Apple Inc. (AAPL)

FORM 10-Q | Quarterly Report
Jul. 31, 2019 4:31 PM
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About: Apple Inc. (AAPL)View as PDF
APPLE INC (Form: 10-Q, Received: 07/31/2019 16:33:41)
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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 June 29, 2019
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
 
G66145G66I37.JPGClick to enlarge
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
0.875% 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
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  

4,519,180,000 shares of common stock were issued and outstanding as of July 19, 2019 .
 



Apple Inc.

Form 10-Q
For the Fiscal Quarter Ended June 29, 2019
TABLE OF CONTENTS




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
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net sales:
 
 
 
 
 
 
 
   Products
$
42,354

 
$
43,095

 
$
162,354

 
$
173,546

   Services
11,455

 
10,170

 
33,780

 
29,149

Total net sales
53,809

 
53,265

 
196,134

 
202,695

 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
   Products
29,473

 
28,956

 
109,758

 
113,467

   Services
4,109

 
3,888

 
12,297

 
11,473

Total cost of sales
33,582

 
32,844

 
122,055

 
124,940

Gross margin
20,227

 
20,421

 
74,079

 
77,755

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Research and development
4,257

 
3,701

 
12,107

 
10,486

Selling, general and administrative
4,426

 
4,108

 
13,667

 
12,489

Total operating expenses
8,683

 
7,809

 
25,774

 
22,975

 
 
 
 
 
 
 
 
Operating income
11,544

 
12,612

 
48,305

 
54,780

Other income/(expense), net
367

 
672

 
1,305

 
1,702

Income before provision for income taxes
11,911

 
13,284

 
49,610

 
56,482

Provision for income taxes
1,867

 
1,765

 
8,040

 
11,076

Net income
$
10,044

 
$
11,519

 
$
41,570

 
$
45,406

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.20

 
$
2.36

 
$
8.92

 
$
9.07

Diluted
$
2.18

 
$
2.34

 
$
8.86

 
$
8.99

 
 
 
 
 
 
 
 
Shares used in computing earnings per share:
 
 
 
 
 
 
 
Basic
4,570,633

 
4,882,167

 
4,660,175

 
5,006,640

Diluted
4,601,380

 
4,926,609

 
4,691,759

 
5,050,963

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q3 2019 Form 10-Q | 1


Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions)
 
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net income
$
10,044

 
$
11,519

 
$
41,570

 
$
45,406

Other comprehensive income/(loss):
 
 
 
 
 
 
 
Change in foreign currency translation, net of tax
(219
)
 
(590
)
 
(123
)
 
(287
)
 
 
 
 
 
 
 
 
Change in unrealized gains/losses on derivative instruments, net of tax:
 
 
 
 
 
 
 
Change in fair value of derivatives
(108
)
 
109

 
(492
)
 
170

Adjustment for net (gains)/losses realized and included in net income
(44
)
 
978

 
(107
)
 
873

Total change in unrealized gains/losses on derivative instruments
(152
)
 
1,087

 
(599
)
 
1,043

 
 
 
 
 
 
 
 
Change in unrealized gains/losses on marketable securities, net of tax:
 
 
 
 
 
 
 
Change in fair value of marketable securities
1,253

 
(568
)
 
3,405

 
(3,417
)
Adjustment for net (gains)/losses realized and included in net income
(22
)
 
24

 
43

 
(22
)
Total change in unrealized gains/losses on marketable securities
1,231

 
(544
)
 
3,448

 
(3,439
)
 
 
 
 
 
 
 
 
Total other comprehensive income/(loss)
860

 
(47
)
 
2,726

 
(2,683
)
Total comprehensive income
$
10,904

 
$
11,472

 
$
44,296

 
$
42,723

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q3 2019 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)
 
 
June 29,
2019
 
September 29,
2018
ASSETS:
Current assets:
 
 
 
Cash and cash equivalents
$
50,530

 
$
25,913

Marketable securities
44,084

 
40,388

Accounts receivable, net
14,148

 
23,186

Inventories
3,355

 
3,956

Vendor non-trade receivables
12,326

 
25,809

Other current assets
10,530

 
12,087

Total current assets
134,973

 
131,339

 
 
