Apple Inc 10-Q for FY2020 Q1

About this 10-Q

Headline figures

Apple Inc. (AAPL)

10-Q 2020-01-29 For: 2019-12-28

Added on April 01, 2026

Apple Inc filed this 10-Q on January 29, 2020, covering the quarter ended December 28, 2019 (FY2020 Q1).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Quarter ended December 28, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $91.82B; up 8.9% from $84.31B a year earlier
Net income: $22.24B; up 11.4% from net income of $19.97B a year earlier
Diluted EPS: $4.99; up 19.4% from $4.18 a year earlier

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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)



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



		Page
Part I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34



	Three Months Ended
	December 28, 2019		December 29, 2018
Net sales:
Products	$	79,104	$	73,435
Services	12,715		10,875
Total net sales	91,819		84,310

Cost of sales:
Products	52,075		48,238
Services	4,527		4,041
Total cost of sales	56,602		52,279
Gross margin	35,217		32,031

Operating expenses:
Research and development	4,451		3,902
Selling, general and administrative	5,197		4,783
Total operating expenses	9,648		8,685

Operating income	25,569		23,346
Other income/(expense), net	349		560
Income before provision for income taxes	25,918		23,906
Provision for income taxes	3,682		3,941
Net income	$	22,236	$	19,965

Earnings per share:
Basic	$	5.04	$	4.22
Diluted	$	4.99	$	4.18

Shares used in computing earnings per share:
Basic	4,415,040		4,735,820
Diluted	4,454,604		4,773,252



	December 28, 2019			September 28, 2019
ASSETS:
Current assets:
Cash and cash equivalents	$	39,771		$	48,844
Marketable securities	67,391			51,713
Accounts receivable, net	20,970			22,926
Inventories	4,097			4,106
Vendor non-trade receivables	18,976			22,878
Other current assets	12,026			12,352
Total current assets	163,231			162,819

Non-current assets:
Marketable securities	99,899			105,341
Property, plant and equipment, net	37,031			37,378
Other non-current assets	40,457			32,978
Total non-current assets	177,387			175,697
Total assets	$	340,618		$	338,516

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	45,111		$	46,236
Other current liabilities	36,263			37,720
Deferred revenue	5,573			5,522
Commercial paper	4,990			5,980
Term debt	10,224			10,260
Total current liabilities	102,161			105,718

Non-current liabilities:
Term debt	93,078			91,807
Other non-current liabilities	55,848			50,503
Total non-current liabilities	148,926			142,310
Total liabilities	251,087			248,028

Commitments and contingencies

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,384,959 and 4,443,236 shares issued and outstanding, respectively	45,972			45,174
Retained earnings	43,977			45,898
Accumulated other comprehensive income/(loss)	(418		)	(584		)
Total shareholders’ equity	89,531			90,488
Total liabilities and shareholders’ equity	$	340,618		$	338,516


(1)	Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.


(2)	Wearables, Home and Accessories net sales include sales of AirPods®, Apple TV®, Apple Watch®, Beats® products, HomePod™, iPod touch® and Apple-branded and third-party accessories.


(3)	Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare®, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud and Apple TV + services, which are bundled in the sales price of certain products.


(4)	Includes $1.9 billion of revenue recognized in the three months ended December 28, 2019 that was included in deferred revenue as of September 28, 2019 and $2.4 billion of revenue recognized in the three months ended December 29, 2018 that was included in deferred revenue as of September 29, 2018.



	December 28, 2019
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	11,383	$	—	$	—		$	11,383	$	11,383	$	—	$	—
Level 1 ⁽¹⁾:
Money market funds	11,535		—		—			11,535		11,535		—		—
Subtotal	11,535		—		—			11,535		11,535		—		—
Level 2 ⁽²⁾:
U.S. Treasury securities	28,600		29		(40		)	28,589		3,950		11,069		13,570
U.S. agency securities	8,302		2		(1		)	8,303		3,703		4,095		505
Non-U.S. government securities	18,978		324		(92		)	19,210		289		2,637		16,284
Certificates of deposit and time deposits	12,916		—		—			12,916		4,595		6,777		1,544
Commercial paper	17,823		—		—			17,823		4,254		13,569		—
Corporate debt securities	82,007		876		(37		)	82,846		62		27,894		54,890
Municipal securities	971		11		—			982		—		35		947
Mortgage- and asset-backed securities	13,475		68		(69		)	13,474		—		1,315		12,159
Subtotal	183,072		1,310		(239		)	184,143		16,853		67,391		99,899
Total ⁽³⁾	$	205,990	$	1,310	$	(239	)	$	207,061	$	39,771	$	67,391	$	99,899



