Document

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 28, 2020

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

For the transition period from to .

Commission File Number: 001-36743

Apple Inc.

(Exact name of Registrant as specified in its charter)



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

One Apple Park Way
Cupertino	California	95014
(Address of principal executive offices)		(Zip Code)

(408) 996-1010

(Registrant’s telephone number, including area code)

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



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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes ☒ No ☐

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

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

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

Yes ☐ No ☒

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

Apple Inc.

Form 10-Q

For the Fiscal Quarter Ended March 28, 2020

TABLE OF CONTENTS



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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

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



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

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

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

Operating income	12,853		13,415		38,422		36,761
Other income/(expense), net	282		378		631		938
Income before provision for income taxes	13,135		13,793		39,053		37,699
Provision for income taxes	1,886		2,232		5,568		6,173
Net income	$	11,249	$	11,561	$	33,485	$	31,526

Earnings per share:
Basic	$	2.58	$	2.47	$	7.63	$	6.70
Diluted	$	2.55	$	2.46	$	7.56	$	6.66

Shares used in computing earnings per share:
Basic	4,360,101		4,674,071		4,387,570		4,704,945
Diluted	4,404,691		4,700,646		4,429,648		4,736,949

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)



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

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

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

Total other comprehensive income/(loss)	(2,371		)	2,089			(2,341		)	1,866
Total comprehensive income	$	8,878		$	13,650		$	31,144		$	33,392

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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



	March 28, 2020			September 28, 2019
ASSETS:
Current assets:
Cash and cash equivalents	$	40,174		$	48,844
Marketable securities	53,877			51,713
Accounts receivable, net	15,722			22,926
Inventories	3,334			4,106
Vendor non-trade receivables	14,955			22,878
Other current assets	15,691			12,352
Total current assets	143,753			162,819

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

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

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

Commitments and contingencies

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions, except per share amounts)



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

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

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

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

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

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation and Preparation

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

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

Recently Adopted Accounting Pronouncements

Leases

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

Hedging

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

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

Earnings Per Share

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



	Three Months Ended				Six Months Ended
	March 28, 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.

Note 2 – Revenue Recognition

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

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

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

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

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

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

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

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

Deferred Revenue

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

Disaggregated Revenue

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



	Three Months Ended				Six Months Ended
	March 28, 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.

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

Note 3 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

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



	March 28, 2020
	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”).

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

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

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

Non-Marketable Securities

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

Restricted Cash

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



	March 28, 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.

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