APPLE INC., 10-Q filed on 5/1/2020
Quarterly Report
v3.20.1
Cover Page - shares
shares in Thousands
6 Months Ended
Mar. 28, 2020
Apr. 17, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 28, 2020  
Document Transition Report false  
Entity File Number 001-36743  
Entity Registrant Name Apple Inc.  
Entity Incorporation, State or Country Code CA  
Entity Tax Identification Number 94-2404110  
Entity Address, Address Line One One Apple Park Way  
Entity Address, City or Town Cupertino  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 95014  
City Area Code 408  
Local Phone Number 996-1010  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding (in shares)   4,334,335
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0000320193  
Current Fiscal Year End Date --09-26  
Common Stock    
Entity Information [Line Items]    
Title of 12(b) Security Common Stock, $0.00001 par value per share  
Trading Symbol AAPL  
Security Exchange Name NASDAQ  
1.000% Notes due 2022    
Entity Information [Line Items]    
Title of 12(b) Security 1.000% Notes due 2022  
Trading Symbol  
Security Exchange Name NASDAQ  
1.375% Notes due 2024    
Entity Information [Line Items]    
Title of 12(b) Security 1.375% Notes due 2024  
Trading Symbol  
Security Exchange Name NASDAQ  
0.000% Notes due 2025    
Entity Information [Line Items]    
Title of 12(b) Security 0.000% Notes due 2025  
Trading Symbol  
Security Exchange Name NASDAQ  
0.875% Notes due 2025    
Entity Information [Line Items]    
Title of 12(b) Security 0.875% Notes due 2025  
Trading Symbol  
Security Exchange Name NASDAQ  
1.625% Notes due 2026    
Entity Information [Line Items]    
Title of 12(b) Security 1.625% Notes due 2026  
Trading Symbol  
Security Exchange Name NASDAQ  
2.000% Notes due 2027    
Entity Information [Line Items]    
Title of 12(b) Security 2.000% Notes due 2027  
Trading Symbol  
Security Exchange Name NASDAQ  
1.375% Notes due 2029    
Entity Information [Line Items]    
Title of 12(b) Security 1.375% Notes due 2029  
Trading Symbol  
Security Exchange Name NASDAQ  
3.050% Notes due 2029    
Entity Information [Line Items]    
Title of 12(b) Security 3.050% Notes due 2029  
Trading Symbol  
Security Exchange Name NASDAQ  
0.500% Notes due 2031    
Entity Information [Line Items]    
Title of 12(b) Security 0.500% Notes due 2031  
Trading Symbol  
Security Exchange Name NASDAQ  
3.600% Notes due 2042    
Entity Information [Line Items]    
Title of 12(b) Security 3.600% Notes due 2042  
Trading Symbol  
Security Exchange Name NASDAQ  
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Net sales $ 58,313 $ 58,015 $ 150,132 $ 142,325
Cost of sales 35,943 36,194 92,545 88,473
Gross margin 22,370 21,821 57,587 53,852
Operating expenses:        
Research and development 4,565 3,948 9,016 7,850
Selling, general and administrative 4,952 4,458 10,149 9,241
Total operating expenses 9,517 8,406 19,165 17,091
Operating income 12,853 13,415 38,422 36,761
Other income/(expense), net 282 378 631 938
Income before provision for income taxes 13,135 13,793 39,053 37,699
Provision for income taxes 1,886 2,232 5,568 6,173
Net income $ 11,249 $ 11,561 $ 33,485 $ 31,526
Earnings per share:        
Basic (in dollars per share) $ 2.58 $ 2.47 $ 7.63 $ 6.70
Diluted (in dollars per share) $ 2.55 $ 2.46 $ 7.56 $ 6.66
Shares used in computing earnings per share:        
Basic (in shares) 4,360,101 4,674,071 4,387,570 4,704,945
Diluted (in shares) 4,404,691 4,700,646 4,429,648 4,736,949
Products        
Net sales $ 44,965 $ 46,565 $ 124,069 $ 120,000
Cost of sales 31,321 32,047 83,396 80,285
Services        
Net sales 13,348 11,450 26,063 22,325
Cost of sales $ 4,622 $ 4,147 $ 9,149 $ 8,188
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 11,249 $ 11,561 $ 33,485 $ 31,526
Other comprehensive income/(loss):        
Change in foreign currency translation, net of tax (566) 174 (364) 96
Change in unrealized gains/losses on derivative instruments, net of tax:        
Change in fair value of derivatives (143)   (32)  
Change in fair value of derivatives   (50)   (384)
Adjustment for net (gains)/losses realized and included in net income 634   236  
Adjustment for net (gains)/losses realized and included in net income   (105)   (63)
Total change in unrealized gains/losses on derivative instruments 491   204  
