APPLE INC, 10-K filed on 11/5/2018
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
shares in Thousands, $ in Millions
12 Months Ended
Sep. 29, 2018
Oct. 26, 2018
Mar. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Sep. 29, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol AAPL    
Entity Registrant Name APPLE INC    
Entity Central Index Key 0000320193    
Current Fiscal Year End Date --09-29    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   4,745,398  
Entity Public Float     $ 828,880
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Millions
12 Months Ended
Sep. 29, 2018
Sep. 30, 2017
Sep. 24, 2016
Income Statement [Abstract]      
Net sales $ 265,595 $ 229,234 $ 215,639
Cost of sales 163,756 141,048 131,376
Gross margin 101,839 88,186 84,263
Operating expenses:      
Research and development 14,236 11,581 10,045
Selling, general and administrative 16,705 15,261 14,194
Total operating expenses 30,941 26,842 24,239
Operating income 70,898 61,344 60,024
Other income/(expense), net 2,005 2,745 1,348
Income before provision for income taxes 72,903 64,089 61,372
Provision for income taxes 13,372 15,738 15,685
Net income $ 59,531 $ 48,351 $ 45,687
Earnings per share:      
Basic (in dollars per share) $ 12.01 $ 9.27 $ 8.35
Diluted (in dollars per share) $ 11.91 $ 9.21 $ 8.31
Shares used in computing earnings per share:      
Basic (in shares) 4,955,377 5,217,242 5,470,820
Diluted (in shares) 5,000,109 5,251,692 5,500,281
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Sep. 29, 2018
Sep. 30, 2017
Sep. 24, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 59,531 $ 48,351 $ 45,687
Other comprehensive income/(loss):      
Change in foreign currency translation, net of tax effects of $(1), $(77) and $8, respectively (525) 224 75
Change in unrealized gains/losses on derivative instruments:      
Change in fair value of derivatives, net of tax benefit/(expense) of $(149), $(478) and $(7), respectively 523 1,315 7
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(104), $475 and $131, respectively 382 (1,477) (741)
Total change in unrealized gains/losses on derivative instruments, net of tax 905 (162) (734)
Change in unrealized gains/losses on marketable securities:      
Change in fair value of marketable securities, net of tax benefit/(expense) of $1,156, $425 and $(863), respectively (3,407) (782) 1,582
Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $21, $35 and $(31), respectively 1 (64) 56
Total change in unrealized gains/losses on marketable securities, net of tax (3,406) (846) 1,638
Total other comprehensive income/(loss) (3,026) (784) 979
Total comprehensive income $ 56,505 $ 47,567 $ 46,666
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Sep. 29, 2018
Sep. 30, 2017
Sep. 24, 2016
Statement of Comprehensive Income [Abstract]      
Change in foreign currency translation, tax effects $ (1) $ (77) $ 8
Change in fair value of derivatives, tax benefit/(expense) (149) (478) (7)
Adjustment for net (gains)/losses realized and included in net income, tax expense/(benefit) (104) 475 131
Change in fair value of marketable securities, tax benefit/(expense) 1,156 425 (863)
Adjustment for net (gains)/losses realized and included in net income, tax expense/(benefit) $ 21 $ 35 $ (31)
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Sep. 29, 2018
Sep. 30, 2017
Current assets:    
Cash and cash equivalents $ 25,913 $ 20,289
Marketable securities 40,388 53,892
Accounts receivable, net 23,186 17,874
Inventories 3,956 4,855
Vendor non-trade receivables 25,809 17,799
Other current assets 12,087 13,936
Total current assets 131,339 128,645
Non-current assets:    
Marketable securities 170,799 194,714
Property, plant and equipment, net 41,304 33,783
Other non-current assets 22,283 18,177
Total non-current assets 234,386 246,674
Total assets 365,725 375,319
Current liabilities:    
Accounts payable 55,888 44,242
Other current liabilities 32,687 30,551
Deferred revenue 7,543 7,548
Commercial paper 11,964 11,977
Term debt 8,784 6,496
Total current liabilities 116,866 100,814
Non-current liabilities:    
Deferred revenue 2,797 2,836
Term debt 93,735 97,207
Other non-current liabilities 45,180 40,415
Total non-current liabilities 141,712 140,458
Total liabilities 258,578 241,272
Commitments and contingencies
Shareholders’ equity:    
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,754,986 and 5,126,201 shares issued and outstanding, respectively 40,201 35,867
Retained earnings 70,400 98,330
Accumulated other comprehensive income/(loss) (3,454) (150)
Total shareholders’ equity 107,147 134,047
Total liabilities and shareholders’ equity $ 365,725 $ 375,319
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 29, 2018
Sep. 30, 2017
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.00001 $ 0.00001
Common stock, shares authorized (in shares) 12,600,000,000 12,600,000,000
Common stock, shares issued (in shares) 4,754,986,000 5,126,201,000
Common stock, shares outstanding (in shares) 4,754,986,000 5,126,201,000
v3.10.0.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Millions
Total
Common Stock and Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income/(Loss)
Beginning balances (in shares) at Sep. 26, 2015   5,578,753    
Beginning balances at Sep. 26, 2015 $ 119,355 $ 27,416 $ 92,284 $ (345)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Net income 45,687 0 45,687 0
Other comprehensive income/(loss) 979 0 0 979
Dividends and dividend equivalents declared (12,188) $ 0 (12,188) 0
Repurchase of common stock (in shares)   (279,609)    
Repurchase of common stock (29,000) $ 0 (29,000) 0
Share-based compensation 4,262 $ 4,262 0 0
Common stock issued, net of shares withheld for employee taxes (in shares)   37,022    
Common stock issued, net of shares withheld for employee taxes (1,225) $ (806) (419) 0
Tax benefit from equity awards, including transfer pricing adjustments 379 $ 379 0 0