 
 
Non-current assets:
 
 
 
Marketable securities
115,996

 
170,799

Property, plant and equipment, net
37,636

 
41,304

Other non-current assets
33,634

 
22,283

Total non-current assets
187,266

 
234,386

Total assets
$
322,239

 
$
365,725

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
 
 
 
Accounts payable
$
29,115

 
$
55,888

Other current liabilities
31,673

 
33,327

Deferred revenue
5,434

 
5,966

Commercial paper
9,953

 
11,964

Term debt
13,529

 
8,784

Total current liabilities
89,704

 
115,929

 
 
 
 
Non-current liabilities:
 
 
 
Term debt
84,936

 
93,735

Other non-current liabilities
51,143

 
48,914

Total non-current liabilities
136,079

 
142,649

Total liabilities
225,783

 
258,578

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,531,395 and 4,754,986 shares issued and outstanding, respectively
43,371

 
40,201

Retained earnings
53,724

 
70,400

Accumulated other comprehensive income/(loss)
(639
)
 
(3,454
)
Total shareholders’ equity
96,456

 
107,147

Total liabilities and shareholders’ equity
$
322,239

 
$
365,725

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q3 2019 Form 10-Q | 3


Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(In millions, except number of shares which are reflected in thousands and per share amounts)
 
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Total shareholders’ equity, beginning balances
$
105,860

 
$
126,878

 
$
107,147

 
$
134,047

 
 
 
 
 
 
 
 
Common stock and additional paid-in capital:
 
 
 
 
 
 
 
Beginning balances
42,801

 
38,044

 
40,201

 
35,867

Common stock issued
1

 
1

 
391

 
328

Common stock withheld related to net share settlement of equity awards
(958
)
 
(797
)
 
(1,885
)
 
(1,642
)
Share-based compensation
1,527

 
1,376

 
4,664

 
4,071

Ending balances
43,371

 
38,624

 
43,371

 
38,624

 
 
 
 
 
 
 
 
Retained earnings:
 
 
 
 
 
 
 
Beginning balances
64,558

 
91,898

 
70,400

 
98,330

Net income
10,044

 
11,519

 
41,570

 
45,406

Dividends and dividend equivalents declared
(3,580
)
 
(3,623
)
 
(10,605
)
 
(10,162
)
Common stock withheld related to net share settlement of equity awards
(336
)
 
(358
)
 
(944
)
 
(807
)
Common stock repurchased
(16,962
)
 
(20,000
)
 
(49,198
)
 
(53,609
)
Cumulative effects of changes in accounting principles

 

 
2,501

 
278

Ending balances
53,724

 
79,436

 
53,724

 
79,436

 
 
 
 
 
 
 
 
Accumulated other comprehensive income/(loss):
 
 
 
 
 
 
 
Beginning balances
(1,499
)
 
(3,064
)
 
(3,454
)
 
(150
)
Other comprehensive income/(loss)
860

 
(47
)
 
2,726

 
(2,683
)
Cumulative effects of changes in accounting principles

 

 
89

 
(278
)
Ending balances
(639
)
 
(3,111
)
 
(639
)
 
(3,111
)
 
 
 
 
 
 
 
 
Total shareholders’ equity, ending balances
$
96,456

 
$
114,949

 
$
96,456

 
$
114,949

 
 
 
 
 
 
 
 
Dividends and dividend equivalents declared per share or RSU
$
0.77

 
$
0.73

 
$
2.23

 
$
1.99

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q3 2019 Form 10-Q | 4


Apple Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
Cash, cash equivalents and restricted cash, beginning balances
$
25,913

 
$
20,289

Operating activities:
 
 
 
Net income
41,570

 
45,406

Adjustments to reconcile net income to cash generated by operating activities:
 
 
 
Depreciation and amortization
9,368

 
8,149

Share-based compensation expense
4,569

 
3,995

Deferred income tax benefit
(38
)
 
(33,109
)
Other
(340
)
 
(410
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
9,013

 
3,756

Inventories
496

 
(1,114
)
Vendor non-trade receivables
13,483

 
5,536

Other current and non-current assets
693

 
(65
)
Accounts payable
(19,804
)
 