Total change in unrealized gains/losses on derivative instruments   (155)   (447)
Change in unrealized gains/losses on marketable debt securities, net of tax:        
Change in fair value of marketable debt securities (2,325) 2,042 (2,200) 2,152
Adjustment for net (gains)/losses realized and included in net income 29 28 19 65
Total change in unrealized gains/losses on marketable debt securities (2,296) 2,070 (2,181) 2,217
Total other comprehensive income/(loss) (2,371) 2,089 (2,341) 1,866
Total comprehensive income $ 8,878 $ 13,650 $ 31,144 $ 33,392
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Millions
Mar. 28, 2020
Sep. 28, 2019
Current assets:    
Cash and cash equivalents $ 40,174 $ 48,844
Marketable securities 53,877 51,713
Accounts receivable, net 15,722 22,926
Inventories 3,334 4,106
Vendor non-trade receivables 14,955 22,878
Other current assets 15,691 12,352
Total current assets 143,753 162,819
Non-current assets:    
Marketable securities 98,793 105,341
Property, plant and equipment, net 35,889 37,378
Other non-current assets 41,965 32,978
Total non-current assets 176,647 175,697
Total assets 320,400 338,516
Current liabilities:    
Accounts payable 32,421 46,236
Other current liabilities 37,324 37,720
Deferred revenue 5,928 5,522
Commercial paper and repurchase agreement 10,029 5,980
Term debt 10,392 10,260
Total current liabilities 96,094 105,718
Non-current liabilities:    
Term debt 89,086 91,807
Other non-current liabilities 56,795 50,503
Total non-current liabilities 145,881 142,310
Total liabilities 241,975 248,028
Commitments and contingencies
Shareholders’ equity:    
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,323,987 and 4,443,236 shares issued and outstanding, respectively 48,032 45,174
Retained earnings 33,182 45,898
Accumulated other comprehensive income/(loss) (2,789) (584)
Total shareholders’ equity 78,425 90,488
Total liabilities and shareholders’ equity $ 320,400 $ 338,516
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Mar. 28, 2020
Sep. 28, 2019
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) 4,323,987,000 4,443,236,000
Common stock, shares outstanding (in shares) 4,323,987,000 4,443,236,000
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($)
$ in Millions
Total
Common stock and additional paid-in capital
Retained earnings
Accumulated other comprehensive income/(loss)
Beginning balances at Sep. 29, 2018 $ 107,147 $ 40,201 $ 70,400 $ (3,454)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common stock issued   390    
Common stock withheld related to net share settlement of equity awards   (927) (608)  
Share-based compensation   3,137    
Net income 31,526   31,526  
Dividends and dividend equivalents declared     (7,025)  
Common stock repurchased     (32,236)  
Other comprehensive income/(loss) 1,866     1,866
Ending balances at Mar. 30, 2019 $ 105,860 42,801 64,558 (1,499)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 1.46      
Beginning balances at Dec. 29, 2018 $ 117,892 40,970 80,510 (3,588)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common stock issued   390    
Common stock withheld related to net share settlement of equity awards   (105) (14)  
Share-based compensation   1,546    
Net income 11,561   11,561  
Dividends and dividend equivalents declared     (3,499)  
Common stock repurchased     (24,000)  
Other comprehensive income/(loss) 2,089     2,089
Ending balances at Mar. 30, 2019 $ 105,860 42,801 64,558 (1,499)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 0.73      
Beginning balances at Sep. 28, 2019 $ 90,488 45,174 45,898 (584)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common stock issued   430    
Common stock withheld related to net share settlement of equity awards   (1,052) (632)  
Share-based compensation   3,480    
Net income 33,485   33,485  
Dividends and dividend equivalents declared     (6,917)  
Common stock repurchased (38,500)   (38,516)  
Other comprehensive income/(loss) (2,341)     (2,341)
Ending balances at Mar. 28, 2020 $ 78,425 48,032 33,182 (2,789)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 1.54      
Beginning balances at Dec. 28, 2019 $ 89,531 45,972 43,977 (418)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common stock issued   428    
Common stock withheld related to net share settlement of equity awards   (101) (96)  
