What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-28 compared with 2021-07-28 · 76 added, 163 removed, 94 unchanged (72% of the section changed)

13 unchanged sentences

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.

This includes press releases and other information about financial performance, information on environmental, social and corporate governance matters, 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.

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COVID-19 Update

The COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as 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 affected and could in the future materially impact the Company’s business, results of operations, financial condition and stock price.

During the third quarter of 2021, aspects of the Company’s business continued to be affected by the COVID-19 pandemic, with many of the Company’s retail stores, as well as channel partner points of sale, temporarily closed at various times, and a significant number of the Company’s employees working remotely.

The Company has reopened substantially all of its offices and retail stores, subject to operating restrictions to protect public health and the health and safety of employees and customers, and it continues to work on safely reopening the remainder of its offices and retail stores, subject to local rules and regulations.

the availability, distribution and effectiveness of 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 2020 Form 10-K under the heading “Risk Factors,” for more information.

The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders.

The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

During the first quarter of 2022, aspects of the Company’s business continued to be affected by the COVID-19 pandemic, with a significant number of the Company’s employees working remotely and certain of the Company’s retail stores operating at limited capacity or temporarily closing at various times.

The Company has reopened substantially all of its other facilities, subject to operating restrictions to protect public health and the health and safety of employees, and it continues to work on safely reopening the remainder of its facilities, subject to local rules and regulations.

At times, certain of the Company’s component suppliers and logistical service providers have experienced disruptions, resulting in supply shortages that affected sales worldwide.

Similar impacts or other disruptions could occur in the future.

| Q1 2022 Form 10-Q | 14

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 2021 Highlights

Total net sales increased 36% or $21.7 billion during the third quarter of 2021 compared to the same quarter in 2020, driven by growth in all Products and Services categories.

Year-over-year net sales during the third quarter of 2021 also grew in each of the Company’s reportable segments.

During the third quarter of 2021, the Company released the following new products and services:

• iMac ® , powered by the Apple M1 chip;

• iPad Pro ® , powered by the Apple M1 chip;

• Apple TV 4K ® , with a redesigned Siri Remote ® ;

• AirTag™, an accessory that helps keep track of items using the Find My™ network;

• Apple Podcasts ® Subscriptions.

The Company also announced iOS 15, macOS ® Monterey, iPadOS ® 15 and watchOS ® 8, updates to its operating systems that are expected to be available in the fall of 2021.

The Company repurchased $22.5 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the third quarter of 2021.

The extent of the continuing impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, 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 2021 Form 10-K under the heading “Risk Factors” for more information.

First Quarter Fiscal 2022 Highlights

Total net sales increased 11% or $12.5 billion during the first quarter of 2022 compared to the same quarter in 2021, driven primarily by growth in iPhone, Services and Mac.

During the first quarter of 2022, the Company released the following new products:

• MacBook Pro ® , available in 14- and 16-inch models and powered by an Apple M1 Pro chip or an Apple M1 Max chip;

• Third generation of AirPods;

• Apple Watch Series 7.

The Company repurchased $20.4 billion of its common stock and paid dividends and dividend equivalents of $3.7 billion during the first quarter of 2022.

Products and Services Performance

The following table shows net sales by category for the three- and nine-month periods ended June 26, 2021 and June 27, 2020 (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 Change June 26,

2021 June 27,

The following table shows net sales by category for the three months ended December 25, 2021 and December 26, 2020 (dollars in millions):

Three Months Ended

2021 December 26,

Net sales by category:

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(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 advertising, AppleCare, digital content 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 net sales increased during the third quarter and first nine months of 2021 compared to the same periods in 2020 due primarily to higher net sales from the Company’s new iPhone models launched in the first quarter of 2021.

Mac net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales of MacBook Air ® and iMac.

Year-over-year Mac net sales increased during the first nine months of 2021 due primarily to higher net sales of MacBook Air and MacBook Pro ® .

(2) Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod mini, iPod touch and accessories.

(3) Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services.

Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.

iPhone net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales from the Company’s new iPhone models launched in the fourth quarter of 2021 and a different mix of iPhone sales.

Mac net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of MacBook Pro and MacBook Air ® .

iPad net sales decreased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to lower net sales of the 10-inch version of iPad.

| Q1 2022 Form 10-Q | 15

iPad net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due to higher net sales of iPad Air ® .

Year-over-year iPad net sales increased during the first nine months of 2021 due to higher net sales of iPad Air, iPad Pro and the 10-inch version of iPad.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the third quarter and first nine months of 2021 compared to the same periods in 2020 due primarily to higher net sales of Apple Watch and accessories.

Services net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales from advertising, the App Store and AppleCare.

Year-over-year Services net sales increased during the first nine months of 2021 due primarily to higher net sales from advertising, the App Store and cloud services.

Wearables, Home and Accessories net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of AirPods, Apple Watch and accessories.

Services net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales from advertising, the App Store ® and cloud services.

Segment Operating Performance

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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 9, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for the three- and nine-month periods ended June 26, 2021 and June 27, 2020 (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 Change June 26,

2021 June 27,

The following table shows net sales by reportable segment for the three months ended December 25, 2021 and December 26, 2020 (dollars in millions):

Three Months Ended

2021 December 26,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 123,945 $ 111,439 11 %

Americas net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales of iPhone, Services and Wearables, Home and Accessories.

Year-over-year Americas net sales increased during the first nine months of 2021 due primarily to higher net sales of iPhone, Services and Mac.

Europe net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales of iPhone, Services and Wearables, Home and Accessories.

Year-over-year Europe net sales increased during the first nine months of 2021 due primarily to higher net sales of iPhone, iPad and Mac.

Americas net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of Services, iPhone, and Wearables, Home and Accessories.

Europe net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of Services, Mac and iPhone.

The movement of foreign currencies in Europe relative to the U.S.

dollar had a net favorable impact on Europe net sales during the third quarter and first nine months of 2021.

dollar had a net favorable impact on Europe net sales during the first quarter of 2022.

Greater China

Greater China net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales of iPhone and Services.

Year-over-year Greater China net sales increased during the first nine months of 2021 due primarily to higher net sales of iPhone and iPad.

Greater China net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of iPhone and Services.

The strength of the Chinese renminbi relative to the U.S.

dollar had a favorable impact on Greater China net sales during the third quarter and first nine months of 2021.

dollar had a favorable impact on Greater China net sales during the first quarter of 2022.

Japan net sales decreased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to lower net sales of iPhone and iPad, partially offset by higher net sales of Services.

The weakness of the Japanese yen relative to the U.S.

dollar had an unfavorable impact on Japan net sales during the first quarter of 2022.

| Q1 2022 Form 10-Q | 16

Japan net sales increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to higher net sales of iPhone.

Year-over-year Japan net sales increased during the first nine months of 2021 due primarily to higher net sales of iPhone and Services.

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 2021.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the third quarter and first nine months of 2021 compared to the same periods in 2020 due primarily to higher net sales of iPhone, Wearables, Home and Accessories and Services.

The movement of foreign currencies in the Rest of Asia Pacific relative to the U.S.

dollar had a favorable impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2021.

Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended June 26, 2021 and June 27, 2020 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Rest of Asia Pacific net sales increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net sales of iPhone, Wearables, Home and Accessories and Mac.

Products and Services gross margin and gross margin percentage for the three months ended December 25, 2021 and December 26, 2020 were as follows (dollars in millions):

Three Months Ended

2021 December 26,

Gross margin:

7 unchanged sentences

Products Gross Margin

Products gross margin increased during the third quarter and first nine months of 2021 compared to the same periods in 2020 due primarily to higher Products volume, a different Products mix and the strength in foreign currencies relative to the U.S.

Products gross margin percentage increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to a different Products mix, the strength in foreign currencies relative to the U.S.

dollar and improved leverage.

