10-Q 1 a10-qq22017412017.htm 10-Q Document
 
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 April 1, 2017
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
 
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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.)
1 Infinite Loop
Cupertino, California
 
95014
(Address of principal executive offices)
 
(Zip Code)
(408) 996-1010
(Registrant’s telephone number, including area code)
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes      No  
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
  (Do not check if a smaller reporting company)
  
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  

5,213,840,000 shares of common stock, par value $0.00001 per share, issued and outstanding as of April 21, 2017
 



Apple Inc.
Form 10-Q
For the Fiscal Quarter Ended April 1, 2017
TABLE OF CONTENTS

2


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
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Net sales
$
52,896

 
$
50,557

 
$
131,247

 
$
126,429

Cost of sales
32,305

 
30,636

 
80,480

 
76,085

Gross margin
20,591

 
19,921

 
50,767

 
50,344

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Research and development
2,776

 
2,511

 
5,647

 
4,915

Selling, general and administrative
3,718

 
3,423

 
7,664

 
7,271

Total operating expenses
6,494

 
5,934

 
13,311

 
12,186

 
 
 
 
 
 
 
 
Operating income
14,097

 
13,987

 
37,456

 
38,158

Other income/(expense), net
587


155


1,408


557

Income before provision for income taxes
14,684

 
14,142

 
38,864

 
38,715

Provision for income taxes
3,655

 
3,626

 
9,944

 
9,838

Net income
$
11,029

 
$
10,516

 
$
28,920

 
$
28,877

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.11

 
$
1.91

 
$
5.50

 
$
5.22

Diluted
$
2.10

 
$
1.90

 
$
5.46

 
$
5.19

 
 
 
 
 
 
 
 
Shares used in computing earnings per share:
 
 
 
 
 
 
 
Basic
5,225,791

 
5,514,381

 
5,262,226

 
5,536,656

Diluted
5,261,688

 
5,540,886

 
5,294,841

 
5,567,506

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.57

 
$
0.52

 
$
1.14

 
$
1.04

See accompanying Notes to Condensed Consolidated Financial Statements.

3


Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions)
 
 
Three Months Ended
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Net income
$
11,029

 
$
10,516

 
$
28,920

 
$
28,877

Other comprehensive income/(loss):
 
 
 
 
 
 
 
Change in foreign currency translation, net of tax effects of $(44), $(19), $32 and $0, respectively
214

 
120

 
(161
)
 
18

 
 
 
 
 
 
 
 
Change in unrealized gains/losses on derivative instruments:
 
 
 
 
 
 
 
Change in fair value of derivatives, net of tax benefit/(expense) of $(25), $1, $(253) and $(37), respectively
(300
)
 
(178
)
 
1,168

 
109

Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $311, $144, $100 and $210, respectively
(1,032
)
 
(528
)
 
(726
)
 
(973
)
Total change in unrealized gains/losses on derivative instruments, net of tax
(1,332
)
 
(706
)
 
442

 
(864
)
 
 
 
 
 
 
 
 
Change in unrealized gains/losses on marketable securities:
 
 
 
 
 
 
 
Change in fair value of marketable securities, net of tax benefit/(expense) of $(256), $(530), $733 and $(22), respectively
464

 
969

 
(1,344
)
 
47

Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $7, $(27), $(4) and $(53), respectively
(13
)
 
49

 
7

 
96

Total change in unrealized gains/losses on marketable securities, net of tax
451

 
1,018

 
(1,337
)
 
143

 
 
 
 
 
 
 
 
Total other comprehensive income/(loss)
(667
)
 
432

 
(1,056
)
 
(703
)
Total comprehensive income
$
10,362

 
$
10,948

 
$
27,864

 
$
28,174

See accompanying Notes to Condensed Consolidated Financial Statements.