Share-based compensation   1,733    
Net income 11,249   11,249  
Dividends and dividend equivalents declared     (3,432)  
Common stock repurchased     (18,516)  
Other comprehensive income/(loss) (2,371)     (2,371)
Ending balances at Mar. 28, 2020 $ 78,425 $ 48,032 $ 33,182 $ (2,789)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 0.77      
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Millions
6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Statement of Cash Flows [Abstract]    
Cash, cash equivalents and restricted cash, beginning balances $ 50,224 $ 25,913
Operating activities:    
Net income 33,485 31,526
Adjustments to reconcile net income to cash generated by operating activities:    
Depreciation and amortization 5,602 6,435
Share-based compensation expense 3,407 3,073
Deferred income tax benefit (651) (124)
Other (259) (215)
Changes in operating assets and liabilities:    
Accounts receivable, net 7,284 8,094
Inventories 699 (1,006)
Vendor non-trade receivables 7,923 14,616
Other current and non-current assets (8,866) (717)
Accounts payable (13,520) (20,024)
Deferred revenue 1,223 (540)
Other current and non-current liabilities 7,500 (3,273)
Cash generated by operating activities 43,827 37,845
Investing activities:    
Purchases of marketable securities (66,489) (13,854)
Proceeds from maturities of marketable securities 39,738 16,880
Proceeds from sales of marketable securities 27,762 22,635
Payments for acquisition of property, plant and equipment (3,960) (5,718)
Payments made in connection with business acquisitions, net (1,134) (291)
Purchases of non-marketable securities (146) (490)
Other (426) 30
Cash generated by/(used in) investing activities (4,655) 19,192
Financing activities:    
Proceeds from issuance of common stock 430 390
Payments for taxes related to net share settlement of equity awards (1,566) (1,427)
Payments for dividends and dividend equivalents (6,914) (7,011)
Repurchases of common stock (39,280) (32,498)
Proceeds from issuance of term debt, net 2,210 0
Repayments of term debt (5,250) (2,500)
Proceeds from/(Repayments of) commercial paper, net 1,518 (36)
Proceeds from repurchase agreement 2,556 0
Other (51) (51)
Cash used in financing activities (46,347) (43,133)
Increase/(Decrease) in cash, cash equivalents and restricted cash (7,175) 13,904
Cash, cash equivalents and restricted cash, ending balances 43,049 39,817
Supplemental cash flow disclosure:    
Cash paid for income taxes, net 7,505 9,497
Cash paid for interest $ 1,689 $ 1,762
v3.20.1
Summary of Significant Accounting Policies
6 Months Ended
Mar. 28, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The condensed consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September 28, 2019 (the “2019 Form 10-K”).
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. A 14th week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters. The Company’s fiscal years 2020 and 2019 span 52 weeks each. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Recently Adopted Accounting Pronouncements
Leases
At the beginning of the first quarter of 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted the new leases standard utilizing the modified retrospective transition method, under which amounts in prior periods presented were not restated. For contracts existing at the time of adoption, the Company elected to not reassess (i) whether any are or contain leases, (ii) lease classification, and (iii) initial direct costs. Upon adoption, the Company recorded $7.5 billion of right-of-use (“ROU”) assets and $8.1 billion of lease liabilities on its Condensed Consolidated Balance Sheet.
Hedging
At the beginning of the first quarter of 2020, the Company adopted FASB ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, eliminates the separate measurement and presentation of hedge ineffectiveness, and updates disclosure requirements related to hedging. The Company adopted ASU 2017-12 utilizing the modified retrospective transition method. Upon adoption, the Company recorded a $136 million increase in accumulated other comprehensive income/(loss) (“AOCI”) and a corresponding decrease in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity.
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (net income in millions and shares in thousands):
 