	September 28, 2019
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	12,204	$	—	$	—		$	12,204	$	12,204	$	—	$	—
Level 1 ⁽¹⁾:
Money market funds	15,897		—		—			15,897		15,897		—		—
Subtotal	15,897		—		—			15,897		15,897		—		—
Level 2 ⁽²⁾:
U.S. Treasury securities	30,293		33		(62		)	30,264		6,165		9,817		14,282
U.S. agency securities	9,767		1		(3		)	9,765		6,489		2,249		1,027
Non-U.S. government securities	19,821		337		(50		)	20,108		749		3,168		16,191
Certificates of deposit and time deposits	4,041		—		—			4,041		2,024		1,922		95
Commercial paper	12,433		—		—			12,433		5,193		7,240		—
Corporate debt securities	85,383		756		(92		)	86,047		123		26,127		59,797
Municipal securities	958		8		(1		)	965		—		68		897
Mortgage- and asset-backed securities	14,180		67		(73		)	14,174		—		1,122		13,052
Subtotal	176,876		1,202		(281		)	177,797		20,743		51,713		105,341
Total ⁽³⁾	$	204,977	$	1,202	$	(281	)	$	205,898	$	48,844	$	51,713	$	105,341


(1)	Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.


(2)	Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


(3)	As of December 28, 2019 and September 28, 2019, total marketable securities included $19.1 billion and $18.9 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.



	Three Months Ended
	December 28, 2019			December 29, 2018
Net income	$	22,236		$	19,965
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax	202			(78		)

Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivatives	111			(334		)
Adjustment for net (gains)/losses realized and included in net income	(398		)	42
Total change in unrealized gains/losses on derivative instruments	(287		)	(292		)

Change in unrealized gains/losses on marketable securities, net of tax:
Change in fair value of marketable securities	125			110
Adjustment for net (gains)/losses realized and included in net income	(10		)	37
Total change in unrealized gains/losses on marketable securities	115			147

Total other comprehensive income/(loss)	30			(223		)
Total comprehensive income	$	22,266		$	19,742



	Three Months Ended
	December 28, 2019			December 29, 2018
Total shareholders’ equity, beginning balances	$	90,488		$	107,147

Common stock and additional paid-in capital:
Beginning balances	45,174			40,201
Common stock issued	2			—
Common stock withheld related to net share settlement of equity awards	(951		)	(822		)
Share-based compensation	1,747			1,591
Ending balances	45,972			40,970

Retained earnings:
Beginning balances	45,898			70,400
Net income	22,236			19,965
Dividends and dividend equivalents declared	(3,485		)	(3,526		)
Common stock withheld related to net share settlement of equity awards	(536		)	(594		)
Common stock repurchased	(20,000		)	(8,236		)
Cumulative effects of changes in accounting principles	(136		)	2,501
Ending balances	43,977			80,510

Accumulated other comprehensive income/(loss):
Beginning balances	(584		)	(3,454		)
Other comprehensive income/(loss)	30			(223		)
Cumulative effects of changes in accounting principles	136			89
Ending balances	(418		)	(3,588		)