Ending balances (in shares) at Sep. 24, 2016   5,336,166    
Ending balances at Sep. 24, 2016 128,249 $ 31,251 96,364 634
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Net income 48,351 0 48,351 0
Other comprehensive income/(loss) (784) 0 0 (784)
Dividends and dividend equivalents declared (12,803) $ 0 (12,803) 0
Repurchase of common stock (in shares)   (246,496)    
Repurchase of common stock (33,001) $ 0 (33,001) 0
Share-based compensation 4,909 $ 4,909 0 0
Common stock issued, net of shares withheld for employee taxes (in shares)   36,531    
Common stock issued, net of shares withheld for employee taxes (1,494) $ (913) (581) 0
Tax benefit from equity awards, including transfer pricing adjustments $ 620 $ 620 0 0
Ending balances (in shares) at Sep. 30, 2017 5,126,201 5,126,201    
Ending balances at Sep. 30, 2017 $ 134,047 $ 35,867 98,330 (150)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Cumulative effect of change in accounting principle 0 0 278 (278)
Net income 59,531 0 59,531 0
Other comprehensive income/(loss) (3,026) 0 0 (3,026)
Dividends and dividend equivalents declared $ (13,735) $ 0 (13,735) 0
Repurchase of common stock (in shares) (405,500) (405,549)    
Repurchase of common stock $ (73,056) $ 0 (73,056) 0
Share-based compensation 5,443 $ 5,443 0 0
Common stock issued, net of shares withheld for employee taxes (in shares)   34,334    
Common stock issued, net of shares withheld for employee taxes $ (2,057) $ (1,109) (948) 0
Ending balances (in shares) at Sep. 29, 2018 4,754,986 4,754,986    
Ending balances at Sep. 29, 2018 $ 107,147 $ 40,201 $ 70,400 $ (3,454)
v3.10.0.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares
12 Months Ended
Sep. 29, 2018
Sep. 30, 2017
Sep. 24, 2016
Statement of Stockholders' Equity [Abstract]      
Dividends and dividend equivalents declared (in dollars per share or RSU) $ 2.72 $ 2.40 $ 2.18
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Sep. 29, 2018
Sep. 30, 2017
Sep. 24, 2016
Statement of Cash Flows [Abstract]      
Cash and cash equivalents, beginning of the year $ 20,289 $ 20,484 $ 21,120
Operating activities:      
Net income 59,531 48,351 45,687
Adjustments to reconcile net income to cash generated by operating activities:      
Depreciation and amortization 10,903 10,157 10,505
Share-based compensation expense 5,340 4,840 4,210
Deferred income tax expense/(benefit) (32,590) 5,966 4,938
Other (444) (166) 486
Changes in operating assets and liabilities:      
Accounts receivable, net (5,322) (2,093) 527
Inventories 828 (2,723) 217
Vendor non-trade receivables (8,010) (4,254) (51)
Other current and non-current assets (423) (5,318) 1,055
Accounts payable 9,175 8,966 2,117
Deferred revenue (44) (626) (1,554)
Other current and non-current liabilities 38,490 1,125 (1,906)
Cash generated by operating activities 77,434 64,225 66,231
Investing activities:      
Purchases of marketable securities (71,356) (159,486) (142,428)
Proceeds from maturities of marketable securities 55,881 31,775 21,258
Proceeds from sales of marketable securities 47,838 94,564 90,536
Payments for acquisition of property, plant and equipment (13,313) (12,451) (12,734)
Payments made in connection with business acquisitions, net (721) (329) (297)
Purchases of non-marketable securities (1,871) (521) (1,388)
Proceeds from non-marketable securities 353 126 0
Other (745) (124) (924)
Cash generated by/(used in) investing activities 16,066 (46,446) (45,977)
Financing activities:      
Proceeds from issuance of common stock 669 555 495
Payments for taxes related to net share settlement of equity awards (2,527) (1,874) (1,570)
Payments for dividends and dividend equivalents 13,712 12,769 12,150
Repurchases of common stock (72,738) (32,900) (29,722)
Proceeds from issuance of term debt, net 6,969 28,662 24,954
Repayments of term debt (6,500) (3,500) (2,500)
Change in commercial paper, net (37) 3,852 (397)
Cash used in financing activities (87,876) (17,974) (20,890)
Increase/(Decrease) in cash and cash equivalents 5,624 (195) (636)
Cash and cash equivalents, end of the year 25,913 20,289 20,484
Supplemental cash flow disclosure:      
Cash paid for income taxes, net 10,417 11,591 10,444
Cash paid for interest $ 3,022 $ 2,092 $ 1,316
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Sep. 29, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, HomePod, a portfolio of consumer and professional software applications, iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a variety of other accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store and Apple Music (collectively “Digital Content and Services”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers. In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories, through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company’s fiscal years 2018 and 2016 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks. A 14th week was included in the first fiscal quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters. 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.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, and service and support contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. For payment terms in excess of the Company’s standard payment terms, revenue is recognized as payments become due unless the Company has positive evidence that the sales price is fixed or determinable, such as a successful history of collection, without concession, on comparable arrangements. The Company recognizes revenue from the sale of hardware products, software bundled with hardware that is essential to the functionality of the hardware and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry-specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.
