Apple inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In milions, except number of shares which are reflected in thousands and par value) LABILITES AND SHAREHOLDERS' EQUITY: Current liabilties: Accounts paysble Other current liabilies Deferted reverue Commercial paper Torm debt Total current kbilses \begin{tabular}{rrr|} \hline 4.,945 & $ & 64,115 \\ \hline 56,425 & 60,845 \\ \hline 8,131 & 7,912 \\ 1,996 & 9,982 \\ 10,578 & 11,128 \\ \hline 120,075 & 153,982 \\ \hline \end{tabular} 3n-current liabdities: rim debe ther non-curent labities tal non-current liablities tal lablities \begin{tabular}{|rr|} \hline & \\ & \\ 97,041 & 96,959 \\ \hline 52,886 & 49,142 \\ \hline 149,027 & 142,101 \\ \hline 270,002 & 302,063 \\ \hline \end{tabular} Commitments and contingencies Shareholders' equity: 3mmon stock and additional padd in capita, so 00001 per value: 50,400,000 shares suthorised; 15,723,406 and 15,943,426 ahares issued and outsianding. respectively Betained earminas Accumulated doficit? Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UnaUdited) (in milions, except per share amounts) Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In millions, except per share amounts) See accompanying Notes to Condensed Consolidated Financial Statements. Apple ine. 1 Q2 2023 Form 10-Q I 4 Apple inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Other current and non-current liabilities Cash generated by operating activities Investing activities: Purchases of marketable securities (11,197)(61,987) Proceeds from maturities of marketable securities Proceeds from sales of marketable securities 17,124 18,000 Payments for acquisition of property, plant and equipment 1,897 24,668 Other (6,703)(5,317) Cash genersted byf(used in) investing activities (247) (735) 874 (25,371) Financing activities: Payments for taxos related to net share settement of equity awards Payments for dividends and dividend equivalents Repurchases of common stock Pepayments of term debt (2,734) (3,218) Proceeds trom/(Repayments of commercial paper, net (7,418) (7,327) (39,069) (43,109) Qther (3,651) (3,750) (7,960) 999 Qther Cash used in financing activities Increase/(Decreaso) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, ending balances (455) (105) (61,287) (56,510) Apple Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Summary of Significant Accounting Policies Basis of Presentation and Preparation The condensed consoldated linancial statements include the aocounts 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 adjusiments, 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 astumptions that atfect 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 contorm to the current period's presentation. These condensed consolidated financial statements and accompanying notes should bo read in conjunction with the Company's annual consolidatod financial statements and accompanying notes included in its Annual Report on Form 10-Krior the fiscal year ended September 24, 2022 The Company's fiscal year is the 52- or 53-weok period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to roalign the Company's fiscal quarters with calendar quarters, which occurred in the first fiscal quarter of 2023 . The Company's fiscal years 2023 and 2022 span 53 and 52 weeks, respectively. Unless otherwise stated, references to particular years, quarters, months and poriods reter to the Compary's fiscal years ended in September and the associatod quarters, months and periods of those fiscal years. Earnings Per Share The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended April 1, 2023 and March 26, 2022 (net income in millions and shares in thousands): Approximately 48 million restricted stock units ("RSUs") were excluded from the computation of diluted earnings per share for the six months ended April 1, 2023 because their effect would have been antidilutive. Apple inc. 1 Q2 2023 Form 10016 Note 2 - Pevenue Net sales disaggregated by significant products and services for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (in millions): Net sales disaggregated by significant products and services for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (in millions): Total net sales include $3.5 bilion of revenue recognized in the three months ended April 1,2023 that was included in deferred revenue as of December 31,2022,$3.0 billion of revenue recognizod in the three months ended March 26 . 2022 that was included in deferred revenue as of December 25, 2021, $5.5 billion of revenue recognized in the six months ended April 1, 2023 that was included in deferred revenue as of September 24,2022 , and $4.8 billion of revenue recognized in the six months ended March 26, 2022 that was included in deferred revenue as of September 25 , 202121 The Company's proportion of net sales by disaggregated rovenue source was generally consistent for each reportable segment in Note 10, "Segment Information and Geographic Data" for the three- and six-month periods ended April 1. 