4


Apple Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except number of shares which are reflected in thousands and par value)
 
 
April 1,
2017
 
September 24,
2016
ASSETS:
Current assets:
 
 
 
Cash and cash equivalents
$
15,157

 
$
20,484

Short-term marketable securities
51,944

 
46,671

Accounts receivable, less an allowance of $53 at each period end
11,579

 
15,754

Inventories
2,910

 
2,132

Vendor non-trade receivables
9,033

 
13,545

Other current assets
11,367

 
8,283

Total current assets
101,990

 
106,869

 
 
 
 
Long-term marketable securities
189,740

 
170,430

Property, plant and equipment, net
27,163

 
27,010

Goodwill
5,473

 
5,414

Acquired intangible assets, net
2,617

 
3,206

Other non-current assets
7,549

 
8,757

Total assets
$
334,532

 
$
321,686

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
 
 
 
Accounts payable
$
28,573

 
$
37,294

Accrued expenses
23,096

 
22,027

Deferred revenue
7,682

 
8,080

Commercial paper
9,992

 
8,105

Current portion of long-term debt
3,999

 
3,500

Total current liabilities
73,342

 
79,006

 
 
 
 
Deferred revenue, non-current
3,107

 
2,930

Long-term debt
84,531

 
75,427

Other non-current liabilities
39,470

 
36,074

Total liabilities
200,450

 
193,437

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,205,815 and 5,336,166 shares issued and outstanding, respectively
33,579

 
31,251

Retained earnings
100,925

 
96,364

Accumulated other comprehensive income/(loss)
(422
)
 
634

Total shareholders’ equity
134,082

 
128,249

Total liabilities and shareholders’ equity
$
334,532

 
$
321,686

See accompanying Notes to Condensed Consolidated Financial Statements.

5


Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
Cash and cash equivalents, beginning of the period
$
20,484

 
$
21,120

Operating activities:
 
 
 
Net income
28,920

 
28,877

Adjustments to reconcile net income to cash generated by operating activities:
 
 
 
Depreciation and amortization
5,319

 
5,431

Share-based compensation expense
2,473

 
2,126

Deferred income tax expense
2,822

 
3,092

Other
(209
)
 
308

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
4,183

 
4,538

Inventories
(778
)
 
68

Vendor non-trade receivables
4,512

 
5,899

Other current and non-current assets
(896
)
 
186

Accounts payable
(6,862
)
 
(9,388
)
Deferred revenue
(221
)
 
219

Other current and non-current liabilities
316

 
(2,292
)
Cash generated by operating activities
39,579

 
39,064

Investing activities:
 
 
 
Purchases of marketable securities
(99,821
)
 
(86,242
)
Proceeds from maturities of marketable securities
12,429

 
9,148

Proceeds from sales of marketable securities
60,454

 
50,051

Payments made in connection with business acquisitions, net
(67
)
 
(140
)
Payments for acquisition of property, plant and equipment
(6,309
)
 
(5,948
)
Payments for acquisition of intangible assets
(126
)
 
(657
)
Payments for strategic investments

 
(126
)
Other
116

 
(196
)
Cash used in investing activities
(33,324
)
 
(34,110
)
Financing activities:
 
 
 
Proceeds from issuance of common stock
273

 
247

Excess tax benefits from equity awards
225

 
264

Payments for taxes related to net share settlement of equity awards
(788
)
 
(751
)
Payments for dividends and dividend equivalents
(6,134
)
 
(5,871
)
Repurchases of common stock
(18,012
)
 
(13,530
)
Proceeds from issuance of term debt, net
10,975

 
15,584

Change in commercial paper, net
1,879

 
(503
)
Cash used in financing activities
(11,582
)
 
(4,560
)
Increase/(Decrease) in cash and cash equivalents
(5,327
)
 
394

Cash and cash equivalents, end of the period
$
15,157

 
$
21,514

Supplemental cash flow disclosure:
 
 
 
Cash paid for income taxes, net
$
6,878

 
$
6,630

Cash paid for interest
$
1,007

 
$
565


See accompanying Notes to Condensed Consolidated Financial Statements.