Total shareholders’ equity, ending balances	$	89,531		$	117,892

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



	Three Months Ended
	December 28, 2019			December 29, 2018
Cash, cash equivalents and restricted cash, beginning balances	$	50,224		$	25,913
Operating activities:
Net income	22,236			19,965
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization	2,816			3,395
Share-based compensation expense	1,710			1,559
Deferred income tax expense/(benefit)	(349		)	53
Other	(142		)	(54		)
Changes in operating assets and liabilities:
Accounts receivable, net	2,015			5,130
Inventories	(28		)	(1,076		)
Vendor non-trade receivables	3,902			6,905
Other current and non-current assets	(7,054		)	(886		)
Accounts payable	(1,089		)	(8,501		)
Deferred revenue	985			(370		)
Other current and non-current liabilities	5,514			570
Cash generated by operating activities	30,516			26,690
Investing activities:
Purchases of marketable securities	(37,416		)	(7,077		)
Proceeds from maturities of marketable securities	19,740			7,203
Proceeds from sales of marketable securities	7,280			9,723
Payments for acquisition of property, plant and equipment	(2,107		)	(3,355		)
Payments made in connection with business acquisitions, net	(958		)	(167		)
Purchases of non-marketable securities	(77		)	(427		)
Other	(130		)	(56		)
Cash generated by/(used in) investing activities	(13,668		)	5,844
Financing activities:
Proceeds from issuance of common stock	2			—
Payments for taxes related to net share settlement of equity awards	(1,379		)	(1,318		)
Payments for dividends and dividend equivalents	(3,539		)	(3,568		)
Repurchases of common stock	(20,706		)	(8,796		)
Proceeds from issuance of term debt, net	2,210			—
Repayments of term debt	(1,000		)	—
Proceeds from/(Repayments of) commercial paper, net	(979		)	6
Other	(16		)	—
Cash used in financing activities	(25,407		)	(13,676		)



	December 28, 2019
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets ⁽¹⁾:
Foreign exchange contracts	$	1,625	$	327	$	1,952
Interest rate contracts	$	475	$	—	$	475

Derivative liabilities ⁽²⁾:
Foreign exchange contracts	$	964	$	494	$	1,458
Interest rate contracts	$	57	$	—	$	57


(1)	The fair value of derivative assets is measured using Level 2 fair value inputs and is included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheets.


(2)	The fair value of derivative liabilities is measured using Level 2 fair value inputs and is included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheets.



	December 28, 2019
Carrying amounts of hedged assets/(liabilities):
Marketable securities ⁽²⁾	$	15,544
Fixed-rate debt ⁽³⁾	$	(28,631	)

Cumulative hedging adjustments included in the carrying amounts of hedged items:
Marketable securities carrying amount increases/(decreases)	$	(594	)
Fixed-rate debt carrying amount (increases)/decreases	$	(418	)


(1)	Gains and losses related to fair value hedges are included in OI&E in the Condensed Consolidated Statements of Operations.


(2)	The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-current marketable securities in the Condensed Consolidated Balance Sheet.


(3)	The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term debt in the Condensed Consolidated Balance Sheet.



	December 28, 2019				September 28, 2019
	Notional Amount		Credit Risk Amount		Notional Amount		Credit Risk Amount
Instruments designated as accounting hedges:
Foreign exchange contracts	$	54,215	$	1,625	$	61,795	$	1,798
Interest rate contracts	$	28,250	$	475	$	31,250	$	685

Instruments not designated as accounting hedges:
Foreign exchange contracts	$	96,470	$	327	$	76,868	$	323



	December 28, 2019			September 28, 2019
Land and buildings	$	17,754		$	17,085
Machinery, equipment and internal-use software	70,841			69,797
Leasehold improvements	9,395			9,075
Gross property, plant and equipment	97,990			95,957
Accumulated depreciation and amortization	(60,959		)	(58,579		)
Total property, plant and equipment, net	$	37,031		$	37,378



	December 28, 2019		September 28, 2019
Long-term taxes payable	$	28,198	$	29,545
Other non-current liabilities	27,650		20,958
Total other non-current liabilities	$	55,848	$	50,503



	Maturities (calendar year)			December 28, 2019								September 28, 2019
	Maturities (calendar year)			Amount (in millions)			Effective Interest Rate					Amount (in millions)			Effective Interest Rate
2013 – 2019 debt issuances:
Floating-rate notes	2020	–	2022	$	4,250			1.97%	–	3.04	%	$	4,250			2.25%	–	3.28	%
Fixed-rate 0.350% – 4.650% notes	2020	–	2049	96,610				0.28%	–	4.78	%	97,429				0.28%	–	4.78	%