(10,410
)
Deferred revenue
(776
)
 
(73
)
Other current and non-current liabilities
(8,753
)
 
36,250

Cash generated by operating activities
49,481

 
57,911

Investing activities:
 
 
 
Purchases of marketable securities
(21,902
)
 
(56,133
)
Proceeds from maturities of marketable securities
26,783

 
46,290

Proceeds from sales of marketable securities
49,516

 
41,614

Payments for acquisition of property, plant and equipment
(7,718
)
 
(10,272
)
Payments made in connection with business acquisitions, net
(611
)
 
(431
)
Purchases of non-marketable securities
(632
)
 
(1,788
)
Proceeds from non-marketable securities
1,526

 
310

Other
(268
)
 
(523
)
Cash generated by investing activities
46,694

 
19,067

Financing activities:
 
 
 
Proceeds from issuance of common stock
391

 
328

Payments for taxes related to net share settlement of equity awards
(2,626
)
 
(2,267
)
Payments for dividends and dividend equivalents
(10,640
)
 
(10,182
)
Repurchases of common stock
(49,453
)
 
(53,634
)
Proceeds from issuance of term debt, net

 
6,969

Repayments of term debt
(5,500
)
 
(6,500
)
Repayments of commercial paper, net
(2,026
)
 
(10
)
Other
(83
)
 

Cash used in financing activities
(69,937
)
 
(65,296
)
Increase in cash, cash equivalents and restricted cash
26,238

 
11,682

Cash, cash equivalents and restricted cash, ending balances
$
52,151

 
$
31,971

Supplemental cash flow disclosure:
 
 
 
Cash paid for income taxes, net
$
11,795

 
$
8,819

Cash paid for interest
$
2,563

 
$
2,120

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q3 2019 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 accompanying 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 the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 29, 2018 (the “ 2018 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 2019 and 2018 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
Revenue Recognition
In the first quarter of 2019, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), and additional ASUs issued to clarify the guidance in ASU 2014-09 (collectively the “new revenue standard”), which amends the existing accounting standards for revenue recognition. The Company adopted the new revenue standard utilizing the full retrospective transition method. The Company did not restate total net sales in the prior periods presented, as adoption of the new revenue standard did not have a material impact on previously reported amounts.
Additionally, beginning in the first quarter of 2019, the Company classified the amortization of the deferred value of Maps, Siri ® and free iCloud ® services, which are bundled in the sales price of iPhone ® , Mac ® , iPad ® and certain other products, in services net sales. Historically, the Company classified the amortization of these amounts in products net sales consistent with its management reporting framework. As a result, products and services net sales information for the third quarter and first nine months of 2018 was reclassified to conform to the 2019 presentation.
Financial Instruments
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements.
Income Taxes
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted ASU 2016-16 utilizing the modified retrospective transition method. Upon adoption, the Company recorded $2.7 billion of net deferred tax assets, reduced other non-current assets by $128 million , and increased retained earnings by $2.6 billion on its Condensed Consolidated Balance Sheet. The Company will recognize incremental deferred income tax expense as these net deferred tax assets are utilized.
Restricted Cash
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows and requires additional disclosures about restricted cash balances.

Apple Inc. | Q3 2019 Form 10-Q | 6


Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for the three- and nine-month periods ended June 29, 2019 and June 30, 2018 (net income in millions and shares in thousands):
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Numerator:
 
 
 
 
 
 
 
Net income
$
10,044

 
$
11,519

 
$
41,570

 
$
45,406

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
4,570,633

 
4,882,167

 
4,660,175

 
5,006,640

Effect of dilutive securities
30,747

 
44,442

 
31,584

 
44,323

Weighted-average diluted shares
4,601,380

 
4,926,609

 
4,691,759

 
5,050,963

 
 
 
 
 
 
 
 
Basic earnings per share
$
2.20

 
$
2.36

 
$
8.92

 
$
9.07

Diluted earnings per share
$
2.18

 
$
2.34

 
$
8.86

 
$
8.99


Potentially dilutive securities representing 1.5 million and 20.5 million shares of common stock were excluded from the computation of diluted earnings per share for the three- and nine-month periods ended June 29, 2019 , respectively, because their effect would have been antidilutive.
Restricted Cash and Restricted Marketable Securities
The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted. The Company records restricted cash as other assets in the Condensed Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction. The Company records restricted marketable securities as current or non-current marketable securities in the Condensed Consolidated Balance Sheets based on the classification of the underlying securities.
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 of time 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 (“SSP”). When available, the Company uses observable prices to determine the SSP. 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.

