporarily closed. As a result of the above factors, the Company also experienced weakened demand for its products and services outside of China during the
last three weeks of the quarter.

Apple Inc. | Q2 2020 Form 10-Q | 25

The COVID-19 pandemic has continued to adversely impact demand for certain of the Company’s products and services through April 2020. The full extent of
the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside
the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective
treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer
products. See “The Company’s business, results of operations, financial condition and stock price have been adversely affected and could in the future be
materially adversely affected by the COVID-19 pandemic” in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.”

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

Second Quarter Fiscal 2020 Highlights

Total net sales increased 1% or $298 million during the second quarter of 2020 compared to the same quarter in 2019, primarily driven by higher Services and
Wearables, Home and Accessories net sales, partially offset by lower iPhone net sales. The weakness in foreign currencies relative to the U.S. dollar had an
unfavorable impact on net sales during the second quarter of 2020.

During the second quarter of 2020, the Company released an updated iPad Pro® and added trackpad support to iPadOS®. Additionally, the Company released
an updated MacBook Air®.

The Company repurchased $18.5 billion of its common stock and paid dividends and dividend equivalents of $3.4 billion during the second quarter of 2020.

Products and Services Performance

The following table shows net sales by category for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 Change 2020 2019 Change
Net sales by category:
iPhone (1) $ 28,962 $ 31,051 (7)% $ 84,919 $ 83,033 2%
Mac (1) 5,351 5,513 (3)% 12,511 12,929 (3)%
iPad (1) 4,368 4,872 (10)% 10,345 11,601 (11)%
Wearables, Home and Accessories (1)(2) 6,284 5,129 23 % 16,294 12,437 31 %
Services (3) 13,348 11,450 17 % 26,063 22,325 17 %
Total net sales $ 58,313 $ 58,015 1% $ 150,132 $ 142,325 5%

(1) Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2) Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and Apple-branded and third-
party accessories.
(3) Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services. Services net sales also
include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV + services, which are bundled in the sales price of certain products.

iPhone
iPhone net sales decreased during the second quarter of 2020 compared to the second quarter of 2019 due primarily to the unfavorable impact of the COVID-19
pandemic. Year-over-year iPhone net sales increased during the first six months of 2020 due primarily to the successful launch of the Company’s new iPhone
models during the first quarter of 2020, partially offset by the unfavorable impact of the COVID-19 pandemic during the second quarter of 2020.

Mac
Mac net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower net sales of Mac
portable computers and the impact of the COVID-19 pandemic.

Apple Inc. | Q2 2020 Form 10-Q | 26

iPad
iPad net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower net sales of iPad
Pro and the impact of the COVID-19 pandemic.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the second quarter and first six months of 2020 compared to the same periods in 2019, despite
the impact of the COVID-19 pandemic, due to higher net sales of Wearables, primarily AirPods.

Services
Services net sales increased during the second quarter of 2020 compared to the second quarter of 2019, despite the impact of the COVID-19 pandemic, due
primarily to higher net sales from the App Store, licensing and Cloud Services. Year-over-year Services net sales increased during the first six months of 2020
due primarily to higher net sales from the App Store, licensing and AppleCare.

Segment Operating Performance

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China,
Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and
Africa. Greater China includes China, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s
other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed
separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.
Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated
Financial Statements in Note 11, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 Change 2020 2019 Change
Net sales by reportable segment:
Americas $ 25,473 $ 25,596 —% $ 66,840 $ 62,536 7%
Europe 14,294 13,054 9% 37,567 33,417 12 %
Greater China 9,455 10,218 (7)% 23,033 23,387 (2)%
Japan 5,206 5,532 (6)% 11,429 12,442 (8)%
Rest of Asia Pacific 3,885 3,615 7% 11,263 10,543 7%
Total net sales $ 58,313 $ 58,015 1% $ 150,132 $ 142,325 5%

Americas
Americas net sales were flat during the second quarter of 2020 compared to the second quarter of 2019 due primarily to lower iPhone net sales as a result of
the COVID-19 pandemic, largely offset by higher Services and Wearables, Home and Accessories net sales. Year-over-year Americas net sales increased
during the first six months of 2020 due primarily to higher Services, Wearables, Home and Accessories and iPhone net sales. The weakness in foreign
currencies relative to the U.S. dollar had an unfavorable impact on Americas net sales during the second quarter and first six months of 2020.