First quarter 2020 debt issuance of €2.0 billion:
Fixed-rate 0.000% – 0.500% notes	2025	–	2031	2,226				0.03%	–	0.56	%	—						—	%
Total term debt				103,086								101,679

Unamortized premium/(discount) and issuance costs, net				(229		)						(224		)
Hedge accounting fair value adjustments				445								612
Less: Current portion of term debt				(10,224		)						(10,260		)
Total non-current portion of term debt				$	93,078							$	91,807



		Three Months Ended
Comprehensive Income Components	Financial Statement Line Items	December 28, 2019			December 29, 2018
Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts	Total net sales	$	(97	)	$	63
	Total cost of sales	(171		)	(375		)
	Other income/(expense), net	(223		)	396
Interest rate contracts	Other income/(expense), net	2			1
		(489		)	85
Unrealized (gains)/losses on marketable securities	Other income/(expense), net	(13		)	47
Total amounts reclassified from AOCI		$	(502	)	$	132



	Cumulative Foreign Currency Translation			Unrealized Gains/Losses on Derivative Instruments			Unrealized Gains/Losses on Marketable Securities			Total
Balances as of September 28, 2019	$	(1,463	)	$	172		$	707		$	(584	)
Other comprehensive income/(loss) before reclassifications	207			182			163			552
Amounts reclassified from AOCI	—			(489		)	(13		)	(502		)
Tax effect	(5		)	20			(35		)	(20		)
Other comprehensive income/(loss)	202			(287		)	115			30
Cumulative effect of change in accounting principle ⁽¹⁾	—			136			—			136
Balances as of December 28, 2019	$	(1,261	)	$	21		$	822		$	(418	)


(1)	Refer to Note 1, “Summary of Significant Accounting Policies” for more information on the Company’s adoption of ASU 2017-12 at the beginning of the first quarter of 2020.



	Number of RSUs (in thousands)			Weighted-Average Grant Date Fair Value Per RSU		Aggregate Fair Value (in millions)
Balance as of September 28, 2019	81,517			$	169.18
RSUs granted	33,775			$	220.78
RSUs vested	(17,837		)	$	150.42
RSUs canceled	(1,435		)	$	184.51
Balance as of December 28, 2019	$	96,020		$	190.59	$	27,827



Lease-Related Assets and Liabilities	Financial Statement Line Items	December 28, 2019
Right-of-use assets:
Operating leases	Other non-current assets	$	7,262
Finance leases	Property, plant and equipment, net	629
Total right-of-use assets		$	7,891

Lease liabilities:
Operating leases	Other current liabilities	$	1,245
	Other non-current liabilities	6,573
Finance leases	Other current liabilities	14
	Other non-current liabilities	627
Total lease liabilities		$	8,459



	December 28, 2019		September 28, 2019
Cash, cash equivalents and marketable securities ⁽¹⁾	$	207,061	$	205,898
Property, plant and equipment, net	$	37,031	$	37,378
Commercial paper	$	4,990	$	5,980
Total term debt	$	103,302	$	102,067
Working capital	$	61,070	$	57,101



Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
September 29, 2019 to November 2, 2019:
Open market and privately negotiated purchases	17,988		$	233.48	17,988

November 3, 2019 to November 30, 2019:
November 2019 ASR	30,396	⁽²⁾	⁽²⁾		30,396	⁽²⁾
Open market and privately negotiated purchases	16,399		$	262.21	16,399

December 1, 2019 to December 28, 2019:
Open market and privately negotiated purchases	5,583		$	268.68	5,583
Total	70,366						$	58,869



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date
4.1	Officer’s Certificate of the Registrant, dated as of November 15, 2019, including forms of global notes representing the 0.000% Notes due 2025 and 0.500% Notes due 2031.	8-K	4.1	11/15/19
31.1*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1**	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101**	Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104**	Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.



January 28, 2020	Apple Inc.

	By:	/s/ Luca Maestri
		Luca Maestri
		Senior Vice President, Chief Financial Officer