6


Apple Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone®, iPad®, Mac®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, macOS®, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store®, App Store®, Mac App Store, TV App Store, iBooks Store™ and Apple Music® (collectively “Digital Content and Services”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
Basis of Presentation and Preparation
The accompanying condensed consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the 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 in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements 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 the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 24, 2016 (the “2016 Form 10-K”).
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’s fiscal year 2017 will include 53 weeks and ends on September 30, 2017 and its fiscal year 2016 included 52 weeks and ended on September 24, 2016. A 14th week was included in the first quarter of 2017, as is done every five or six years, to realign fiscal quarters with calendar quarters. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan, unvested restricted stock and unvested restricted stock units (“RSUs”). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

7


The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended April 1, 2017 and March 26, 2016 (net income in millions and shares in thousands):
 
Three Months Ended
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Numerator:
 
 
 
 
 
 
 
Net income
$
11,029

 
$
10,516

 
$
28,920

 
$
28,877

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding
5,225,791

 
5,514,381

 
5,262,226

 
5,536,656

Effect of dilutive securities
35,897

 
26,505

 
32,615

 
30,850

Weighted-average diluted shares
5,261,688

 
5,540,886

 
5,294,841

 
5,567,506

 
 
 
 
 
 
 
 
Basic earnings per share
$
2.11

 
$
1.91

 
$
5.50

 
$
5.22

Diluted earnings per share
$
2.10

 
$
1.90

 
$
5.46

 
$
5.19

Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share.
Note 2 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and available-for-sale securities by significant investment category as of April 1, 2017 and September 24, 2016 (in millions):
 
April 1, 2017
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
7,600

 
$

 
$

 
$
7,600

 
$
7,600

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
2,742

 

 

 
2,742

 
2,742

 

 

Mutual funds
997

 

 
(120
)
 
877

 

 
877

 

Subtotal
3,739

 

 
(120
)
 
3,619

 
2,742

 
877

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
53,365

 
65

 
(300
)
 
53,130

 
2,280

 
16,067

 
34,783

U.S. agency securities
5,680

 
3

 
(10
)
 
5,673

 
687

 
3,687

 
1,299

Non-U.S. government securities
7,151

 
135

 
(67
)
 
7,219

 

 
193

 
7,026

Certificates of deposit and time deposits
6,386

 

 

 
6,386

 
921

 
4,665

 
800

Commercial paper
3,233

 

 

 
3,233

 
877

 
2,356

 

Corporate securities
147,939

 
643

 
(449
)
 
148,133

 
50

 
23,992

 
124,091

Municipal securities
950

 
3

 
(3
)
 
950

 

 
77

 
873

Mortgage- and asset-backed securities
21,086

 
31

 
(219
)
 
20,898

 

 
30

 
20,868

Subtotal
245,790

 
880

 
(1,048
)
 
245,622

 
4,815

 
51,067

 
189,740

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
257,129

 
$
880

 
$
(1,168
)
 
$
256,841

 
$
15,157

 
$
51,944

 
$
189,740



8


 
September 24, 2016
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
8,601

 
$

 
$

 
$
8,601

 
$
8,601

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
3,666

 

 

 
3,666

 
3,666

 

 

Mutual funds
1,407

 

 
(146
)
 
1,261

 

 
1,261

 

Subtotal
5,073

 

 
(146
)
 
4,927

 
3,666

 
1,261

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
41,697

 
319

 
(4
)
 
42,012

 
1,527

 
13,492

 
26,993

U.S. agency securities
7,543

 
16

 

 
7,559

 
2,762

 
2,441

 
2,356

Non-U.S. government securities
7,609

 
259

 
(27
)
 
7,841

 
110

 
818

 
6,913

Certificates of deposit and time deposits
6,598

 

 

 
6,598

 
1,108

 
3,897

 
1,593

Commercial paper
7,433

 

 

 
7,433

 
2,468

 
4,965

 

Corporate securities
131,166

 
1,409

 
(206
)
 
132,369

 
242

 
19,599

 
112,528

Municipal securities
956

 
5

 

 
961

 

 
167

 
794

Mortgage- and asset-backed securities
19,134

 
178

 
(28
)
 
19,284

 

 
31

 
19,253

Subtotal
222,136

 
2,186

 
(265
)
 
224,057

 
8,217

 
45,410

 
170,430

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
235,810

 
$
2,186

 
$
(411
)
 
$
237,585

 
$
20,484

 
$
46,671

 
$
170,430

 
(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.