2023 and March 26, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of April 1, 2023 and September 24, 2022, the Company had total delerred revenue of $12.5 billion and $12.4 billion. segment in Note 10, "Segment Information and Geographic Data" for the three- and six-month periods ended April 1 , 2023 and March 26, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of April 1, 2023 and September 24, 2022, the Company had total deferred revenue of $12.5 bilion and $12.4 billion, respectively. As of April 1, 2023, the Company expects 65% of total deferred revenue to be realized in less than a year, 26% within one-to-two years, 7% within two-to-three years and 2% in greater than three years. Note 3 - Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables show the Company's cash, cash equivalents and marketable securities by significant investment category as of April 1, 2023 and September 24, 2022 (in milions): Commercial paper Corporate debt securitios Municipal securities yrtgage- and asset-backod securities Subtotal Total (2) Apple inc. IQ2 2023 Form 10-Q17 September 24, 2022 Cash ivel 1 (t): Money market funds Mutual funds Subtotal Level 2 m: U.S. Treasury securities US. agency securities Non-U.S. government securties intifates of deposit and time depotins 2,9292743,203 25,134 5.823 16.948 2,067 2,929 (47) (47) 2,929 227 227 338 5,091 240 (1,201) 15.749 2.067 227 (1,725) 23,400 (655) 5,168 2 8,806 1.805 262 (1) Level 1 tair value estimates are based on quoted poices in active markets lor identical assets or liabilies. (2) Level 2 tair value estimates ase based ca observable inputs oher than quotod peices in active markets lor identeal aasets and liabidities. quoted prices for identical or similar assets or liabiletes in inactve markets, or other inputs that are observable or can be comroborated by observabie market data for substantially the tull term of the assets or fiablitios (3)As of April 1, 2023 and September 24, 2022, total markotable securities included 513.1 billion and $12.7 billon, reapectively, that wore restricted from general use, related to the State Add Decision (reder to Note 5, "inceme Taxes') and other agreements. Derivative Instruments and Hedging The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk. However, the Company may choose not to hedge certain exposures for a variety of reasons, including 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 exchange or interest rates. Foreign Exchange Risk To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months. To protect the 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. The Company designates these instruments as either cash flow or fair value hedges. As of April 1, 2023, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 19 years. Apple inc. 1 Q2 2023 Form 10-Q18 The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations ip foreign currency exchange rates, as well as to olfset a portion of the foreign currency exchange gains and losses gendrated by the remeasurement of certain assets and liabilities denominated in nonfunctional currencies. Interest Rate Risk To protect the Company's term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. The Company designates these instruments as either cash flow or fair value hedges. The notional amounts of the Company's outstanding derivative instruments as of April 1,2023 and September 24,2022 were as follows (in millions): Derivative instruments not desianated as accounting hedges: The gross fair values of the Company's derivative assets and liabilities as of September 24, 2022 were as follows (in millions): (1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet. (2)Derlvative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-curront liabilities in the Condensed Consolidated Balance Sheet. The derivative assets above represent the Company's gross credit exposure it all counterparties failed to perform. To mitigate credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established threshoids. To further limit credit risk, the Company generally enters into master netting arrangements with the respective counterparties to the Company's derivative contracts, under which the Company is allowed to settle transactions with a single net amount payable by one party to the other. As of September 24, 2022, the potential effects of these rights of set-off associated with the Company's derivative contracts, including the eflects of collateral, would be a reduction to both derivative assets and derivative liabilities of $7.8 billion, resulting in a net derivative asset of $412 million. The carrying amounts of the Company's hedged items in fair value hedges as of April 1, 2023 and September 24,2022 The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers. retailers, resellers, small and mid-sized businesses and oducation, 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 crodit risk sharing related to any of these arrangements. As of both April 1, 2023 and September 24, 2022, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. The Company's cellular network carriers accounted for 32% and 44% of total trade receivables as of April 1, 2023 and September 24, 2022, respectively. Vendor Non-Trade Receivables The Company has non-trade receivables from certain of its manulacturing vendors resulting from the sale of components to these vendors who manutacture subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of Apnil 1, 2023, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 43%, 19\% and 13\%. As of September 24, 2022, the Company had wo vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54% and 13%. Note 4 - Condensed Consolidated Financial Statement Details The following tables show the Company's condensed consolidated financial statement details as of April 1, 2023 and September 24, 2022 (in millions): Inventories Other Income/(Expense), Net The following table shows the detail of other income/(expense), net for the three- and six-month periods ended April 1 , 2023 and March 26, 2022 (in millions): Note 5-Income Taxes European Commission State Ald 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. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the "General Court"). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court's decision to the European Court of Justice and a hearing has been scheduled for May 23, 2023. The Company believes it would be eligible to claim a U.S. foreign tax credit for a portion of any incremental Irish corporate income taxes potentially due related to the State Aid Decision. Note 6 - Debt Commercial Paper 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 April 1, 2023 and September 24, 2022, the Company had $2.0 billion and $10.0 billion of Commercial Paptor outstanding, respoctivoly. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended April 1, 2023 and March 26, 2022 (in millions): As of April 1, 2023 and September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $107.6 bilion and $110.1 billion, respectively (collectively the "Notes"). As of April 1. 2023 and September 24, 2022, the fair value of the Company's Notes, based on Level 2 inputs, was $98.4 billion and $98.8 bilion, respectively. Note 7 - Shareholders' Equity Share Repurchase Program During the six months ended April 1, 2023, the Company repurchased 262 million shares of its common stock undor an authorized share repurchase program for $38.1 bilion, excluding excise tax due under the Inflation Reduction Act of 2022. The program does not obligate the Company to acquire a minimum amount of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Apple Inc. I O2 2023 Form 10-Q I 11 Success will be tied to your understanding of how to read and interpret the 10K, annual reports and financial statements. 1. Clearly describe the company and the industry the company is a part of. a. Is the industry or market growing or shrinking (Provide a clear explanation and provide research to defend your answer). 2. Looking at the most recent annual report, is the company financed primarily by debt or equity? (Provide a clear explanation and defend your answer) a. Is there a benefit to financing with debt or equity, is than an advantage using one or the other? b. Is the company payying off debt or adding debt? 3. What is the largest current asset on the most recent annual report? a. Why do you think the company maintains such a large balance? (Provide a clear explanation and defend your answer). 4. Compute the company Free Cash Flow on the most recent annual report (show your computations) a. Interpret the computation, what does the free cash flow tell you about the company? (Provide a clear explanation) b. Does the company appear may have to invest in replacing out dated assets in the near future? 5. What is P/E ratio for the companies? What does the P/E ratios say about the valuation of the companies. Why is one of the companies P/E ratio higher. Consider the revenue growth as the main driver of P/E ratio. (Provide a clear explanation of how you evaluated the P/E ratio in your recommendation. 6. Summarize your evaluation of liquidity, asset tumover, solvency, and profitability by performing a through horizontal analysis. Apple inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In milions, except number of shares which are reflected in thousands and par value) LABILITES AND SHAREHOLDERS' EQUITY: Current liabilties: Accounts paysble Other current liabilies Deferted reverue Commercial paper Torm debt Total current kbilses \begin{tabular}{rrr|} \hline 4.,945 & $ & 64,115 \\ \hline 56,425 & 60,845 \\ \hline 8,131 & 7,912 \\ 1,996 & 9,982 \\ 10,578 & 11,128 \\ \hline 120,075 & 153,982 \\ \hline \end{tabular} 3n-current liabdities: rim debe ther non-curent labities tal non-current liablities tal lablities \begin{tabular}{|rr|} \hline & \\ & \\ 97,041 & 96,959 \\ \hline 52,886 & 49,142 \\ \hline 149,027 & 142,101 \\ \hline 270,002 & 302,063 \\ \hline \end{tabular} Commitments and contingencies Shareholders' equity: 3mmon stock and additional padd in capita, so 00001 per value: 50,400,000 shares suthorised; 15,723,406 and 15,943,426 ahares issued and outsianding. respectively Betained earminas Accumulated doficit? Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UnaUdited) (in milions, except per share amounts) Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In millions, except per share amounts) See accompanying Notes to Condensed Consolidated Financial Statements. Apple ine. 1 Q2 2023 Form 10-Q I 4 Apple inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Other current and non-current liabilities Cash generated by operating activities Investing activities: Purchases of marketable securities (11,197)(61,987) Proceeds from maturities of marketable securities Proceeds from sales of marketable securities 17,124 18,000 Payments for acquisition of property, plant and equipment 1,897 24,668 Other (6,703)(5,317) Cash genersted byf(used in) investing activities (247) (735) 874 (25,371) Financing activities: Payments for taxos related to net share settement of equity awards Payments for dividends and dividend equivalents Repurchases of common stock Pepayments of term debt (2,734) (3,218) Proceeds trom/(Repayments of commercial paper, net (7,418) (7,327) (39,069) (43,109) Qther (3,651) (3,750) (7,960) 999 Qther Cash used in financing activities Increase/(Decreaso) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, ending balances (455) (105) (61,287) (56,510) Apple Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Summary of Significant Accounting Policies Basis of Presentation and Preparation The condensed consoldated linancial statements include the aocounts 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 adjusiments, 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 astumptions that atfect 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 contorm to the current period's presentation. These condensed consolidated financial statements and accompanying notes should bo read in conjunction with the