Europe
Europe net sales increased during the second quarter and first six months of 2020 compared to the same periods in 2019, despite the impact of the COVID-19
pandemic, due primarily to higher iPhone and Wearables, Home and Accessories net sales, partially offset by lower iPad net sales. The weakness in foreign
currencies relative to the U.S. dollar had an unfavorable impact on Europe net sales during the second quarter and first six months of 2020.

Apple Inc. | Q2 2020 Form 10-Q | 27

Greater China
Greater China net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower iPhone
net sales as a result of the COVID-19 pandemic, partially offset by higher Services net sales. The weakness in foreign currencies relative to the U.S. dollar had
an unfavorable impact on Greater China net sales during the second quarter and first six months of 2020.

Japan
Japan net sales decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower iPhone net sales
attributable to lower carrier subsidies and as a result of the COVID-19 pandemic, partially offset by higher Services net sales. The strength of the Japanese Yen
relative to the U.S. dollar had a favorable impact on Japan net sales during the second quarter and first six months of 2020.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the second quarter of 2020 compared to the second quarter of 2019, despite the impact of the COVID-19
pandemic, due primarily to higher Wearables, Home and Accessories and iPhone net sales, partially offset by lower iPad net sales. Year-over-year Rest of Asia
Pacific net sales increased during the first six months of 2020 due primarily to higher Wearables, Home and Accessories and Services net sales. The weakness
in foreign currencies relative to the U.S. dollar had an unfavorable impact on Rest of Asia Pacific net sales during the second quarter and first six months of
2020.

Gross Margin
Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as
follows (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Gross margin:
Products $ 13,644 $ 14,518 $ 40,673 $ 39,715
Services 8,726 7,303 16,914 14,137
Total gross margin $ 22,370 $ 21,821 $ 57,587 $ 53,852

Gross margin percentage:

Products 30.3% 31.2% 32.8% 33.1%
Services 65.4% 63.8% 64.9% 63.3%
Total gross margin percentage 38.4% 37.6% 38.4% 37.8%

Products Gross Margin

Products gross margin and Products gross margin percentage decreased during the second quarter of 2020 compared to the second quarter of 2019 due
primarily to the weakness in foreign currencies relative to the U.S. dollar and the impact of the COVID-19 pandemic.

Products gross margin increased during the first six months of 2020 compared to the same period in 2019 due primarily to higher Products volume and
favorable Products mix, partially offset by the weakness in foreign currencies relative to the U.S. dollar and the impact of the COVID-19 pandemic. Year-over-
year Products gross margin percentage decreased during the first six months of 2020 due primarily to the weakness in foreign currencies relative to the U.S.
dollar and the impact of the COVID-19 pandemic, partially offset by higher leverage.

Services Gross Margin

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

Apple Inc. | Q2 2020 Form 10-Q | 28

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

Operating Expenses
Operating expenses for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Research and development $ 4,565 $ 3,948 $ 9,016 $ 7,850
Percentage of total net sales 8% 7% 6% 6%
Selling, general and administrative $ 4,952 $ 4,458 $ 10,149 $ 9,241
Percentage of total net sales 8% 8% 7% 6%
Total operating expenses $ 9,517 $ 8,406 $ 19,165 $ 17,091
Percentage of total net sales 16% 14% 13% 12%

Research and Development

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

Selling, General and Administrative

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

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for the three- and six-month periods ended March 28, 2020 and March 30, 2019 was as follows (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 Change 2020 2019 Change
Interest and dividend income $ 1,049 $ 1,358 $ 2,094 $ 2,665
Interest expense (757) (1,010) (1,542) (1,900)
Other income/(expense), net (10) 30 79 173
Total other income/(expense), net $ 282 $ 378 (25)% $ 631 $ 938 (33)%

OI&E decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower interest income, partially
offset by lower interest expense. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was
2.01% and 2.27% in the second quarter of 2020 and 2019, respectively, and 2.05% and 2.23% in the first six months of 2020 and 2019, respectively.