The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The maturities of the Company’s long-term marketable securities generally range from one to five years.
The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of April 1, 2017, the Company does not consider any of its investments to be other-than-temporarily impaired.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investments in certain foreign subsidiaries and on 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 and 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 help 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 and who sell in local currencies 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 typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

9


To help protect the net investment in a foreign operation from adverse changes in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset 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 economic hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
The Company may also enter into non-designated foreign currency contracts to partially offset the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
The Company may enter into interest rate swaps, options, or other instruments to manage interest rate risk. These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s term debt or investments. The Company designates these instruments as either cash flow or fair value hedges. The Company’s hedged interest rate transactions as of April 1, 2017 are expected to be recognized within 10 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income/(expense), net. Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.
Net Investment Hedges
The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. As a result, during the three- and six-month periods ended April 1, 2017, respectively, the Company recognized a loss of $67 million and a gain of $206 million in net sales, a loss of $253 million and a gain of $79 million in cost of sales and a loss of $76 million and a gain of $432 million in other income/(expense), net.
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 April 1, 2017 and September 24, 2016 (in millions):
 
April 1, 2017
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
691

 
$
272

 
$
963

Interest rate contracts
$
161

 
$

 
$
161

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
832

 
$
245

 
$
1,077

Interest rate contracts
$
354

 
$

 
$
354


10


 
September 24, 2016
 
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
$
518

 
$
153

 
$
671

Interest rate contracts
$
728

 
$

 
$
728

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
935

 
$
134

 
$
1,069

Interest rate contracts
$
7

 
$

 
$
7


(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other 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 recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Condensed Consolidated Statements of Operations for the three- and six-month periods ended April 1, 2017 and March 26, 2016 (in millions):
 
Three Months Ended
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Gains/(Losses) recognized in OCI – effective portion:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
(317
)
 
$
(138
)
 
$
1,410

 
$
188

Interest rate contracts
2

 
(50
)
 
9

 
(42
)
Total
$
(315
)
 
$
(188
)
 
$
1,419

 
$
146

 
 
 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$

 
$

 
$

Foreign currency debt
(85
)
 
(87
)
 
37

 
(77
)
Total
$
(85
)
 
$
(87
)
 
$
37

 
$
(77
)
 
 
 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – effective portion:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
1,344

 
$
668

 
$
833

 
$
1,183

Interest rate contracts
(2
)
 
(3
)
 
(3
)
 
(7
)
Total
$
1,342

 
$
665

 
$
830

 
$
1,176

 
 
 
 
 
 
 
 
Gains/(Losses) on derivative instruments:
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
Interest rate contracts
$
(50
)
 
$
250

 
$
(922
)
 
$
139

 
 
 
 
 
 
 
 
Gains/(Losses) related to hedged items:
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
Interest rate contracts
$
50

 
$
(250
)
 
$
922

 
$
(139
)

11


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 April 1, 2017 and September 24, 2016 (in millions):
 