Company's annual consolidatod financial statements and accompanying notes included in its Annual Report on Form 10-Krior the fiscal year ended September 24, 2022 The Company's fiscal year is the 52- or 53-weok period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to roalign the Company's fiscal quarters with calendar quarters, which occurred in the first fiscal quarter of 2023 . The Company's fiscal years 2023 and 2022 span 53 and 52 weeks, respectively. Unless otherwise stated, references to particular years, quarters, months and poriods reter to the Compary's fiscal years ended in September and the associatod quarters, months and periods of those fiscal years. Earnings Per Share The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended April 1, 2023 and March 26, 2022 (net income in millions and shares in thousands): Approximately 48 million restricted stock units ("RSUs") were excluded from the computation of diluted earnings per share for the six months ended April 1, 2023 because their effect would have been antidilutive. Apple inc. 1 Q2 2023 Form 10016 Note 2 - Pevenue Net sales disaggregated by significant products and services for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (in millions): Net sales disaggregated by significant products and services for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (in millions): Total net sales include $3.5 bilion of revenue recognized in the three months ended April 1,2023 that was included in deferred revenue as of December 31,2022,$3.0 billion of revenue recognizod in the three months ended March 26 . 2022 that was included in deferred revenue as of December 25, 2021, $5.5 billion of revenue recognized in the six months ended April 1, 2023 that was included in deferred revenue as of September 24,2022 , and $4.8 billion of revenue recognized in the six months ended March 26, 2022 that was included in deferred revenue as of September 25 , 202121 The Company's proportion of net sales by disaggregated rovenue source was generally consistent for each reportable segment in Note 10, "Segment Information and Geographic Data" for the three- and six-month periods ended April 1. 2023 and March 26, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of April 1, 2023 and September 24, 2022, the Company had total delerred revenue of $12.5 billion and $12.4 billion. segment in Note 10, "Segment Information and Geographic Data" for the three- and six-month periods ended April 1 , 2023 and March 26, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of April 1, 2023 and September 24, 2022, the Company had total deferred revenue of $12.5 bilion and $12.4 billion, respectively. As of April 1, 2023, the Company expects 65% of total deferred revenue to be realized in less than a year, 26% within one-to-two years, 7% within two-to-three years and 2% in greater than three years. Note 3 - Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables show the Company's cash, cash equivalents and marketable securities by significant investment category as of April 1, 2023 and September 24, 2022 (in milions): Commercial paper Corporate debt securitios Municipal securities yrtgage- and asset-backod securities Subtotal Total (2) Apple inc. IQ2 2023 Form 10-Q17 September 24, 2022 Cash ivel 1 (t): Money market funds Mutual funds Subtotal Level 2 m: U.S. Treasury securities US. agency securities Non-U.S. government securties intifates of deposit and time depotins 2,9292743,203 25,134 5.823 16.948 2,067 2,929 (47) (47) 2,929 227 227 338 5,091 240 (1,201) 15.749 2.067 227 (1,725) 23,400 (655) 5,168 2 8,806 1.805 262 (1) Level 1 tair value estimates are based on quoted poices in active markets lor identical assets or liabilies. (2) Level 2 tair value estimates ase based ca observable inputs oher than quotod peices in active markets lor identeal aasets and liabidities. quoted prices for identical or similar assets or liabiletes in inactve markets, or other inputs that are observable or can be comroborated by observabie market data for substantially the tull term of the assets or fiablitios (3)As of April 1, 2023 and September 24, 2022, total markotable securities included 513.1 billion and $12.7 billon, reapectively, that wore restricted from general use, related to the State Add Decision (reder to Note 5, "inceme Taxes') and other agreements. Derivative Instruments and Hedging The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk. However, the Company may choose not to hedge certain exposures for a variety of reasons, including 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 exchange or interest rates. Foreign Exchange Risk To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months. To protect the 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. The Company designates these instruments as either cash flow or fair value hedges. As of April 1, 2023, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 19 years. Apple inc. 1 Q2 2023 Form 10-Q18 The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations ip foreign currency exchange rates, as well as to olfset a portion of the foreign currency exchange gains and losses gendrated by the remeasurement of certain assets and liabilities denominated in nonfunctional currencies. Interest Rate Risk To protect the Company's term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. The Company designates these instruments as either cash flow or fair value hedges. The notional amounts of the Company's outstanding derivative instruments as of April 1,2023 and September 24,2022 were as follows (in millions): Derivative instruments not desianated as accounting hedges: The gross fair values of the Company's derivative