For the sale of most third-party products, the Company recognizes revenue based on the gross amount billed to customers because the Company establishes its own pricing for such products, retains related inventory risk for physical products, is the primary obligor to the customer and assumes the credit risk for amounts billed to its customers. For third-party applications sold through the App Store and Mac App Store and certain digital content sold through the iTunes Store, the Company does not determine the selling price of the products and is not the primary obligor to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in net sales only the commission it retains from each sale. The portion of the gross amount billed to customers that is remitted by the Company to third-party app developers and certain digital content owners is not reflected in the Company’s Consolidated Statements of Operations.
The Company records deferred revenue when it receives payments in advance of the delivery of products or the performance of services. This includes amounts that have been deferred for unspecified and specified software upgrade rights and non-software services that are attached to hardware and software products. The Company sells gift cards redeemable at its retail and online stores, and also sells gift cards redeemable on iTunes Store, App Store, Mac App Store, TV App Store and Book Store for the purchase of digital content and software. The Company records deferred revenue upon the sale of the card, which is relieved upon redemption of the card by the customer. Revenue from AppleCare service and support contracts is deferred and recognized over the service coverage periods. AppleCare service and support contracts typically include extended phone support, repair services, web-based support resources and diagnostic tools offered under the Company’s standard limited warranty.
The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded. For the Company’s other customer incentive programs, the estimated cost of these programs is recognized at the later of the date at which the Company has sold the product or the date at which the program is offered. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality, undelivered software elements that relate to the hardware product’s essential software, and undelivered non-software services, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. For multi-element arrangements accounted for in accordance with industry-specific software accounting guidance, the Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
For sales of iPhone, iPad, Mac and certain other products, the Company has indicated it may from time to time provide future unspecified software upgrades to the device’s essential software and/or non-software services free of charge. The Company has identified up to three deliverables regularly included in arrangements involving the sale of these devices. The first deliverable, which represents the substantial portion of the allocated sales price, is the hardware and software essential to the functionality of the hardware device delivered at the time of sale. The second deliverable is the embedded right included with qualifying devices to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the product’s essential software. The third deliverable is the non-software services to be provided to qualifying devices. The Company allocates revenue between these deliverables using the relative selling price method. Because the Company has neither VSOE nor TPE for these deliverables, the allocation of revenue is based on the Company’s ESPs. Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale, provided the other conditions for revenue recognition have been met. Revenue allocated to the embedded unspecified software upgrade rights and the non-software services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and non-software services are expected to be provided. Cost of sales related to delivered hardware and related essential software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide non-software services are recognized as cost of sales as incurred, and engineering and sales and marketing costs are recognized as operating expenses as incurred.
The Company’s process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable including, where applicable, prices charged by the Company and market trends in the pricing for similar offerings, product-specific business objectives, estimated cost to provide the non-software services and the relative ESP of the upgrade rights and non-software services as compared to the total selling price of the product.
Shipping Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are classified as cost of sales.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 8, “Benefit Plans.”
During the first quarter of 2018, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which modified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. Historically, excess tax benefits or deficiencies from the Company’s equity awards were recorded as additional paid-in capital in its Consolidated Balance Sheets and were classified as a financing activity in its Consolidated Statements of Cash Flows. Beginning in 2018, the Company records any excess tax benefits or deficiencies from its equity awards as part of the provision for income taxes in its Consolidated Statements of Operations in the reporting periods in which equity vesting occurs. The Company elected to apply the cash flow classification requirements related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to cash generated by operating activities in the Consolidated Statements of Cash Flows of $627 million and $407 million for 2017 and 2016, respectively.
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2018, 2017 and 2016 (net income in millions and shares in thousands):
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Net income
$
59,531