April 1, 2017
 
September 24, 2016
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
37,550

 
$
691

 
$
44,678

 
$
518

Interest rate contracts
$
31,000

 
$
161

 
$
24,500

 
$
728

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
50,573

 
$
272

 
$
54,305

 
$
153

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 April 1, 2017, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $230 million, which was recorded as other current assets in the Condensed Consolidated Balance Sheet. As of September 24, 2016, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $163 million, which was recorded as accrued expenses in the Condensed Consolidated Balance Sheet.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of both April 1, 2017 and September 24, 2016, 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 $1.5 billion, resulting in a net derivative liability of $77 million as of April 1, 2017 and a net derivative asset of $160 million as of September 24, 2016.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, value-added 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 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 April 1, 2017, the Company had two customers that individually represented 10% or more of total trade receivables, one of which accounted for 12% and the other 10%. As of September 24, 2016, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. The Company’s cellular network carriers accounted for 52% and 63% of trade receivables as of April 1, 2017 and September 24, 2016, 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 April 1, 2017, the Company had three vendors that individually accounted for 42%, 17% and 14% of total vendor non-trade receivables. As of September 24, 2016, the Company had two vendors that individually accounted for 47% and 21% of total vendor non-trade receivables.

12


Note 3 – Condensed Consolidated Financial Statement Details
The following tables show the Company’s condensed consolidated financial statement details as of April 1, 2017 and September 24, 2016 (in millions):
Property, Plant and Equipment, Net
 
April 1,
2017
 
September 24,
2016
Land and buildings
$
11,746

 
$
10,185

Machinery, equipment and internal-use software
46,688

 
44,543

Leasehold improvements
6,690

 
6,517

Gross property, plant and equipment
65,124

 
61,245

Accumulated depreciation and amortization
(37,961
)
 
(34,235
)
Total property, plant and equipment, net
$
27,163

 
$
27,010

Other Non-Current Liabilities
 
April 1,
2017
 
September 24,
2016
Deferred tax liabilities
$
28,226

 
$
26,019

Other non-current liabilities
11,244

 
10,055

Total other non-current liabilities
$
39,470

 
$
36,074

Other Income/(Expense), Net
The following table shows the detail of other income/(expense), net for the three- and six-month periods ended April 1, 2017 and March 26, 2016 (in millions):
 
Three Months Ended
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Interest and dividend income
$
1,282

 
$
986

 
$
2,506

 
$
1,927

Interest expense
(530
)
 
(321
)
 
(1,055
)
 
(597
)
Other expense, net
(165
)
 
(510
)
 
(43
)
 
(773
)
Total other income/(expense), net
$
587

 
$
155

 
$
1,408

 
$
557

Note 4 – Acquired Intangible Assets
The Company’s acquired intangible assets with definite useful lives primarily consist of patents and licenses. The following table summarizes the components of acquired intangible asset balances as of April 1, 2017 and September 24, 2016 (in millions):
 
April 1, 2017
 
September 24, 2016
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net 
Carrying Amount
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net 
Carrying Amount
Definite-lived and amortizable acquired intangible assets
$
7,258

 
$
(4,741
)
 
$
2,517

 
$
8,912

 
$
(5,806
)
 
$
3,106

Indefinite-lived and non-amortizable acquired intangible assets
100

 

 
100

 
100

 

 
100

Total acquired intangible assets
$
7,358

 
$
(4,741
)
 
$
2,617

 
$
9,012

 
$
(5,806
)
 
$
3,206


13


Note 5 – Income Taxes
As of April 1, 2017, the Company recorded gross unrecognized tax benefits of $8.8 billion, of which $3.0 billion, if recognized, would affect the Company’s effective tax rate. As of September 24, 2016, the total amount of gross unrecognized tax benefits was $7.7 billion, of which $2.8 billion, if recognized, would have affected the Company’s effective tax rate. The Company’s total gross unrecognized tax benefits are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets. The Company had $1.3 billion and $1.0 billion of gross interest and penalties accrued as of April 1, 2017 and September 24, 2016, respectively, which are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.
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 not consistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (whether by payment, release or a combination of both) in the next 12 months by as much as $1.3 billion.
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 orders Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company 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. While the European Commission announced a recovery amount of up to €13 billion, plus interest, the actual amount of additional taxes subject to recovery is to be calculated by Ireland in accordance with the European Commission's guidance. Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, where it will remain pending conclusion of all appeals. 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.
Note 6 – Debt
Commercial Paper
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of April 1, 2017 and September 24, 2016, the Company had $10.0 billion and $8.1 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 0.80% as of April 1, 2017 and 0.45% as of September 24, 2016.
The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended April 1, 2017 and March 26, 2016 (in millions):
 