Three Months Ended
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
Numerator:
 
 
 
 
 
 
 
Net income
$
11,249

 
$
11,561

 
$
33,485

 
$
31,526

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
4,360,101

 
4,674,071

 
4,387,570

 
4,704,945

Effect of dilutive securities
44,590

 
26,575

 
42,078

 
32,004

Weighted-average diluted shares
4,404,691

 
4,700,646

 
4,429,648

 
4,736,949

 
 
 
 
 
 
 
 
Basic earnings per share
$
2.58

 
$
2.47

 
$
7.63

 
$
6.70

Diluted earnings per share
$
2.55

 
$
2.46

 
$
7.56

 
$
6.66


Potentially dilutive securities representing 31.1 million and 30.0 million shares of common stock were excluded from the computation of diluted earnings per share for the three- and six-month periods ended March 30, 2019, respectively, because their effect would have been antidilutive.
v3.20.1
Revenue Recognition
6 Months Ended
Mar. 28, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Net sales consist of revenue from the sale of iPhone®, Mac®, iPad®, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.
The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.
For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.
The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud®, Siri® and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.
For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store®, Mac App Store, TV App Store and Watch App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.
The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Deferred Revenue
As of March 28, 2020 and September 28, 2019, the Company had total deferred revenue of $9.4 billion and $8.1 billion, respectively. As of March 28, 2020, the Company expects 63% of total deferred revenue to be realized in less than a year, 28% within one-to-two years, 7% within two-to-three years and 2% in greater than three years.
Disaggregated Revenue
Net sales disaggregated by significant products and services for the three- and six-month periods ended March 28, 2020 and March 30, 2019 were as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
iPhone (1)
$
28,962

 
$
31,051

 
$
84,919

 
$
83,033

Mac (1)
5,351

 
5,513

 
12,511

 
12,929

iPad (1)
4,368

 
4,872

 
10,345

 
11,601

Wearables, Home and Accessories (1)(2)
6,284

 
5,129

 
16,294

 
12,437

Services (3)
13,348

 
11,450

 
26,063

 
22,325

Total net sales (4)
$
58,313

 
$
58,015

 
$
150,132

 
$
142,325

(1)
Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2)
Wearables, Home and Accessories net sales include sales of AirPods®, Apple TV®, Apple Watch®, Beats® products, HomePod™, iPod touch® and Apple-branded and third-party accessories.
(3)
Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare®, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV + services, which are bundled in the sales price of certain products.
(4)
Includes $1.9 billion of revenue recognized in the three months ended March 28, 2020 that was included in deferred revenue as of December 28, 2019, $1.9 billion of revenue recognized in the three months ended March 30, 2019 that was included in deferred revenue as of December 29, 2018, $3.0 billion of revenue recognized in the six months ended March 28, 2020 that was included in deferred revenue as of September 28, 2019, and $3.8 billion of revenue recognized in the six months ended March 30, 2019 that was included in deferred revenue as of September 29, 2018.
The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for the three- and six-month periods ended March 28, 2020 and March 30, 2019.
v3.20.1
Financial Instruments
6 Months Ended
Mar. 28, 2020
Investments, All Other Investments [Abstract]  
Financial Instruments Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and marketable securities by significant investment category as of March 28, 2020 and September 28, 2019 (in millions):
 
March 28, 2020
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Current
Marketable
Securities
 
Non-Current
Marketable
Securities
Cash
$
24,405

 
$

 
$

 
$
24,405

 
$
24,405

 
$

 
$

Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
4,473

 

 

 
4,473

 
4,473

 

 

Subtotal
4,473

 