Apple Inc. | Q2 2020 Form 10-Q | 29

Provision for Income Taxes
Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended March 28, 2020 and March 30,
2019 were as follows (dollars in millions):

Three Months Ended Six Months Ended

March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Provision for income taxes $ 1,886 $ 2,232 $ 5,568 $ 6,173
Effective tax rate 14.4% 16.2% 14.3% 16.4%
Statutory federal income tax rate 21% 21% 21% 21%

The Company’s effective tax rate for the second quarter and first six months of 2020 was lower than the statutory federal income tax rate due primarily to lower
taxes on foreign earnings, including the impact of tax settlements.

The Company’s effective tax rate for the second quarter of 2020 was lower compared to the second quarter of 2019 due to lower taxes on foreign earnings,
including the impact of tax settlements. The Company’s effective tax rate for the first six months of 2020 was lower compared to the same period in 2019 due to
the one-time adjustment of U.S. foreign tax credits in response to regulations issued by the U.S. Department of the Treasury in December 2019 and lower taxes
on foreign earnings, including the impact of tax settlements.

Recent Accounting Pronouncements

Financial Instruments
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial
instruments. The Company will adopt ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of
the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material
impact on its consolidated financial statements.

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of March 28, 2020 and September 28, 2019 and for the first six months of 2020 and
2019 (in millions):

March 28, September 28,

2020 2019
Cash, cash equivalents and marketable securities (1) $ 192,844 $ 205,898
Property, plant and equipment, net $ 35,889 $ 37,378
Commercial paper and repurchase agreement $ 10,029 $ 5,980
Total term debt $ 99,478 $ 102,067
Working capital $ 47,659 $ 57,101

Six Months Ended

March 28, March 30,
2020 2019
Cash generated by operating activities $ 43,827 $ 37,845
Cash generated by/(used in) investing activities $ (4,655) $ 19,192
Cash used in financing activities $ (46,347) $ (43,133)

(1) As of March 28, 2020 and September 28, 2019, total marketable securities included $17.6 billion and $18.9 billion, respectively, that was restricted from general use,
related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q)
and other agreements. Additionally, as of March 28, 2020, $2.6 billion of marketable securities were pledged as collateral under a repurchase agreement (refer to
Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).

Apple Inc. | Q2 2020 Form 10-Q | 30

The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity
arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity
requirements associated with its existing operations over the next 12 months.

In connection with the State Aid Decision, as of March 28, 2020, the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into
escrow, where it will remain restricted from general use pending the conclusion of all appeals.

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

During the six months ended March 28, 2020, cash generated by operating activities of $43.8 billion was a result of $33.5 billion of net income, non-cash
adjustments to net income of $8.1 billion and an increase in the net change in operating assets and liabilities of $2.2 billion. Cash used in investing activities of
$4.7 billion during the six months ended March 28, 2020 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of
$1.0 billion and cash used to acquire property, plant and equipment of $4.0 billion. Cash used in financing activities of $46.3 billion during the six months ended
March 28, 2020 consisted primarily of cash used to repurchase common stock of $39.3 billion, cash used to pay dividends and dividend equivalents of $6.9
billion and cash used to repay or redeem term debt of $5.3 billion, partially offset by net proceeds from commercial paper and repurchase agreement of $4.1
billion and net proceeds from the issuance of term debt of $2.2 billion.

During the six months ended March 30, 2019, cash generated by operating activities of $37.8 billion was a result of $31.5 billion of net income and non-cash
adjustments to net income of $9.2 billion, partially offset by a decrease in the net change in operating assets and liabilities of $2.9 billion. Cash generated by
investing activities of $19.2 billion during the six months ended March 30, 2019 consisted primarily of proceeds from sales and maturities of marketable
securities, net of purchases, of $25.7 billion, partially offset by cash used to acquire property, plant and equipment of $5.7 billion. Cash used in financing
activities of $43.1 billion during the six months ended March 30, 2019 consisted primarily of cash used to repurchase common stock of $32.5 billion, cash used
to pay dividends and dividend equivalents of $7.0 billion and cash used to repay term debt of $2.5 billion.