Six Months Ended
 
April 1,
2017
 
March 26,
2016
Maturities less than 90 days:
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
(1,318
)
 
$
660

 
 
 
 
Maturities greater than 90 days:
 
 
 
Proceeds from commercial paper
7,057

 
669

Repayments of commercial paper
(3,860
)
 
(1,832
)
Proceeds from/(Repayments of) commercial paper, net
3,197

 
(1,163
)
 
 
 
 
Total change in commercial paper, net
$
1,879

 
$
(503
)

14


Long-Term Debt
As of April 1, 2017, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $88.9 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar-denominated and Australian dollar-denominated floating-rate notes, semi-annually for the U.S. dollar-denominated, Australian dollar-denominated, British pound-denominated and Japanese yen-denominated fixed-rate notes and annually for the euro-denominated and Swiss franc-denominated fixed-rate notes. The following table provides a summary of the Company’s term debt as of April 1, 2017 and September 24, 2016:
 
Maturities
 
April 1, 2017
 
September 24, 2016
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013 debt issuance of $17.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2018
 
2018
 
$
2,000

 
 
1.10%
 
1.10
%
 
$
2,000

 
 
1.10%
 
1.10
%
Fixed-rate 1.000% – 3.850% notes
2018
2043
 
12,500

 
 
1.08%
3.91
%
 
12,500

 
 
1.08%
3.91
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 debt issuance of $12.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2017
2019
 
2,000

 
 
1.10%
1.33
%
 
2,000

 
 
0.86%
1.09
%
Fixed-rate 1.050% – 4.450% notes
2017
2044
 
10,000

 
 
1.10%
4.48
%
 
10,000

 
 
0.85%
4.48
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 debt issuances of $27.3 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2017
2020
 
1,785

 
 
1.08%
1.87
%
 
1,781

 
 
0.87%
1.87
%
Fixed-rate 0.350% – 4.375% notes
2017
2045
 
24,668

 
 
0.28%
4.51
%
 
25,144

 
 
0.28%
4.51
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 debt issuances of $24.9 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2019
2021
 
1,350

 
 
1.17%
2.18
%
 
1,350

 
 
0.91%
1.95
%
Fixed-rate 1.100% – 4.650% notes
2018
2046
 
23,616

 
 
1.13%
4.78
%
 
23,609

 
 
1.13%
4.58
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second quarter 2017 debt issuance of $10.0 billion:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
 
 
2019
 
500

 
 
 
 
1.12
%
 

 
 
 
 
%
Floating-rate notes
 
 
2020
 
500

 
 
 
 
1.24
%
 

 
 
 
 
%
Floating-rate notes
 
 
2022
 
1,000

 
 
 
 
1.54
%
 

 
 
 
 
%
Fixed-rate 1.550% notes
 
 
2019
 
500

 
 
 
 
1.59
%
 

 
 
 
 
%
Fixed-rate 1.900% notes
 
 
2020
 
1,000

 
 
 
 
1.24
%
 

 
 
 
 
%
Fixed-rate 2.500% notes
 
 
2022
 
1,500

 
 
 
 
1.53
%
 

 
 
 
 
%
Fixed-rate 3.000% notes
 
 
2024
 
1,750

 
 
 
 
1.83
%
 

 
 
 
 
%
Fixed-rate 3.350% notes
 
 
2027
 
2,250

 
 
 
 
1.98
%
 

 
 
 
 
%
Fixed-rate 4.250% notes
 
 
2047
 
1,000

 
 
 
 
4.26
%
 

 
 
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second quarter 2017 debt issuance of $1.0 billion:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate 4.300% notes
 