Apple Inc. | Q3 2019 Form 10-Q | 7


The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud, Siri and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.
For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it has the ability to 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 and TV App Store and certain digital content sold through the iTunes Store ® , 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 June 29, 2019 and September 29, 2018 , the Company had total deferred revenue of $8.0 billion and $8.8 billion , respectively. As of June 29, 2019 , the Company expects 68% of total deferred revenue to be realized in less than a year, 25% within one-to-two years, 6% within two-to-three years and 1% in greater than three years.

Apple Inc. | Q3 2019 Form 10-Q | 8


Disaggregated Revenue
Net sales disaggregated by significant products and services for the three- and nine-month periods ended June 29, 2019 and June 30, 2018 were as follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
iPhone  (1)
$
25,986

 
$
29,470

 
$
109,019

 
$
128,133

Mac (1)
5,820

 
5,258

 
18,749

 
17,858

iPad  (1)
5,023

 
4,634

 
16,624

 
14,397

Wearables, Home and Accessories (1)(2)
5,525

 
3,733

 
17,962

 
13,158

Services (3)
11,455

 
10,170

 
33,780

 
29,149

Total net sales (4)
$
53,809

 
$
53,265

 
$
196,134

 
$
202,695

(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®, Apple Pay®, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of certain products.
(4)
Includes $2.0 billion of revenue recognized in the three months ended June 29, 2019 that was included in deferred revenue as of March 30, 2019 , $2.0 billion of revenue recognized in the three months ended June 30, 2018 that was included in deferred revenue as of March 31, 2018 , $4.9 billion of revenue recognized in the nine months ended June 29, 2019 that was included in deferred revenue as of September 29, 2018 , and $4.7 billion of revenue recognized in the nine months ended June 30, 2018 that was included in deferred revenue as of September 30, 2017 .
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 nine-month periods ended June 29, 2019 and June 30, 2018 .
Note 3 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in other comprehensive income/(loss) (“OCI”).
The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable equity securities are measured at fair value with gains and losses recognized in other income/(expense), net.

Apple Inc. | Q3 2019 Form 10-Q | 9


The following tables show the Company’s cash and marketable securities by significant investment category as of June 29, 2019 and September 29, 2018 (in millions):
 
June 29, 2019
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
12,075

 
$

 
$

 
$
12,075

 
$
12,075

 
$

 
$

Level 1 (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
10,558

 

 

 
10,558

 
10,558

 

 

Subtotal
10,558

 

 

 
10,558

 
10,558

 

 

Level 2 (2) :
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
37,307

 
22

 
(102
)
 
37,227

 
11,116

 
8,436

 
17,675

U.S. agency securities
9,552

 
1

 
(5
)
 
9,548

 
7,711

 
450

 
1,387

Non-U.S. government securities
20,569

 
272

 
(63
)
 
20,778

 
636

 
3,467

 
16,675

Certificates of deposit and time deposits
4,838

 

 

 
4,838

 
3,495

 
1,273

 
70

Commercial paper
5,161

 

 

 
5,161

 
4,930

 
231

 

Corporate debt securities
93,896

 
550

 
(173
)
 
94,273

 
9

 
29,027

 
65,237

Municipal securities
961

 
9

 
(1
)
 
969

 

 
65

 
904

Mortgage- and asset-backed securities
15,262

 
38

 
(117
)
 
15,183

 

 
1,135

 
14,048

Subtotal
187,546

 
892

 
(461
)
 
187,977

 
27,897

 
44,084

 
115,996

Total (3)
$
210,179

 
$
892

 
$
(461
)
 