Debt
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses the net
proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of March 28, 2020, the Company
had $7.5 billion of Commercial Paper outstanding, with a weighted-average interest rate of 1.39% and maturities generally less than nine months.

In the second quarter of 2020, the Company entered into an agreement to sell certain of its marketable securities with a promise to repurchase the securities at
a specified time and amount (“Repo”). Due to the Company’s continuing involvement with the marketable securities, the Company accounts for the Repo as a
collateralized borrowing. As of March 28, 2020, the Company had a $2.6 billion Repo liability with a maturity of less than six months, and had pledged $2.6
billion of marketable securities as collateral.

As of March 28, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $98.0 billion
(collectively the “Notes”). During the first six months of 2020, the Company issued $2.2 billion and repaid or redeemed $5.3 billion of Notes. The Company has
entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes. In addition, the Company has entered, and in the future
may enter, into foreign currency swaps to manage foreign currency risk on the Notes.

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

Capital Return Program

As of March 28, 2020, the Company was authorized to purchase up to $175 billion of the Company’s common stock under a share repurchase program, of
which $134.6 billion had been utilized. During the six months ended March 28, 2020, the Company repurchased 135.0 million shares of its common stock for
$38.5 billion, including 30.4 million shares initially delivered under a $10.0 billion accelerated share repurchase arrangement dated November 2019. On April 30,
2020, the Company announced the Board of Directors increased the share repurchase program authorization by $50 billion. The Company’s share repurchase
program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open
market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

On April 30, 2020, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.77 to $0.82 per share, beginning
with the dividend to be paid during the third quarter of 2020. The Company intends to increase its dividend on an annual basis, subject to declaration by the
Board of Directors.

Apple Inc. | Q2 2020 Form 10-Q | 31

Contractual Obligations

Leases
As of March 28, 2020, the Company’s total fixed lease payment obligations were $12.5 billion, of which $8.1 billion was included in other non-current liabilities in
the Company’s Condensed Consolidated Balance Sheet. The Company’s leases typically have original terms not exceeding 10 years and generally contain
multi-year renewal options.

Manufacturing Purchase Obligations

The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of
finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically
covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of March 28,
2020, the Company expects to pay $29.3 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

Other Purchase Obligations

The Company’s other purchase obligations consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process
equipment, and noncancelable obligations related to advertising, licensing, R&D, Internet and telecommunications services, content creation and other activities.
As of March 28, 2020, the Company had other purchase obligations of $8.7 billion.

Deemed Repatriation Tax Payable

As of March 28, 2020, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act (the “Act”) was $28.2 billion, and was
included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company plans to pay the deemed repatriation tax
payable in installments in accordance with the Act.

Other Non-Current Liabilities

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

Critical Accounting Policies and Estimates

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Apple Inc. | Q2 2020 Form 10-Q | 32

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal
financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act
were effective as of March 28, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated
and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the second quarter of 2020, 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.

Apple Inc. | Q2 2020 Form 10-Q | 33

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above
management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. The
Company settled certain matters during the second quarter of 2020 that did not individually or in the aggregate have a material impact on the Company’s
financial condition or operating results.

Item 1A. Risk Factors

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including
but not limited to those described in Part I, Item 1A of the 2019 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or
indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and
operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results
and stock price. Except as set forth below, there have been no material changes to the Company’s risk factors since the 2019 Form 10-K.

The Company’s business, results of operations, financial condition and stock price have been adversely affected and could in the future be
materially adversely affected by the COVID-19 pandemic.