 

 
4,473

 
4,473

 

 

Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
18,755

 
405

 

 
19,160

 
1,042

 
6,736

 
11,382

U.S. agency securities
6,079

 
12

 
(9
)
 
6,082

 
129

 
1,478

 
4,475

Non-U.S. government securities
18,548

 
97

 
(693
)
 
17,952

 
652

 
2,348

 
14,952

Certificates of deposit and time deposits
10,616

 

 

 
10,616

 
3,661

 
6,319

 
636

Commercial paper
15,690

 

 

 
15,690

 
5,653

 
10,037

 

Corporate debt securities
82,153

 
207

 
(2,177
)
 
80,183

 
159

 
25,708

 
54,316

Municipal securities
974

 
9

 
(1
)
 
982

 

 
53

 
929

Mortgage- and asset-backed securities
13,066

 
278

 
(43
)
 
13,301

 

 
1,198

 
12,103

Subtotal
165,881

 
1,008

 
(2,923
)
 
163,966

 
11,296

 
53,877

 
98,793

Total (3)
$
194,759

 
$
1,008

 
$
(2,923
)
 
$
192,844

 
$
40,174

 
$
53,877

 
$
98,793

 
September 28, 2019
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Current
Marketable
Securities
 
Non-Current
Marketable
Securities
Cash
$
12,204

 
$

 
$

 
$
12,204

 
$
12,204

 
$

 
$

Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
15,897

 

 

 
15,897

 
15,897

 

 

Subtotal
15,897

 

 

 
15,897

 
15,897

 

 

Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
30,293

 
33

 
(62
)
 
30,264

 
6,165

 
9,817

 
14,282

U.S. agency securities
9,767

 
1

 
(3
)
 
9,765

 
6,489

 
2,249

 
1,027

Non-U.S. government securities
19,821

 
337

 
(50
)
 
20,108

 
749

 
3,168

 
16,191

Certificates of deposit and time deposits
4,041

 

 

 
4,041

 
2,024

 
1,922

 
95

Commercial paper
12,433

 

 

 
12,433

 
5,193

 
7,240

 

Corporate debt securities
85,383

 
756

 
(92
)
 
86,047

 
123

 
26,127

 
59,797

Municipal securities
958

 
8

 
(1
)
 
965

 

 
68

 
897

Mortgage- and asset-backed securities
14,180

 
67

 
(73
)
 
14,174

 

 
1,122

 
13,052

Subtotal
176,876

 
1,202

 
(281
)
 
177,797

 
20,743

 
51,713

 
105,341

Total (3)
$
204,977

 
$
1,202

 
$
(281
)
 
$
205,898

 
$
48,844

 
$
51,713

 
$
105,341

(1)
Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)
Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)
As of March 28, 2020 and September 28, 2019, total marketable securities included $17.6 billion and $18.9 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements. Additionally, as of March 28, 2020, $2.6 billion of marketable securities were pledged as collateral under a repurchase agreement (refer to Note 6, “Debt”).
The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturities of the Company’s non-current marketable debt securities generally range from one to five years.
The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it will more likely than not be required to sell the security before recovery of its amortized cost basis. As of March 28, 2020, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.
Non-Marketable Securities
The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values. As of March 28, 2020 and September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $2.8 billion and $2.9 billion, respectively.
Restricted Cash
A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows as of March 28, 2020 and September 28, 2019 is as follows (in millions):
 
March 28,
2020
 
September 28,
2019
Cash and cash equivalents
$
40,174

 
$
48,844

Restricted cash included in other current assets
1,077

 
23

Restricted cash included in other non-current assets
1,798

 
1,357

Cash, cash equivalents and restricted cash
$
43,049

 
$
50,224


The Company’s restricted cash primarily consisted of cash to support the Company’s iPhone Upgrade Program and certain partner agreements.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of March 28, 2020, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 22 years.
The Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value. The Company designates these instruments as either cash flow or fair value hedges. As of March 28, 2020, the Company’s hedged interest rate transactions are expected to be recognized within eight years.
Cash Flow Hedges
Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net (“OI&E”) in the same period as the related income or expense is recognized. Generally, for options designated as cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge relates on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in other comprehensive income/(loss) (“OCI”).
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions.
Net Investment Hedges
Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation adjustment. For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Fair Value Hedges
Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a corresponding loss or gain related to the change in value of the hedged item in the same line in the Condensed Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OI&E on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI. Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $126 million and $254 million for the three- and six-month periods ended March 28, 2020, respectively.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of March 28, 2020 and September 28, 2019 (in millions):
 