$
210,610

 
$
50,530

 
$
44,084

 
$
115,996

 
September 29, 2018
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
11,575

 
$

 
$

 
$
11,575

 
$
11,575

 
$

 
$

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

 

 

 
8,083

 
8,083

 

 

Mutual funds
799

 

 
(116
)
 
683

 

 
683

 

Subtotal
8,882

 

 
(116
)
 
8,766

 
8,083

 
683

 

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

 

 
(1,202
)
 
46,094

 
1,613

 
7,606

 
36,875

U.S. agency securities
4,127

 

 
(48
)
 
4,079

 
1,732

 
360

 
1,987

Non-U.S. government securities
21,601

 
49

 
(250
)
 
21,400

 

 
3,355

 
18,045

Certificates of deposit and time deposits
3,074

 

 

 
3,074

 
1,247

 
1,330

 
497

Commercial paper
2,573

 

 

 
2,573

 
1,663

 
910

 

Corporate debt securities
123,001

 
152

 
(2,038
)
 
121,115

 

 
25,162

 
95,953

Municipal securities
946

 

 
(12
)
 
934

 

 
178

 
756

Mortgage- and asset-backed securities
18,105

 
8

 
(623
)
 
17,490

 

 
804

 
16,686

Subtotal
220,723

 
209

 
(4,173
)
 
216,759

 
6,255

 
39,705

 
170,799

Total (3)
$
241,180

 
$
209

 
$
(4,289
)
 
$
237,100

 
$
25,913

 
$
40,388

 
$
170,799

(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 June 29, 2019 and September 29, 2018 , total cash, cash equivalents and marketable securities included $19.5 billion and $20.3 billion , respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.

Apple Inc. | Q3 2019 Form 10-Q | 10


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 long-term marketable debt securities generally range from one to five years .
The following tables show information about the Company’s marketable securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or greater as of June 29, 2019 and September 29, 2018 (in millions):
 
June 29, 2019
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable debt securities
$
11,853

 
$
71,984

 
$
83,837

Unrealized losses
$
(44
)
 
$
(417
)
 
$
(461
)
 
September 29, 2018
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable   securities
$
126,238

 
$
60,599

 
$
186,837

Unrealized losses
$
(2,400
)
 
$
(1,889
)
 
$
(4,289
)

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 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 security before recovery of the security’s cost basis. As of June 29, 2019 , 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, and has elected to apply the measurement alternative. As such, the Company’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. Gains and losses on non-marketable equity securities are recognized in other income/(expense), net. As of June 29, 2019 , the Company’s non-marketable equity securities had a carrying value of $2.4 billion .
Restricted Cash
A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheet to cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows as of June 29, 2019 is as follows (in millions):
 
June 29,
2019
Cash and cash equivalents
$
50,530

Restricted cash included in other current assets
266

Restricted cash included in other non-current assets
1,355

Cash, cash equivalents and restricted cash
$
52,151


The Company’s restricted cash primarily consisted of cash required to be on deposit under a contractual agreement with a bank to support the Company’s iPhone Upgrade Program.
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.

Apple Inc. | Q3 2019 Form 10-Q | 11


To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months .
To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of June 29, 2019 , the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 23 years .
The Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value. The Company designates these instruments as either cash flow or fair value hedges. As of June 29, 2019 , the Company’s hedged interest rate transactions are expected to be recognized within 8 years .
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into other income/(expense), net in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.
Net Investment Hedges
The effective portions of net investment hedges are recorded in OCI as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net. For foreign exchange forward contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness. Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current period.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the Condensed Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness. Amounts excluded from the effectiveness testing of fair value hedges were gains of $171 million and $645 million for the three- and nine-month periods ended June 29, 2019 , respectively, and were recognized in other income/(expense), net.