COVID-19 has spread rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response. Such measures
have included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders. The COVID-19
pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact
the Company’s business, results of operations, financial condition and stock price. During February 2020, following the initial outbreak of the virus in China, the
Company experienced disruptions to its manufacturing, supply chain and logistical services provided by outsourcing partners, resulting in temporary iPhone
supply shortages that affected sales worldwide. Also, the Company’s sales of its products in China were adversely affected as public health measures and other
actions to curb the spread of the virus, including the temporary closure of the Company’s retail stores and channel partner points of sale, were put in place. The
virus spread further around the world as the quarter progressed, and social distancing measures and shelter-in-place orders were introduced in many countries.
Effective March 13, 2020, the Company temporarily closed all of its retail stores outside of China. The Company has also required substantially all of its
employees in all of its offices outside of China to work remotely. Additionally, many of the Company’s channel partner points of sale outside of China temporarily
closed. As a result, the Company also experienced weakened demand for its products and services outside of China during the last three weeks of the quarter.
The COVID-19 pandemic has continued to adversely impact demand for certain of the Company’s products and services through April 2020.

The Company is continuing to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant
authorities. The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will
depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development
and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy
and demand for consumer products. Additional future impacts on the Company may include, but are not limited to, material adverse effects on: demand for the
Company’s products and services; the Company’s supply chain and sales and distribution channels; the Company’s ability to execute its strategic plans; and the
Company’s profitability and cost structure.

To the extent the COVID-19 pandemic adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the
effect of heightening many of the other risks described in Part I, Item 1A of the 2019 Form 10-K under the heading “Risk Factors.”

Apple Inc. | Q2 2020 Form 10-Q | 34

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity during the three months ended March 28, 2020 was as follows (in millions, except number of shares, which are reflected in thousands,
and per share amounts):

Total Number of Approximate Dollar

Shares Value of
Average Purchased as Part Shares That May Yet
Total Number Price of Publicly Be Purchased
of Shares Paid Per Announced Plans Under the Plans or
Periods Purchased Share or Programs Programs (1)
December 29, 2019 to February 1, 2020:
Open market and privately negotiated purchases 17,794 $ 309.09 17,794

February 2, 2020 to February 29, 2020:

Open market and privately negotiated purchases 15,725 $ 302.06 15,725

March 1, 2020 to March 28, 2020:

Open market and privately negotiated purchases 31,158 $ 265.27 31,158
Total 64,677 $ 40,353

(1) As of March 28, 2020, the Company was authorized to purchase up to $175 billion of the Company’s common stock under a share repurchase program approved on
April 30, 2019, of which $134.6 billion had been utilized. The remaining $40.4 billion in the table represents the amount available to repurchase shares under the
authorized repurchase program as of March 28, 2020. On April 30, 2020, the Company announced the Board of Directors increased the share repurchase program
authorization by $50 billion. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares
may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Apple Inc. | Q2 2020 Form 10-Q | 35

Item 6. Exhibits

Incorporated by Reference
Filing Date/
Exhibit Period End
Number Exhibit Description Form Exhibit Date
31.1* Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2* Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1** Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101* Inline XBRL Document Set for the condensed consolidated financial statements and accompanying
notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104* Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline
XBRL Document Set.

* Filed herewith.
** Furnished herewith.

Apple Inc. | Q2 2020 Form 10-Q | 36

 SIGNATURE

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

April 30, 2020 Apple Inc.

By: /s/ Luca Maestri

Luca Maestri
Senior Vice President,
Chief Financial Officer

Apple Inc. | Q2 2020 Form 10-Q | 37

 Exhibit 31.1

CERTIFICATION

I, Timothy D. Cook, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apple Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.

Date: April 30, 2020

By: /s/ Timothy D. Cook

Timothy D. Cook
Chief Executive Officer
 Exhibit 31.2

CERTIFICATION

I, Luca Maestri, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apple Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.

Date: April 30, 2020

By: /s/ Luca Maestri

Luca Maestri
Senior Vice President,
Chief Financial Officer
 Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy D. Cook, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Quarterly Report of Apple Inc. on Form 10-Q for the period ended March 28, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of
operations of Apple Inc. at the dates and for the periods indicated.

Date: April 30, 2020

By: /s/ Timothy D. Cook

Timothy D. Cook
Chief Executive Officer

I, Luca Maestri, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
the Quarterly Report of Apple Inc. on Form 10-Q for the period ended March 28, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of
operations of Apple Inc. at the dates and for the periods indicated.

Date: April 30, 2020

By: /s/ Luca Maestri

Luca Maestri
Senior Vice President,
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Apple Inc. and will be retained by Apple Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.