Apple Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements . Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 28, 2019 (the “2019 Form 10-K”) and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” The following discussion should be read in conjunction with the 2019 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. Available Information The Company periodically provides certain information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only. Quarterly Highlights Business Seasonality and Product Introductions The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction. COVID-19 Update During the second quarter of 2020, a novel strain of coronavirus (“COVID-19”) began spreading rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response. Such measures included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders. The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition and stock price. During the third quarter of 2020, aspects of the Company’s business continued to be adversely affected by the COVID-19 pandemic, with many of the Company’s retail stores temporarily closed and the vast majority of the Company’s employees working remotely. The Company is working on safely re-opening its offices and retail stores, subject to local rules and regulations. Demand for certain of the Company’s products and services was impacted throughout the third quarter of 2020. The most pronounced impact occurred in April 2020, with demand improving in May and June 2020 across all product categories and Services. The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products. Refer to Part I, Item 1A of the 2019 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors,” for more information. Apple Inc. | Q3 2020 Form 10-Q | 25 The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity requirements associated with its existing operations. Third Quarter Fiscal 2020 Highlights Total net sales increased 11% or $5.9 billion during the third quarter of 2020 compared to the same quarter in 2019, primarily driven by higher net sales of Services, iPad and Mac. The year-over-year increase in net sales during the third quarter of 2020 reflected growth in all of the Company’s geographic reportable segments and product categories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on net sales during the third quarter of 2020. During the third quarter of 2020, the Company released a new iPhone SE and an updated 13-inch MacBook Pro ® . The Company also announced iOS 14, iPadOS ® 14, macOS ® Big Sur, watchOS ® 7 and tvOS ® 14, updates to its operating systems that are expected to be available in the fall of 2020. The Company repurchased $16.0 billion of its common stock and paid dividends and dividend equivalents of $3.7 billion during the third quarter of 2020. Products and Services Performance The following table shows net sales by category for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 Change June 27, 2020 June 29, 2019 Change Net sales by category: iPhone (1) $ 26,418 $ 25,986 2 % $ 111,337 $ 109,019 2 % Mac (1) 7,079 5,820 22 % 19,590 18,749 4 % iPad (1) 6,582 5,023 31 % 16,927 16,624 2 % Wearables, Home and Accessories (1)(2) 6,450 5,525 17 % 22,744 17,962 27 % Services (3) 13,156 11,455 15 % 39,219 33,780 16 % Total net sales $ 59,685 $ 53,809 11 % $ 209,817 $ 196,134 7 % (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, Advertising and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV + services, which are bundled in the sales price of certain products. iPhone iPhone net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to net sales of the new iPhone SE released during the third quarter of 2020. Year-over-year iPhone net sales increased during the first nine months of 2020 due primarily to higher net sales of iPhone 11, 11 Pro and 11 Pro Max. Mac Mac net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due to higher net sales of MacBook Pro and MacBook Air ® . Year-over-year Mac net sales increased during the first nine months of 2020 due to higher net sales of MacBook Pro. iPad iPad net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPad Pro ® . Year-over-year iPad net sales increased during the first nine months of 2020 due primarily to higher net sales of iPad Air ® . Apple Inc. | Q3 2020 Form 10-Q | 26 Wearables, Home and Accessories Wearables, Home and Accessories net sales increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to higher net sales of AirPods. Services Services net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales from the App Store, Video and Cloud Services. Year-over-year Services net sales increased during the first nine months of 2020 due primarily to higher net sales from the App Store, Advertising and AppleCare. Advertising net sales includes net sales from licensing arrangements and the Company’s advertising platforms. Segment Operating Performance The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.” The following table shows net sales by reportable segment for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 Change June 27, 2020 June 29, 2019 Change Net sales by reportable segment: Americas $ 27,018 $ 25,056 8 % $ 93,858 $ 87,592 7 % Europe 14,173 11,925 19 % 51,740 45,342 14 % Greater China 9,329 9,157 2 % 32,362 32,544 (1) % Japan 4,966 4,082 22 % 16,395 16,524 (1) % Rest of Asia Pacific 4,199 3,589 17 % 15,462 14,132 9 % Total net sales $ 59,685 $ 53,809 11 % $ 209,817 $ 196,134 7 % Americas Americas net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of Services and iPad. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Americas net sales during the third quarter of 2020. Year-over-year Americas net sales increased during the first nine months of 2020 due primarily to higher net sales of Services and Wearables, Home and Accessories. Europe Europe net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPhone, iPad and Wearables, Home and Accessories. Year-over-year Europe net sales increased during the first nine months of 2020 due primarily to higher net sales of iPhone and Wearables, Home and Accessories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Europe net sales during the third quarter and first nine months of 2020. Greater China Greater China net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPad and Services, partially offset by lower net sales of iPhone. Year-over-year Greater China net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Greater China net sales during the third quarter and first nine months of 2020. Apple Inc. | Q3 2020 Form 10-Q | 27 Japan Japan net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of Services, iPad and Mac. Year-over-year Japan net sales decreased during the first nine months of 2020 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories. The strength of the Japanese Yen relative to the U.S. dollar had a favorable impact on Japan net sales during the first nine months of 2020. Rest of Asia Pacific Rest of Asia Pacific net sales increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher net sales of iPhone, iPad and Mac. Year-over-year Rest of Asia Pacific net sales increased during the first nine months of 2020 due primarily to higher net sales of Wearables, Home and Accessories, iPhone and Services. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2020. Gross Margin Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Gross margin: Products $ 13,836 $ 12,881 $ 54,509 $ 52,596 Services 8,844 7,346 25,758 21,483 Total gross margin $ 22,680 $ 20,227 $ 80,267 $ 74,079 Gross margin percentage: Products 29.7 % 30.4 % 32.0 % 32.4 % Services 67.2 % 64.1 % 65.7 % 63.6 % Total gross margin percentage 38.0 % 37.6 % 38.3 % 37.8 % Products Gross Margin Products gross margin increased during the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher Products volume and material cost savings, partially offset by a different Products mix and the weakness in foreign currencies relative to the U.S. dollar. Year-over-year Products gross margin percentage decreased during the third quarter of 2020 due primarily to a different Products mix and the weakness in foreign currencies relative to the U.S. dollar, partially offset by material cost savings and higher leverage. Products gross margin increased during the first nine months of 2020 compared to the same period in 2019 due primarily to higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S. dollar. Year-over-year Products gross margin percentage decreased during the first nine months of 2020 due primarily to the weakness in foreign currencies relative to the U.S. dollar and a different Products mix, partially offset by higher leverage. Services Gross Margin Services gross margin increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to higher Services net sales. Services gross margin percentage increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to a different Services mix and higher leverage, partially offset by higher Services costs. The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2019 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and remain under downward pressure. Apple Inc. | Q3 2020 Form 10-Q | 28 Operating Expenses Operating expenses for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Research and development $ 4,758 $ 4,257 $ 13,774 $ 12,107 Percentage of total net sales 8 % 8 % 7 % 6 % Selling, general and administrative $ 4,831 $ 4,426 $ 14,980 $ 13,667 Percentage of total net sales 8 % 8 % 7 % 7 % Total operating expenses $ 9,589 $ 8,683 $ 28,754 $ 25,774 Percentage of total net sales 16 % 16 % 14 % 13 % Research and Development The growth in research and development (“R&D”) expense during the third quarter and first nine months of 2020 compared to the same periods in 2019 was driven primarily by increases in headcount-related expenses. The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to the Company’s core business strategy. Selling, General and Administrative The growth in selling, general and administrative expense during the third quarter and first nine months of 2020 compared to the same periods in 2019 was driven primarily by increases in headcount-related expenses, higher spending on marketing and advertising and higher variable selling expenses. Other Income/(Expense), Net Other income/(expense), net (“OI&E”) for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 was as follows (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 Change June 27, 2020 June 29, 2019 Change Interest and dividend income $ 901 $ 1,190 $ 2,995 $ 3,855 Interest expense (697) (866) (2,239) (2,766) Other income/(expense), net (158) 43 (79) 216 Total other income/(expense), net $ 46 $ 367 (87) % $ 677 $ 1,305 (48) % OI&E decreased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to lower interest income and impairments on non-marketable securities, partially offset by lower interest expense. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.74% and 2.17% in the third quarter of 2020 and 2019, respectively, and 1.95% and 2.21% in the first nine months of 2020 and 2019, respectively. Apple Inc. | Q3 2020 Form 10-Q | 29 Provision for Income Taxes Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended June 27, 2020 and June 29, 2019 were as follows (dollars in millions): Three Months Ended Nine Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Provision for income taxes $ 1,884 $ 1,867 $ 7,452 $ 8,040 Effective tax rate 14.3 % 15.7 % 14.3 % 16.2 % Statutory federal income tax rate 21 % 21 % 21 % 21 % The Company’s effective tax rate for the third quarter and first nine months of 2020 was lower than the statutory federal income tax rate due primarily to lower taxes on foreign earnings, including the impact of tax settlements, and tax benefits from share-based compensation. The Company’s effective tax rate for the third quarter of 2020 was lower compared to the third quarter of 2019 due primarily to higher tax benefits from share-based compensation. The Company’s effective tax rate for the first nine months of 2020 was lower compared to the same period in 2019 due primarily to the one-time adjustment of U.S. foreign tax credits in response to regulations issued by the U.S. Department of the Treasury in December 2019 and lower taxes on foreign earnings, including the impact of tax settlements. Recent Accounting Pronouncements Financial Instruments In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company will adopt ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements. Liquidity and Capital Resources The following tables present selected financial information and statistics as of June 27, 2020 and September 28, 2019 and for the first nine months of 2020 and 2019 (in millions): June 27, 2020 September 28, 2019 Cash, cash equivalents and marketable securities (1) $ 193,617 $ 205,898 Property, plant and equipment, net $ 35,687 $ 37,378 Commercial paper and repurchase agreements $ 11,166 $ 5,980 Total term debt $ 101,557 $ 102,067 Working capital $ 44,747 $ 57,101 Nine Months Ended June 27, 2020 June 29, 2019 Cash generated by operating activities $ 60,098 $ 49,481 Cash generated by/(used in) investing activities $ (9,820) $ 