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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 001-36743
 
g66145g66i43.jpg
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.
Large accelerated filer
 
 
Accelerated filer
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

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



Apple Inc.

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

 
Page



PART I — 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