March 28, 2020
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
2,803

 
$
1,425

 
$
4,228

Interest rate contracts
$
1,709

 
$

 
$
1,709

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
2,645

 
$
1,518

 
$
4,163

Interest rate contracts
$
66

 
$

 
$
66

 
September 28, 2019
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,798

 
$
323

 
$
2,121

Interest rate contracts
$
685

 
$

 
$
685

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
1,341

 
$
160

 
$
1,501

Interest rate contracts
$
105

 
$

 
$
105

(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheets.
(2)
The fair value of derivative liabilities is measured using Level 2 fair value inputs and is included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Condensed Consolidated Statements of Cash Flows.
The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedges in OCI and the Condensed Consolidated Statements of Operations for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
Gains/(Losses) recognized in OCI – included in effectiveness assessment:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
(462
)
 
$
(64
)
 
$
(191
)
 
$
(542
)
Interest rate contracts
(66
)
 

 
(66
)
 

Total
$
(528
)
 
$
(64
)
 
$
(257
)
 
$
(542
)
 
 
 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
 
 
Foreign currency debt
$
11

 
$
(7
)
 
$
35

 
$
(23
)
 
 
 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
(817
)
 
$
134

 
$
(326
)
 
$
16

Interest rate contracts
(1
)
 
(2
)
 
(3
)
 
(3
)
Total
$
(818
)
 
$
132

 
$
(329
)
 
$
13


Amounts excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI were gains of $258 million and $169 million for the three- and six-month periods ended March 28, 2020, respectively.
The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for the three- and six-month periods ended March 28, 2020 and March 30, 2019 and as of March 28, 2020 (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
Gains/(Losses) on derivative instruments (1):
 
 
 
 
 
 
 
Foreign exchange contracts
$
436

 
$
243

 
$
253

 
$
645

Interest rate contracts
1,290

 
465

 
1,128

 
1,122

Total
$
1,726

 
$
708

 
$
1,381

 
$
1,767

 
 
 
 
 
 
 
 
Gains/(Losses) related to hedged items (1):
 
 
 
 
 
 
 
Marketable securities
$
(436
)
 
$
(242
)
 
$
(253
)
 
$
(644
)
Fixed-rate debt
(1,290
)
 
(465
)
 
(1,128
)
 
(1,122
)
Total
$
(1,726
)
 
$
(707
)
 
$
(1,381
)
 
$
(1,766
)
 
March 28,
2020
Carrying amounts of hedged assets/(liabilities):
 
Marketable securities (2)
$
15,080

Fixed-rate debt (3)
$
(27,439
)
 
 
Cumulative hedging adjustments included in the carrying amounts of hedged items:
 
Marketable securities carrying amount increases/(decreases)
$
(877
)
Fixed-rate debt carrying amount (increases)/decreases
$
(1,708
)
(1)
Gains and losses related to fair value hedges are included in OI&E in the Condensed Consolidated Statements of Operations.
(2)
The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-current marketable securities in the Condensed Consolidated Balance Sheet.
(3)
The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term debt in the Condensed Consolidated Balance Sheet.
The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of March 28, 2020 and September 28, 2019 (in millions):
 