assets and liabilities as of September 24, 2022 were as follows (in millions): (1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet. (2)Derlvative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-curront liabilities in the Condensed Consolidated Balance Sheet. The derivative assets above represent the Company's gross credit exposure it all counterparties failed to perform. To mitigate credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established threshoids. To further limit credit risk, the Company generally enters into master netting arrangements with the respective counterparties to the Company's derivative contracts, under which the Company is allowed to settle transactions with a single net amount payable by one party to the other. As of September 24, 2022, the potential effects of these rights of set-off associated with the Company's derivative contracts, including the eflects of collateral, would be a reduction to both derivative assets and derivative liabilities of $7.8 billion, resulting in a net derivative asset of $412 million. The carrying amounts of the Company's hedged items in fair value hedges as of April 1, 2023 and September 24,2022 The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers. retailers, resellers, small and mid-sized businesses and oducation, 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 crodit risk sharing related to any of these arrangements. As of both April 1, 2023 and September 24, 2022, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. The Company's cellular network carriers accounted for 32% and 44% of total trade receivables as of April 1, 2023 and September 24, 2022, respectively. Vendor Non-Trade Receivables The Company has non-trade receivables from certain of its manulacturing vendors resulting from the sale of components to these vendors who manutacture subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of Apnil 1, 2023, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 43%, 19\% and 13\%. As of September 24, 2022, the Company had wo vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54% and 13%. Note 4 - Condensed Consolidated Financial Statement Details The following tables show the Company's condensed consolidated financial statement details as of April 1, 2023 and September 24, 2022 (in millions): Inventories Other Income/(Expense), Net The following table shows the detail of other income/(expense), net for the three- and six-month periods ended April 1 , 2023 and March 26, 2022 (in millions): Note 5-Income Taxes European Commission State Ald 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. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the "General Court"). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court's decision to the European Court of Justice and a hearing has been scheduled for May 23, 2023. The Company believes it would be eligible to claim a U.S. foreign tax credit for a portion of any incremental Irish corporate income taxes potentially due related to the State Aid Decision. Note 6 - Debt Commercial Paper 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 April 1, 2023 and September 24, 2022, the Company had $2.0 billion and $10.0 billion of Commercial Paptor outstanding, respoctivoly. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended April 1, 2023 and March 26, 2022 (in millions): As of April 1, 2023 and September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $107.6 bilion and $110.1 billion, respectively (collectively the "Notes"). As of April 1. 2023 and September 24, 2022, the fair value of the Company's Notes, based on Level 2 inputs, was $98.4 billion and $98.8 bilion, respectively. Note 7 - Shareholders' Equity Share Repurchase Program During the six months ended April 1, 2023, the Company repurchased 262 million shares of its common stock undor an authorized share repurchase program for $38.1 bilion, excluding excise tax due under the Inflation Reduction Act of 2022. The program does not obligate the Company to acquire a minimum amount of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Apple Inc. I O2 2023 Form 10-Q I 11 Success will be tied to your understanding of how to read and interpret the 10K, annual reports and financial statements. 1. Clearly describe the company and the industry the company is a part of. a. Is the industry or market growing or shrinking (Provide a clear explanation and provide research to defend your answer). 2. Looking at the most recent annual report, is the company financed primarily by debt or equity? (Provide a clear explanation and defend your answer) a. Is there a benefit to financing with debt or equity, is than an advantage using one or the other? b. Is the company payying off debt or adding debt? 3. What is the largest current asset on the most recent annual report? a. Why do you think the company maintains such a large balance? (Provide a clear explanation and defend your answer). 4. Compute the company Free Cash Flow on the most recent annual report (show your computations) a. Interpret the computation, what does the free cash flow tell you about the company? (Provide a clear explanation) b. Does the company appear may have to invest in replacing out dated assets in the near future? 5. What is P/E ratio for the companies? What does the P/E ratios say about the valuation of the companies. Why is one of the companies P/E ratio higher. Consider the revenue growth as the main driver of P/E ratio. (Provide a clear explanation of how you evaluated the P/E ratio in your recommendation. 6. Summarize your evaluation of liquidity, asset tumover, solvency, and profitability by performing a through horizontal analysis