 
$
48,351

 
$
45,687

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted-average basic shares outstanding
4,955,377

 
5,217,242

 
5,470,820

Effect of dilutive securities
44,732

 
34,450

 
29,461

Weighted-average diluted shares
5,000,109

 
5,251,692


5,500,281

 
 
 
 
 
 
Basic earnings per share
$
12.01

 
$
9.27

 
$
8.35

Diluted earnings per share
$
11.91

 
$
9.21

 
$
8.31


Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s marketable debt and equity securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable equity securities, including mutual funds, are classified as short-term based on the nature of the securities and their availability for use in current operations. The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are computed using the first-in, first-out method.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between one and five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was $9.3 billion, $8.2 billion and $8.3 billion during 2018, 2017 and 2016, respectively.
During 2018, non-cash investing activities involving property, plant and equipment resulted in a net increase to accounts payable and other current liabilities of $3.4 billion.
Fair Value Measurements
The Company’s valuation techniques used to measure the fair value of money market funds and certain marketable equity securities are derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
v3.10.0.1
Financial Instruments
12 Months Ended
Sep. 29, 2018
Investments, All Other Investments [Abstract]  
Financial Instruments
Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and available-for-sale securities by significant investment category as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
11,575

 
$

 
$

 
$
11,575

 
$
11,575

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
8,083

 

 

 
8,083

 
8,083

 

 

Mutual funds
799

 