Apple Inc. | Q3 2019 Form 10-Q | 12


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 nine-month periods ended June 29, 2019 , respectively, the Company recognized gains of $58 million and $283 million in net sales, gains of $40 million and $108 million in cost of sales and losses of $34 million and $58 million in other income/(expense), net. During the three- and nine-month periods ended June 30, 2018 , respectively, the Company recognized a gain of $135 million and a loss of $7 million in net sales, a gain of $151 million and a loss of $61 million in cost of sales and a gain of $132 million and a loss of $241 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 June 29, 2019 and September 29, 2018 (in millions):
 
June 29, 2019
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1) :
 
 
 
 
 
Foreign exchange contracts
$
1,179

 
$
184

 
$
1,363

Interest rate contracts
$
449

 
$

 
$
449

 
 
 
 
 
 
Derivative liabilities (2) :
 
 
 
 
 
Foreign exchange contracts
$
860

 
$
251

 
$
1,111

Interest rate contracts
$
112

 
$

 
$
112

 
September 29, 2018
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets  (1) :
 
 
 
 
 
Foreign exchange contracts
$
1,015

 
$
259

 
$
1,274

 
 
 
 
 
 
Derivative liabilities (2) :
 
 
 
 
 
Foreign exchange contracts
$
543

 
$
137

 
$
680

Interest rate contracts
$
1,456

 
$

 
$
1,456

(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets and other non-current assets in the Condensed Consolidated Balance Sheets.
(2)
The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Condensed Consolidated Statements of Cash Flows.

Apple Inc. | Q3 2019 Form 10-Q | 13


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 nine-month periods ended June 29, 2019 and June 30, 2018 (in millions):
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Gains/(Losses) recognized in OCI – effective portion:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
(147
)
 
$
40

 
$
(689
)
 
$
230

Interest rate contracts

 

 

 
1

Total
$
(147
)
 
$
40

 
$
(689
)
 
$
231

 
 
 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
 
 
Foreign currency debt
$
(32
)
 
$
13

 
$
(55
)
 
$
(18
)
 
 
 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – effective portion:
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
53

 
$
(1,231
)
 
$
69

 
$
(1,068
)
Interest rate contracts
(2
)
 

 
(5
)
 
3

Total
$
51

 
$
(1,231
)
 
$
64

 
$
(1,065
)
 
 
 
 
 
 
 
 
Gains/(Losses) on derivative instruments:
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
(136
)
 
$
31

 
$
509

 
$
31

Interest rate contracts
671

 
(230
)
 
1,793

 
(1,178
)
Total
$
535

 
$
(199
)
 
$
2,302

 
$
(1,147
)
 
 
 
 
 
 
 
 
Gains/(Losses) related to hedged items:
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
Marketable securities
$
136

 
$
(31
)
 
$
(508
)
 
$
(31
)
Fixed-rate debt
(671
)
 
230

 
(1,793
)
 
1,178

Total
$
(535
)
 
$
199

 
$
(2,301
)
 
$
1,147


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 June 29, 2019 and September 29, 2018 (in millions):
 
June 29, 2019
 
September 29, 2018
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
55,067

 
$
1,179

 
$
65,368

 
$
1,015

Interest rate contracts
$
31,250

 
$
449

 
$
33,250

 
$

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
54,744

 
$
184

 
$
63,062

 
$
259



Apple Inc. | Q3 2019 Form 10-Q | 14


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 June 29, 2019 , the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $603 million , which was recorded as other current liabilities in the Condensed Consolidated Balance Sheet. As of September 29, 2018 , the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $1.0 billion , which was recorded as other current assets in the Condensed Consolidated Balance Sheet.
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 June 29, 2019 and September 29, 2018 , 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 $1.8 billion and $2.1 billion , respectively, resulting in a net derivative liability of $14 million and a net derivative asset of $138 million , respectively.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of June 29, 2019 , the Company had one customer that represented 10% or more of total trade receivables, which accounted for 11% . As of September 29, 2018 , 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 42% and 59% of total trade receivables as of June 29, 2019 and September 29, 2018 , 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 June 29, 2019 , the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57% , 12% and 12% . As of September 29, 2018 , the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 62% and 12% .