 
2047
 
1,000

 
 
 
 
4.30
%
 

 
 
 
 
%
Total term debt
 
 
 
 
88,919

 
 
 
 
 
 
78,384

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized premium/(discount) and issuance costs, net
 
 
 
 
(184
)
 
 
 
 
 
 
(174
)
 
 
 
 
 
Hedge accounting fair value adjustments
 
 
 
 
(205
)
 
 
 
 
 
 
717

 
 
 
 
 
Less: Current portion of long-term debt
 
 
 
 
(3,999
)
 
 
 
 
 
 
(3,500
)
 
 
 
 
 
Total long-term debt
 
 
 
 
$
84,531

 
 
 
 
 
 
$
75,427

 
 
 
 
 
During the second quarter of 2017, the Company issued $10.0 billion of U.S. dollar-denominated notes in the United States and $1.0 billion of U.S. dollar-denominated notes in Taiwan. To manage interest rate risk on the fixed-rate notes maturing in 2020, 2022, 2024 and 2027, the Company entered into interest rate swaps with an aggregate notional amount of $6.5 billion, which effectively converted the fixed interest rates on these notes to floating interest rates.
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. The foreign currency transaction gain or loss on the Japanese yen-denominated debt designated as a hedge is recorded in OCI as a part of the cumulative translation adjustment. As of April 1, 2017 and September 24, 2016, the carrying value of the debt designated as a net investment hedge was $1.7 billion and $1.9 billion, respectively. For further discussion regarding the Company’s use of derivative instruments see the Derivative Financial Instruments section of Note 2, “Financial Instruments.”

15


The effective interest rates for the Notes include the interest on the Notes, amortization of the discount and, if applicable, adjustments related to hedging. The Company recognized $507 million and $1.0 billion of interest expense on its term debt for the three- and six-month periods ended April 1, 2017, respectively. The Company recognized $311 million and $582 million of interest expense on its term debt for the three- and six-month periods ended March 26, 2016, respectively.
As of April 1, 2017 and September 24, 2016, the fair value of the Company’s Notes, based on Level 2 inputs, was $89.7 billion and $81.7 billion, respectively.
Note 7 – Shareholders’ Equity
Dividends
The Company declared and paid cash dividends per share during the periods presented as follows:
 
Dividends
Per Share
 
Amount
(in millions)
2017:
 
 
 
Second quarter
$
0.57

 
$
2,988

First quarter
0.57

 
3,042

Total cash dividends declared and paid
$
1.14

 
$
6,030

 
 
 
 
2016:
 
 
 
Fourth quarter
$
0.57

 
$
3,071

Third quarter
0.57

 
3,117

Second quarter
0.52

 
2,879

First quarter
0.52

 
2,898

Total cash dividends declared and paid
$
2.18

 
$
11,965

Future dividends are subject to declaration by the Board of Directors.
Share Repurchase Program
As of April 1, 2017, the Company had an authorized share repurchase program of $175 billion of the Company’s common stock, of which $151 billion had been utilized. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the 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”).
The Company has entered, and in the future may enter, into accelerated share repurchase arrangements (“ASRs”) with financial institutions. In exchange for up-front payments, the financial institutions deliver shares of the Company’s common stock during the purchase periods of each ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, is determined at the end of the applicable purchase period of each ASR based on the volume-weighted average price of the Company’s common stock during that period. The shares received are retired in the periods they are delivered, and the up-front payments are accounted for as a reduction to shareholders’ equity in the Company’s Condensed Consolidated Balance Sheets in the periods the payments are made. The Company reflects the ASRs as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as forward contracts indexed to its own common stock. The ASRs met all of the applicable criteria for equity classification, and therefore were not accounted for as derivative instruments.