 
(116
)
 
683

 

 
683

 

Subtotal
8,882

 

 
(116
)
 
8,766

 
8,083

 
683

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
47,296

 

 
(1,202
)
 
46,094

 
1,613

 
7,606

 
36,875

U.S. agency securities
4,127

 

 
(48
)
 
4,079

 
1,732

 
360

 
1,987

Non-U.S. government securities
21,601

 
49

 
(250
)
 
21,400

 

 
3,355

 
18,045

Certificates of deposit and time deposits
3,074

 

 

 
3,074

 
1,247

 
1,330

 
497

Commercial paper
2,573

 

 

 
2,573

 
1,663

 
910

 

Corporate securities
123,001

 
152

 
(2,038
)
 
121,115

 

 
25,162

 
95,953

Municipal securities
946

 

 
(12
)
 
934

 

 
178

 
756

Mortgage- and asset-backed securities
18,105

 
8

 
(623
)
 
17,490

 

 
804

 
16,686

Subtotal
220,723

 
209

 
(4,173
)
 
216,759

 
6,255

 
39,705

 
170,799

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total (3)
$
241,180

 
$
209

 
$
(4,289
)
 
$
237,100

 
$
25,913

 
$
40,388

 
$
170,799

 
2017
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
7,982

 
$

 
$

 
$
7,982

 
$
7,982

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
6,534

 

 

 
6,534

 
6,534

 

 

Mutual funds
799

 

 
(88
)
 
711

 

 
711

 

Subtotal
7,333

 

 
(88
)
 
7,245

 
6,534

 
711

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
55,254

 
58

 
(230
)
 
55,082

 
865

 
17,228

 
36,989

U.S. agency securities
5,162

 
2

 
(9
)
 
5,155

 
1,439

 
2,057

 
1,659

Non-U.S. government securities
7,827

 
210

 
(37
)
 
8,000

 
9

 
123

 
7,868

Certificates of deposit and time deposits
5,832

 

 

 
5,832

 
1,142

 
3,918

 
772

Commercial paper
3,640

 

 

 
3,640

 
2,146

 
1,494

 

Corporate securities
152,724

 
969

 
(242
)
 
153,451

 
172

 
27,591

 
125,688

Municipal securities
961

 
4

 
(1
)
 
964

 

 
114

 
850

Mortgage- and asset-backed securities
21,684

 
35

 
(175
)
 
21,544

 

 
656

 
20,888

Subtotal
253,084

 
1,278

 
(694
)
 
253,668

 
5,773

 
53,181

 
194,714

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
268,399

 
$
1,278

 
$
(782
)
 
$
268,895

 
$
20,289

 
$
53,892

 
$
194,714


(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 September 29, 2018, total cash, cash equivalents and marketable securities included $20.3 billion that was restricted from general use, related to the State Aid Decision (refer to Note 4, “Income Taxes”) and other agreements.
The Company may sell certain of its marketable 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 long-term marketable securities generally range from one to five years.
The following tables show information about the Company’s marketable securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or greater as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable securities
$
126,238

 
$
60,599

 
$
186,837

Unrealized losses
$
(2,400
)
 
$
(1,889
)
 
$
(4,289
)
 
2017
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable securities
$
101,986

 
$
8,290

 
$
110,276

Unrealized losses
$
(596
)
 
$
(186
)
 
$
(782
)

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 an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of September 29, 2018, the Company does not consider any of its investments to be other-than-temporarily impaired.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of September 29, 2018, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 24 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 September 29, 2018, the Company’s hedged interest rate transactions are expected to be recognized within 9 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.
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 other income/(expense), net in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.
Net Investment Hedges
The effective portions of net investment hedges are recorded in other comprehensive income/(loss) (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net. For forward exchange contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its definition of effectiveness. Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current period.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the Consolidated Statements of Operations.
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. As a result, during 2018, the Company recognized a gain of $20 million in net sales, a gain of $85 million in cost of sales and a loss of $198 million in other income/(expense), net. During 2017, the Company recognized a gain of $20 million in net sales, a loss of $40 million in cost of sales and a gain of $606 million in other income/(expense), net.
The Company records all derivatives in the Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,015

