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Financial Instruments | 3 Months Ended
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Dec. 28, 2019
Investments, All Other Investments [Abstract] |
Financial Instruments | Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables show the Company’s cash and marketable securities by significant investment category as of December 28, 2019 and September 28, 2019 (in millions):
| 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.
The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturities of the Company’s non-current marketable debt securities generally range from one to five years. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it will more likely than not be required to sell the security before recovery of its amortized cost basis. As of December 28, 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. As of both December 28, 2019 and September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $2.9 billion. Restricted Cash A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows as of December 28, 2019 and September 28, 2019 is as follows (in millions):
| December 28, 2019 |  | September 28, 2019
Cash and cash equivalents | $ | 39,771 |  |  | $ | 48,844 |
Restricted cash included in other current assets | 68 |  |  | 23 |
Restricted cash included in other non-current assets | 1,826 |  |  | 1,357 |
Cash, cash equivalents and restricted cash | $ | 41,665 |  |  | $ | 50,224 |
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. 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 December 28, 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 December 28, 2019, the Company’s hedged interest rate transactions are expected to be recognized within 8 years. Cash Flow Hedges Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in 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 (“OI&E”) in the same period as the related income or expense is recognized. For options designated as cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge relates on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in other comprehensive income/(loss) (“OCI”). 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 OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions. Net Investment Hedges Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation adjustment. For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI. Fair Value Hedges Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a corresponding loss or gain related to the change in value of the hedged item in the same line in the Condensed Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OI&E on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI. The amount excluded from the effectiveness assessment of fair value hedges and recognized in OI&E was a gain of $128 million for the three months ended December 28, 2019. 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. 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 December 28, 2019 and September 28, 2019 (in millions):
| 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 |
| September 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 | $ | 1,798 |  |  | $ | 323 |  |  | $ | 2,121 |
Interest rate contracts | $ | 685 |  |  | $ | — |  |  | $ | 685 |
Derivative liabilities (2): |  |  |  |  |
Foreign exchange contracts | $ | 1,341 |  |  | $ | 160 |  |  | $ | 1,501 |
Interest rate contracts | $ | 105 |  |  | $ | — |  |  | $ | 105 |
(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.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Condensed Consolidated Statements of Cash Flows. The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedges in OCI and the Condensed Consolidated Statements of Operations for the three months ended December 28, 2019 and December 29, 2018 (in millions):
| Three Months Ended
| December 28, 2019 |  | December 29, 2018
Gains/(Losses) recognized in OCI – included in effectiveness assessment: |  |  |
Cash flow hedges: |  |  |
Foreign exchange contracts | $ | 271 |  |  | $ | (478 | )
Net investment hedges: |  |  |
Foreign currency debt | $ | 24 |  |  | $ | (16 | )
Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment: |  |  |
Cash flow hedges: |  |  |
Foreign exchange contracts | $ | 491 |  |  | $ | (118 | )
Interest rate contracts | (2 | ) |  | (1 | )
Total | $ | 489 |  |  | $ | (119 | )
The amount excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI was a loss of $89 million for the three months ended December 28, 2019. The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for the three months ended December 28, 2019 and December 29, 2018 and as of December 28, 2019 (in millions):
| Three Months Ended
| December 28, 2019 |  | December 29, 2018
Gains/(Losses) on derivative instruments (1): |  |  |
Foreign exchange contracts | $ | (183 | ) |  | $ | 402 |
Interest rate contracts | (162 | ) |  | 657 |
Total | $ | (345 | ) |  | $ | 1,059 |
Gains/(Losses) related to hedged items (1): |  |  |
Marketable securities | $ | 183 |  |  | $ | (402 | )
Fixed-rate debt | 162 |  |  | (657 | )
Total | $ | 345 |  |  | $ | (1,059 | )
| 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.
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 December 28, 2019 and September 28, 2019 (in millions):
| 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 |
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 December 28, 2019 and September 28, 2019, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $1.0 billion and $1.6 billion, respectively, which were included in other current liabilities in the Condensed Consolidated Balance Sheets. 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 December 28, 2019 and September 28, 2019, 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 $2.4 billion and $2.7 billion, respectively, resulting in net derivative liabilities of $128 million and $407 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 both December 28, 2019 and September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables. The Company’s cellular network carriers accounted for 43% and 51% of total trade receivables as of December 28, 2019 and September 28, 2019, 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 December 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 56% and 17%. As of September 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 59% and 14%.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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