March 28, 2020
 
September 28, 2019
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
59,198

 
$
2,803

 
$
61,795

 
$
1,798

Interest rate contracts
$
27,350

 
$
1,709

 
$
31,250

 
$
685

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
91,165

 
$
1,425

 
$
76,868

 
$
323


The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Condensed Consolidated Balance Sheets. As of March 28, 2020 and September 28, 2019, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $2.0 billion and $1.6 billion, respectively, which were included in other current liabilities in the Condensed Consolidated Balance Sheets.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of March 28, 2020 and September 28, 2019, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $6.4 billion and $2.7 billion, respectively, resulting in net derivative liabilities of $279 million and $407 million, respectively.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of both March 28, 2020 and September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables. The Company’s cellular network carriers accounted for 41% and 51% of total trade receivables as of March 28, 2020 and September 28, 2019, respectively.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of March 28, 2020, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 53% and 16%. As of September 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 59% and 14%.
v3.20.1
Condensed Consolidated Financial Statement Details
6 Months Ended
Mar. 28, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Condensed Consolidated Financial Statement Details Condensed Consolidated Financial Statement Details
The following tables show the Company’s condensed consolidated financial statement details as of March 28, 2020 and September 28, 2019 (in millions):
Property, Plant and Equipment, Net
 
March 28,
2020
 
September 28,
2019
Land and buildings
$
17,856

 
$
17,085

Machinery, equipment and internal-use software
71,273

 
69,797

Leasehold improvements
9,614

 
9,075

Gross property, plant and equipment
98,743

 
95,957

Accumulated depreciation and amortization
(62,854
)
 
(58,579
)
Total property, plant and equipment, net
$
35,889

 
$
37,378


Other Non-Current Liabilities
 
March 28,
2020
 
September 28,
2019
Long-term taxes payable
$
28,188

 
$
29,545

Other non-current liabilities
28,607

 
20,958

Total other non-current liabilities
$
56,795

 
$
50,503


Other Income/(Expense), Net
The following table shows the detail of OI&E for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):
 
Three Months Ended
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
Interest and dividend income
$
1,049

 
$
1,358

 
$
2,094

 
$
2,665

Interest expense
(757
)
 
(1,010
)
 
(1,542
)
 
(1,900
)
Other income/(expense), net
(10
)
 
30

 
79

 
173

Total other income/(expense), net
$
282

 
$
378

 
$
631

 
$
938


v3.20.1
Income Taxes
6 Months Ended
Mar. 28, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Uncertain Tax Positions
As of March 28, 2020, the total amount of gross unrecognized tax benefits was $16.7 billion, of which $8.9 billion, if recognized, would impact the Company’s effective tax rate. The Company had accrued $1.3 billion of gross interest and penalties related to income tax matters as of March 28, 2020.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The U.S. Internal Revenue Service concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 remain open in certain major foreign jurisdictions and are subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $2.3 billion.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries. As of March 28, 2020, the adjusted recovery amount was €12.9 billion, excluding interest. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the U.S. Tax Cuts and Jobs Act. The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all appeals. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.
v3.20.1
Debt
6 Months Ended
Mar. 28, 2020
Debt Disclosure [Abstract]  
Debt Debt
Commercial Paper and Repurchase Agreement
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of March 28, 2020 and September 28, 2019, the Company had $7.5 billion and $6.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 1.39% and 2.24% as of March 28, 2020 and September 28, 2019, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended March 28, 2020 and March 30, 2019 (in millions):
 
Six Months Ended
 
March 28,
2020
 
March 30,
2019
Maturities 90 days or less:
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
1,377

 
$
(2,484
)
 
 
 
 
Maturities greater than 90 days:
 
 
 
Proceeds from commercial paper
4,797

 
10,235

Repayments of commercial paper
(4,656
)
 
(7,787
)
Proceeds from commercial paper, net
141

 
2,448

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

 
$
(36
)

In the second quarter of 2020, the Company entered into an agreement to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repo”). Due to the Company’s continuing involvement with the marketable securities, the Company accounts for the Repo as a collateralized borrowing. As of March 28, 2020, the Company had a $2.6 billion Repo liability with a maturity of less than six months, and had pledged $2.6 billion of marketable securities as collateral.
Term Debt
As of March 28, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $98.0 billion (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of March 28, 2020 and September 28, 2019:
 
Maturities
(calendar year)
 
March 28, 2020
 
September 28, 2019
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013 – 2019 debt issuances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2020
2022
 