 
$
259

 
$
1,274

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
543

 
$
137

 
$
680

Interest rate contracts
$
1,456

 
$

 
$
1,456

 
2017
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,049

 
$
363

 
$
1,412

Interest rate contracts
$
218

 
$

 
$
218

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
759

 
$
501

 
$
1,260

Interest rate contracts
$
303

 
$

 
$
303

 
(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets and other non-current assets in the Consolidated Balance Sheets.
(2)
The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Consolidated Statements of Cash Flows.
The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Consolidated Statements of Operations for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Gains/(Losses) recognized in OCI – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
682

 
$
1,797

 
$
109

Interest rate contracts
1

 
7

 
(57
)
Total
$
683


$
1,804


$
52

 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
Foreign currency debt
$
4

 
$
67

 
$
(258
)
 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
(482
)
 
$
1,958

 
$
885

Interest rate contracts
1

 
(2
)
 
(11
)
Total
$
(481
)

$
1,956


$
874

 
 
 
 
 
 
Gains/(Losses) on derivative instruments:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Foreign exchange contracts
$
(168
)
 
$

 
$

Interest rate contracts
(1,363
)
 
(810
)
 
341

Total
$
(1,531
)
 
$
(810
)
 
$
341

 
 
 
 
 
 
Gains/(Losses) related to hedged items:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Marketable securities
$
167

 
$

 
$

Fixed-rate debt
1,363

 
810

 
(341
)
Total
$
1,530

 
$
810

 
$
(341
)

The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
2017
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
65,368

 
$
1,015

 
$
56,156

 
$
1,049

Interest rate contracts
$
33,250

 
$

 
$
33,000

 
$
218

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
63,062

 
$
259

 
$
69,774

 
$
363


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 Consolidated Balance Sheets. As of September 29, 2018, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $1.0 billion, which was recorded as other current assets in the Condensed Consolidated Balance Sheet. As of September 30, 2017, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $35 million, which was recorded as other current liabilities in the Consolidated Balance Sheet.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of September 29, 2018 and September 30, 2017, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $2.1 billion and $1.4 billion, respectively, resulting in net derivative assets of $138 million and $32 million, respectively.
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 September 29, 2018, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. As of September 30, 2017, the Company had two customers that individually represented 10% or more of total trade receivables, each of which accounted for 10%. The Company’s cellular network carriers accounted for 59% of total trade receivables as of both September 29, 2018 and September 30, 2017.
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 September 29, 2018, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 62% and 12%. As of September 30, 2017, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 42%, 19% and 10%.
v3.10.0.1
Consolidated Financial Statement Details
12 Months Ended
Sep. 29, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidated Financial Statement Details
Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 29, 2018 and September 30, 2017 (in millions):
Property, Plant and Equipment, Net
 
2018
 
2017
Land and buildings
$
16,216

 
$
13,587

Machinery, equipment and internal-use software
65,982

 
54,210

Leasehold improvements
8,205

 
7,279

Gross property, plant and equipment
90,403

 
75,076

Accumulated depreciation and amortization
(49,099
)
 
(41,293
)
Total property, plant and equipment, net
$
41,304

 
$
33,783


Other Non-Current Liabilities
 
2018
 
2017
Long-term taxes payable
$
33,589

 
$
257

Deferred tax liabilities
426

 
31,504

Other non-current liabilities
11,165

 
8,654

Total other non-current liabilities
$
45,180

 
$
40,415


Other Income/(Expense), Net
The following table shows the detail of other income/(expense), net for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Interest and dividend income
$
5,686

 
$
5,201

 
$
3,999

Interest expense
(3,240
)
 
(2,323
)
 
(1,456
)
Other expense, net
(441
)
 
(133
)
 