Apple Inc. | Q3 2019 Form 10-Q | 15


Note 4 – Condensed Consolidated Financial Statement Details
The following tables show the Company’s condensed consolidated financial statement details as of June 29, 2019 and September 29, 2018 (in millions):
Property, Plant and Equipment, Net
 
June 29,
2019
 
September 29,
2018
Land and buildings
$
16,560

 
$
16,216

Machinery, equipment and internal-use software
68,529

 
65,982

Leasehold improvements
8,895

 
8,205

Gross property, plant and equipment
93,984

 
90,403

Accumulated depreciation and amortization
(56,348
)
 
(49,099
)
Total property, plant and equipment, net
$
37,636

 
$
41,304


Other Non-Current Liabilities
 
June 29,
2019
 
September 29,
2018
Long-term taxes payable
$
30,521

 
$
33,589

Other non-current liabilities
20,622

 
15,325

Total other non-current liabilities
$
51,143

 
$
48,914


Other Income/(Expense), Net
The following table shows the detail of other income/(expense), net for the three- and nine-month periods ended June 29, 2019 and June 30, 2018 (in millions):
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Interest and dividend income
$
1,190

 
$
1,418

 
$
3,855

 
$
4,375

Interest expense
(866
)
 
(846
)
 
(2,766
)
 
(2,372
)
Other income/(expense), net
43

 
100

 
216

 
(301
)
Total other income/(expense), net
$
367

 
$
672

 
$
1,305

 
$
1,702


Note 5 – Income Taxes
Uncertain Tax Positions
As of June 29, 2019 , the total amount of gross unrecognized tax benefits was $14.8 billion , of which $8.1 billion , if recognized, would impact the Company’s effective tax rate. The Company had accrued $1.3 billion of gross interest and penalties as of June 29, 2019 . Both the unrecognized tax benefits and the associated interest and penalties that are not expected to result in payment or receipt of cash within one year are classified as other non-current liabilities in the Condensed Consolidated Balance Sheet.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The U.S. Internal Revenue Service concluded its review of the years 2013 through 2015 in 2018, and all years prior to 2016 are closed. Tax years subsequent to 2006 in certain major U.S. states and subsequent to 2010 in certain major foreign jurisdictions remain open, and could be subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (either by payment, release or a combination of both) in the next 12 months by as much as $400 million .

Apple Inc. | Q3 2019 Form 10-Q | 16


European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to be €13.1 billion , plus interest of €1.2 billion . Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the U.S. Tax Cuts and Jobs Act. As of June 29, 2019 , the entire recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending conclusion of all appeals. Refer to Note 3, “Financial Instruments” for more information.
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 June 29, 2019 and September 29, 2018 , the Company had $10.0 billion and $12.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months . The weighted-average interest rate of the Company’s Commercial Paper was 2.49% and 2.18% as of June 29, 2019 and September 29, 2018 , respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the nine months ended June 29, 2019 and June 30, 2018 (in millions):
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
Maturities 90 days or less:
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
(3,720
)
 
$
2,619

 
 
 
 
Maturities greater than 90 days:
 
 
 
Proceeds from commercial paper
12,977

 
9,782

Repayments of commercial paper
(11,283
)
 
(12,411
)
Proceeds from/(Repayments of) commercial paper, net
1,694

 
(2,629
)
 
 
 
 
Total repayments of commercial paper, net
$
(2,026
)
 
$
(10
)

Term Debt
As of June 29, 2019 , the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $98.3 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar–denominated and Australian dollar–denominated floating-rate notes, semi-annually for the U.S. dollar–denominated, Australian dollar–denominated, British pound–denominated, Japanese yen–denominated and Canadian dollar–denominated fixed-rate notes and annually for the euro-denominated and Swiss franc–denominated fixed-rate notes.

Apple Inc. | Q3 2019 Form 10-Q | 17


The following table provides a summary of the Company’s term debt as of June 29, 2019 and September 29, 2018 :
 
Maturities
(calendar year)
 
June 29, 2019
 
September 29, 2018
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013 debt issuance of $17.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate 2.400% – 3.850% notes
2023
2043
 
$
8,500

 
 
2.44%
3.91
%
 
$
8,500

 
 
2.44%
3.91
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 debt issuance of $12.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
 
 
 

 
 
 
 
%
 
1,000

 
 
 
 
2.64
%
Fixed-rate 2.850% – 4.450% notes
2021
2044
 
6,500

 
 
3.12%
4.48
%
 
8,500

 
 
2.64%