$
3,250

 
 
1.80%
2.81
%
 
$
4,250

 
 
2.25%
3.28
%
Fixed-rate 0.350% – 4.650% notes
2020
2049
 
92,554

 
 
0.28%
4.78
%
 
97,429

 
 
0.28%
4.78
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First quarter 2020 debt issuance of €2.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate 0.000% – 0.500% notes
2025
2031
 
2,164

 
 
0.03%
0.56
%
 

 
 
 
 
%
Total term debt
 
 
 
 
97,968

 
 
 
 
 
 
101,679

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized premium/(discount) and issuance costs, net
 
 
 
 
(220
)
 
 
 
 
 
 
(224
)
 
 
 
 
 
Hedge accounting fair value adjustments
 
 
 
 
1,730

 
 
 
 
 
 
612

 
 
 
 
 
Less: Current portion of term debt
 
 
 
 
(10,392
)
 
 
 
 
 
 
(10,260
)
 
 
 
 
 
Total non-current portion of term debt
 
 
 
 
$
89,086

 
 
 
 
 
 
$
91,807

 
 
 
 
 
To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
A portion of the Company’s Japanese yen–denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation. As of March 28, 2020 and September 28, 2019, the carrying value of the debt designated as a net investment hedge was $663 million and $1.0 billion, respectively. For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of Note 3, “Financial Instruments.”
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $725 million and $1.5 billion of interest cost on its term debt for the three- and six-month periods ended March 28, 2020, respectively. The Company recognized $828 million and $1.6 billion of interest cost on its term debt for the three- and six-month periods ended March 30, 2019, respectively.
As of March 28, 2020 and September 28, 2019, the fair value of the Company’s Notes, based on Level 2 inputs, was $105.6 billion and $107.5 billion, respectively.
v3.20.1
Shareholders' Equity
6 Months Ended
Mar. 28, 2020
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
As of March 28, 2020, the Company was authorized to purchase up to $175 billion of the Company’s common stock under a share repurchase program, of which $134.6 billion had been utilized. During the six months ended March 28, 2020, the Company repurchased 135.0 million shares of its common stock for $38.5 billion, including 30.4 million shares initially delivered under a $10.0 billion accelerated share repurchase arrangement (“ASR”) dated November 2019. On April 30, 2020, the Company announced the Board of Directors increased the share repurchase program authorization by $50 billion. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Under the Company’s ASR, financial institutions deliver shares of the Company’s common stock during the purchase period in exchange for an up-front payment. The total number of shares ultimately delivered under the ASR, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of the Company’s common stock during the purchase period, which will end in May 2020. The shares received are retired in the periods they are delivered, and the up-front payment is accounted for as a reduction to retained earnings in the Company’s Condensed Consolidated Statement of Shareholders’ Equity in the period the payment is made.
v3.20.1
Comprehensive Income
6 Months Ended
Mar. 28, 2020
Equity [Abstract]  
Comprehensive Income Comprehensive Income
The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as hedges, and unrealized gains and losses on marketable debt securities classified as available-for-sale.
The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line items, for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (in millions):
 
 
 
 
Three Months Ended
 
Six Months Ended
Comprehensive Income Components
 
Financial Statement Line Items
 
March 28,
2020
 
March 30,
2019
 
March 28,
2020
 
March 30,
2019
Unrealized (gains)/losses on derivative instruments:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Total net sales
 
$
34

 
$
(97
)
 
$
(63
)
 
$
(34
)
 
 
Total cost of sales
 
12

 
(76
)
 
(159
)
 
(451
)
 
 
Other income/(expense), net
 
771

 
52

 
548

 
448

Interest rate contracts
 
Other income/(expense), net
 
1

 
2

 
3

 
3

 
 
 
 
818

 
(119
)
 
329

 
(34
)
Unrealized (gains)/losses on marketable debt securities
 
Other income/(expense), net
 
37

 
36

 
24

 
83

Total amounts reclassified from AOCI
 
$
855

 
$
(83
)
 
$
353

 
$
49


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