(1,195
)
Total other income/(expense), net
$
2,005

 
$
2,745

 
$
1,348

v3.10.0.1
Income Taxes
12 Months Ended
Sep. 29, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
U.S. Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The impact of the Act increased the Company’s provision for income taxes by $1.5 billion during 2018. This increase was composed of $2.0 billion related to the remeasurement of net deferred tax assets and liabilities and $1.2 billion associated with the deemed repatriation tax, partially offset by a $1.7 billion impact the deemed repatriation tax had on the Company’s unrecognized tax benefits.
Deferred Tax Balances
As a result of the Act, the Company remeasured certain deferred tax assets and liabilities based on the revised rates at which they are expected to reverse, including items for which the related income tax effects were originally recognized in OCI. In addition, the Company elected to record certain deferred tax assets and liabilities related to the new minimum tax on certain future foreign earnings. Of the $2.0 billion recognized related to the remeasurement of net deferred tax assets and liabilities, $1.2 billion is a provisional estimate that incorporates assumptions based upon the most recent interpretations of the Act and may change as the Company continues to analyze the impact of additional implementation guidance. The Company’s provisional estimates are in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.
Deemed Repatriation Tax
As of September 30, 2017, the Company had a U.S. deferred tax liability of $36.4 billion for deferred foreign income. During 2018, the Company replaced $36.1 billion of its U.S. deferred tax liability with a deemed repatriation tax payable of $37.3 billion, which was based on the Company’s cumulative post-1986 deferred foreign income. The deemed repatriation tax payable is a provisional estimate that may change as the Company continues to analyze the impact of additional implementation guidance. The Company plans to pay the tax in installments in accordance with the Act.
Adoption of ASU No. 2018-02
During the second quarter of 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the income tax effects of the Act on items within AOCI to retained earnings. The Company elected to apply the provision of ASU 2018-02 in 2018 with a reclassification of net tax benefits related to cumulative foreign currency translation and unrealized gains/losses on derivative instruments and marketable securities, resulting in a $278 million decrease in AOCI and a corresponding increase in retained earnings in the Consolidated Balance Sheet and Consolidated Statement of Shareholders’ Equity.
Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2018, 2017 and 2016, consisted of the following (in millions):
 
2018
 
2017
 
2016
Federal:
 
 
 
 
 
Current
$
41,425

 
$
7,842

 
$
7,652

Deferred
(33,819
)
 
5,980

 
5,043

Total
7,606


13,822


12,695

State:
 
 
 
 
 
Current
551

 
259

 
990

Deferred
48

 
2

 
(138
)
Total
599


261


852

Foreign:
 
 
 
 
 
Current
3,986

 
1,671

 
2,105

Deferred
1,181

 
(16
)
 
33

Total
5,167


1,655


2,138

Provision for income taxes
$
13,372


$
15,738


$
15,685


The foreign provision for income taxes is based on foreign pre-tax earnings of $48.0 billion, $44.7 billion and $41.1 billion in 2018, 2017 and 2016, respectively.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (24.5% in 2018; 35% in 2017 and 2016) to income before provision for income taxes for 2018, 2017 and 2016, is as follows (dollars in millions):
 
2018
 
2017
 
2016
Computed expected tax
$
17,890

 
$
22,431

 
$
21,480

State taxes, net of federal effect
271

 
185

 
553

Impacts of the Act
1,515

 

 

Earnings of foreign subsidiaries
(5,606
)
 
(6,135
)
 
(5,582
)
Domestic production activities deduction
(195
)
 
(209
)
 
(382
)
Research and development credit, net
(560
)
 
(678
)
 
(371
)
Other
57

 
144

 
(13
)
Provision for income taxes
$
13,372


$
15,738


$
15,685

Effective tax rate
18.3
%
 
24.6
%
 
25.6
%

The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards. For restricted stock units (“RSUs”), the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value. Prior to adopting ASU 2016-09 in the first quarter of 2018, the Company reflected net excess tax benefits from equity awards as increases to additional paid-in capital, which amounted to $620 million and $379 million in 2017 and 2016, respectively. Refer to Note 1, “Summary of Significant Accounting Policies” for more information.
Deferred Tax Assets and Liabilities
As of September 29, 2018 and September 30, 2017, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
 
2018
 
2017
Deferred tax assets:
 
 
 