16


The following table shows the Company’s ASR activity and related information during the six months ended April 1, 2017 and the year ended September 24, 2016:
 
Purchase Period
End Date
 
Number of Shares
(in thousands)
 
Average Repurchase
Price Per Share
 
ASR Amount
(in millions)
February 2017 ASR
May 2017
 
17,527

(1) 
(1) 

 
$
3,000

November 2016 ASR
February 2017
 
51,157

(2) 
$
117.29

 
$
6,000

August 2016 ASR
November 2016
 
26,850

 
$
111.73

 
$
3,000

May 2016 ASR
August 2016
 
60,452

 
$
99.25

 
$
6,000

November 2015 ASR
April 2016
 
29,122

 
$
103.02

 
$
3,000

 
(1)
“Number of Shares” represents those shares delivered at the beginning of the purchase period and does not represent the final number of shares to be delivered under the ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, will be determined at the end of the purchase period based on the volume-weighted average price of the Company’s common stock during that period. The February 2017 ASR purchase period will end in May 2017.
(2)
Includes 44.8 million shares delivered and retired at the beginning of the purchase period, which began in the first quarter of 2017 and 6.3 million shares delivered and retired at the end of the purchase period, which concluded in the second quarter of 2017.
Additionally, the Company repurchased shares of its common stock in the open market, which were retired upon repurchase, during the periods presented as follows:
 
Number of Shares
(in thousands)
 
Average Repurchase
Price Per Share
 
Amount
(in millions)
2017:
 
 
 
 
 
Second quarter
31,070

 
$
128.74

 
$
4,001

First quarter
44,333

 
$
112.78

 
5,000

Total open market common stock repurchases
75,403

 
 
 
$
9,001

 
 
 
 
 
 
2016:
 
 
 
 
 
Fourth quarter
28,579

 
$
104.97

 
$
3,000

Third quarter
41,238

 
$
97.00

 
4,000

Second quarter
71,766

 
$
97.54

 
7,000

First quarter
25,984

 
$
115.45

 
3,000

Total open market common stock repurchases
167,567

 
 
 
$
17,000

Note 8 – Comprehensive Income
Comprehensive income consists of two components, net income and OCI. OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net 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 cash flow hedges and unrealized gains and losses on marketable securities classified as available-for-sale.

17


The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, for the three- and six-month periods ended April 1, 2017 and March 26, 2016 (in millions):
 
 
 
 
Three Months Ended
 
Six Months Ended
Comprehensive Income Components
 
Financial Statement Line Item
 
April 1,
2017
 
March 26,
2016
 
April 1,
2017
 
March 26,
2016
Unrealized (gains)/losses on derivative instruments:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Revenue
 
$
(408
)
 
$
(325
)
 
$
(509
)
 
$
(654
)
 
 
Cost of sales
 
(570
)
 
(219
)
 
(557
)
 
(525
)
 
 
Other income/(expense), net
 
(367
)
 
(131
)
 
237

 
(11
)
Interest rate contracts
 
Other income/(expense), net
 
2

 
3

 
3

 
7

 
 
 
 
(1,343
)
 
(672
)
 
(826
)
 
(1,183
)
Unrealized (gains)/losses on marketable securities
 
Other income/(expense), net
 
(20
)
 
76

 
11

 
149

Total amounts reclassified from AOCI
 
$
(1,363
)
 
$
(596
)
 
$
(815
)
 
$
(1,034
)
The following table shows the changes in AOCI by component for the six months ended April 1, 2017 (in millions):
 
Cumulative Foreign
Currency Translation
 
Unrealized Gains/Losses
on Derivative Instruments
 
Unrealized Gains/Losses
on Marketable Securities
 
Total
Balance at September 24, 2016
$
(578
)
 
$
38

 
$
1,174

 
$
634

Other comprehensive income/(loss) before reclassifications
(193
)
 
1,421

 
(2,077
)
 
(849
)
Amounts reclassified from AOCI

 
(826
)
 
11

 
(815
)
Tax effect
32

 
(153
)
 
729

 
608

Other comprehensive income/(loss)
(161
)
 
442

 
(1,337
)
 
(1,056