46,694 Cash used in financing activities $ (65,463) $ (69,937) (1) As of June 27, 2020 and September 28, 2019, total marketable securities included $18.3 billion and $18.9 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) and other agreements. Additionally, as of June 27, 2020, $5.3 billion of marketable securities were pledged as collateral under repurchase agreements (refer to Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q). Apple Inc. | Q3 2020 Form 10-Q | 30 The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity requirements associated with its existing operations over the next 12 months. In connection with the State Aid Decision, as of June 27, 2020, the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. The Company’s marketable securities investment portfolio is primarily invested 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. During the nine months ended June 27, 2020, cash generated by operating activities of $60.1 billion was a result of $44.7 billion of net income, non-cash adjustments to net income of $13.5 billion and an increase in the net change in operating assets and liabilities of $1.8 billion. Cash used in investing activities of $9.8 billion during the nine months ended June 27, 2020 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of $2.0 billion and cash used to acquire property, plant and equipment of $5.5 billion. Cash used in financing activities of $65.5 billion during the nine months ended June 27, 2020 consisted primarily of cash used to repurchase common stock of $55.2 billion, cash used to pay dividends and dividend equivalents of $10.6 billion and cash used to repay or redeem term debt of $12.6 billion, partially offset by net proceeds from the issuance of term debt of $10.6 billion and proceeds from repurchase agreements of $5.2 billion. During the nine months ended June 29, 2019, cash generated by operating activities of $49.5 billion was a result of $41.6 billion of net income and non-cash adjustments to net income of $13.6 billion, partially offset by a decrease in the net change in operating assets and liabilities of $5.6 billion. Cash generated by investing activities of $46.7 billion during the nine months ended June 29, 2019 consisted primarily of proceeds from sales and maturities of marketable securities, net of purchases, of $54.4 billion, partially offset by cash used to acquire property, plant and equipment of $7.7 billion. Cash used in financing activities of $69.9 billion during the nine months ended June 29, 2019 consisted primarily of cash used to repurchase common stock of $49.5 billion, cash used to pay dividends and dividend equivalents of $10.6 billion and cash used to repay term debt of $5.5 billion. Debt The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of June 27, 2020, the Company had $6.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.77% and maturities generally less than nine months. In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”). Due to the Company’s continuing involvement with the marketable securities, the Company accounts for its Repos as collateralized borrowings. As of June 27, 2020, the Company had $5.2 billion of Repo liabilities outstanding with maturities of less than three months, and had pledged $5.3 billion of marketable securities as collateral. As of June 27, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $100.1 billion (collectively the “Notes”). During the first nine months of 2020, the Company issued $10.6 billion and repaid or redeemed $12.6 billion of Notes. The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes. In addition, the Company has entered, and in the future may enter, into foreign currency swaps to manage foreign currency risk on the Notes. Further information regarding the Company’s debt issuances and related hedging activity can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 3, “Financial Instruments” and Note 6, “Debt.” Capital Return Program As of June 27, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a share repurchase program, of which $150.6 billion had been utilized. During the nine months ended June 27, 2020, the Company repurchased 186.4 million shares of its common stock for $54.5 billion, including 35.2 million shares delivered under a $10.0 billion November 2019 accelerated share repurchase arrangement (“ASR”) and 15.2 million shares initially delivered under a $6.0 billion May 2020 ASR. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of June 27, 2020, the Company’s quarterly cash dividend was $0.82 per share. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors. Apple Inc. | Q3 2020 Form 10-Q | 31 Common Stock Split On July 30, 2020, the Company announced a four-for-one split of its common stock to shareholders of record as of the close of business on August 24, 2020. Trading of the Company’s common stock will begin on a split-adjusted basis on August 31, 2020. Contractual Obligations Leases As of June 27, 2020, the Company’s total fixed lease payment obligations wer e $12.8 billion, of which $8.1 billion w as included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. Th e Company’s leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options. Manufacturing Purchase Obligations The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of June 27, 2020, the Company expects to pay $30.3 billion under manufacturing-related supplier arrangements, which are primarily noncancelable. Other Purchase Obligations The Company’s other purchase obligations consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process equipment, and noncancelable obligations related to advertising, licensing, R&D, Internet and telecommunications services, content creation and other activities. As of June 27, 2020, the Company had other purchase obligations of $10.0 billion. Deemed Repatriation Tax Payable As of June 27, 2020, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act (the “Act”) was $28.1 billion, and was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company plans to pay the deemed repatriation tax payable in installments in accordance with the Act. Other Non-Current Liabilities The Company’s remaining other non-current liabilities primarily consist of items for which the Company is unable to make a reasonably reliable estimate of the timing or amount of payments. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Note 1, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2019 Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2019 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 2019 Form 10-K.