Accrued liabilities and other reserves
$
3,151

 
$
4,019

Basis of capital assets
137

 
1,230

Deferred revenue
1,141

 
1,521

Deferred cost sharing

 
667

Share-based compensation
513

 
703

Unrealized losses
871

 

Other
797

 
834

Total deferred tax assets
6,610

 
8,974

Deferred tax liabilities:
 
 
 
Earnings of foreign subsidiaries
275

 
36,355

Other
501

 
207

Total deferred tax liabilities
776

 
36,562

Net deferred tax assets/(liabilities)
$
5,834


$
(27,588
)

Deferred tax assets and liabilities reflect the effects of tax losses, credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Uncertain Tax Positions
As of September 29, 2018, the total amount of gross unrecognized tax benefits was $9.7 billion, of which $7.4 billion, if recognized, would impact the Company’s effective tax rate. As of September 30, 2017, the total amount of gross unrecognized tax benefits was $8.4 billion, of which $2.5 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2018, 2017 and 2016, is as follows (in millions):
 
2018
 
2017
 
2016
Beginning balances
$
8,407

 
$
7,724

 
$
6,900

Increases related to tax positions taken during a prior year
2,431

 
333

 
1,121

Decreases related to tax positions taken during a prior year
(2,212
)
 
(952
)
 
(257
)
Increases related to tax positions taken during the current year
1,824

 
1,880

 
1,578

Decreases related to settlements with taxing authorities
(756
)
 
(539
)
 
(1,618
)
Decreases related to expiration of statute of limitations

 
(39
)
 

Ending balances
$
9,694

 
$
8,407

 
$
7,724


The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September 29, 2018 and September 30, 2017, the total amount of gross interest and penalties accrued was $1.4 billion and $1.2 billion, respectively. Both the unrecognized tax benefits and the associated interest and penalties that are not expected to result in payment or receipt of cash within one year are classified as other non-current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense in 2018, 2017 and 2016 of $236 million, $165 million and $295 million, respectively.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The U.S. Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years prior to 2016 are closed. Tax years subsequent to 2006 in certain major U.S. states and subsequent to 2007 in certain major foreign jurisdictions remain open, and could be 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 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 (either by payment, release or a combination of both) in the next 12 months by as much as $800 million.
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. 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 Act. As of September 29, 2018, the entire recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending conclusion of all appeals. Refer to Note 2, “Financial Instruments” for more information.
v3.10.0.1
Debt
12 Months Ended
Sep. 29, 2018
Debt Disclosure [Abstract]  
Debt
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 both September 29, 2018 and September 30, 2017, the Company had $12.0 billion of Commercial Paper outstanding with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 2.18% as of September 29, 2018 and 1.20% as of September 30, 2017. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Maturities 90 days or less:
 
 
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
1,044

 
$
(1,782
)
 
$
(869
)
 
 
 
 
 
 
Maturities greater than 90 days:
 
 
 
 
 
Proceeds from commercial paper
14,555

 
17,932

 
3,632

Repayments of commercial paper
(15,636
)
 
(12,298
)
 
(3,160
)
Proceeds from/(Repayments of) commercial paper, net
(1,081
)

5,634

 
472

 
 
 
 
 
 
Total change in commercial paper, net
$
(37
)

$
3,852

 
$
(397
)

Term Debt
As of September 29, 2018, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $104.2 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar–denominated and Australian dollar–denominated floating-rate notes, semi-annually for the U.S. dollar–denominated, Australian dollar–denominated, British pound–denominated, Japanese yen–denominated and Canadian dollar–denominated fixed-rate notes and annually for the euro-denominated and Swiss franc–denominated fixed-rate notes. The following table provides a summary of the Company’s term debt as of September 29, 2018 and September 30, 2017:
 
Maturities
(calendar year)
 
2018
 
2017
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013 debt issuance of $17.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
 
 
 
$

 
 
 
 
%
 
$
2,000

 
 
 
 
1.10
%
Fixed-rate 2.400% – 3.850% notes
2023
2043
 
8,500