Year-over-year Products gross margin percentage increased during the first nine months of 2021 due primarily to improved leverage, a different Products mix and the strength in foreign currencies relative to the U.S.

Products gross margin and Products gross margin percentage increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to a different Products mix and the strength in foreign currencies relative to the U.S.

Services Gross Margin

Services gross margin increased during the third quarter and first nine months of 2021 compared to the same periods in 2020 due primarily to higher Services net sales, a different Services mix and the strength in foreign currencies relative to the U.S.

Year-over-year Services gross margin percentage increased during the third quarter and first nine months of 2021 due primarily to a different Services mix and improved leverage, partially offset by higher Services costs.

Services gross margin increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher Services net sales and a different Services mix.

Services gross margin percentage increased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to a different Services mix and 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 2021 Form 10-K under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and downward pressure.

| Q3 2021 Form 10-Q | 26

Operating Expenses

Operating expenses for the three- and nine-month periods ended June 26, 2021 and June 27, 2020 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Operating expenses for the three months ended December 25, 2021 and December 26, 2020 were as follows (dollars in millions):

Three Months Ended

2021 December 26,

Research and development $ 6,306 $ 5,163

4 unchanged sentences

Percentage of total net sales 10 % 10 %

| Q1 2022 Form 10-Q | 17

Research and Development

The growth in research and development (“R&D”) expense during the third quarter of 2021 compared to the third quarter of 2020 was driven primarily by increases in headcount-related expenses, and material and equipment costs.

Year-over-year R&D expense increased during the first nine months of 2021 due primarily to higher headcount-related expenses and R&D-related professional services.

The growth in research and development (“R&D”) expense during the first quarter of 2022 compared to the same quarter in 2021 was driven primarily by increases in headcount-related expenses, engineering program costs and infrastructure-related costs.

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 of 2021 compared to the third quarter of 2020 was driven primarily by increases in headcount-related and advertising expenses.

Year-over-year selling, general and administrative expense increased during the first nine months of 2021 due primarily to higher headcount-related and variable selling expenses.

The growth in selling, general and administrative expense during the first quarter of 2022 compared to the same quarter in 2021 was driven primarily by increases in headcount-related expenses, variable selling expenses and professional services.

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for the three- and nine-month periods ended June 26, 2021 and June 27, 2020 was as follows (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 Change June 26,

2021 June 27,

Other income/(expense), net (“OI&E”) for the three months ended December 25, 2021 and December 26, 2020 was as follows (dollars in millions):

Three Months Ended

2021 December 26,

Interest and dividend income $ 650 $ 747

Interest expense (694) (638)

Other income/(expense), net 189 (158) 585 (79)

Other expense, net (203) (64)

Total other income/(expense), net $ (247) $ 45 (649) %

OI&E increased during the third quarter of 2021 compared to the third quarter of 2020 due primarily to a favorable carrying value adjustment of non-marketable securities and smaller impairments of securities, partially offset by lower interest income.

Year-over-year OI&E increased during the first nine months of 2021 due primarily to smaller impairments of securities, lower interest expense and favorable carrying value adjustments of non-marketable securities, partially offset by lower interest income.

The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.32% and 1.74% in the third quarter of 2021 and 2020, respectively, and 1.40% and 1.95% in the first nine months of 2021 and 2020, respectively.

| Q3 2021 Form 10-Q | 27

OI&E decreased during the first quarter of 2022 compared to the same quarter in 2021 due primarily to higher net losses on marketable and non-marketable securities and lower interest income.

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 26, 2021 and June 27, 2020 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three months ended December 25, 2021 and December 26, 2020 were as follows (dollars in millions):

Three Months Ended

2021 December 26,

Provision for income taxes $ 6,611 $ 4,824

1 unchanged sentence

Statutory federal income tax rate 21 % 21 %

The Company’s effective tax rate for the third quarter and first nine months of 2021 was lower than the statutory federal income tax rate due primarily to a lower effective rate on foreign earnings, tax benefits from share-based compensation, and the favorable impact of changes in unrecognized tax benefits, partially offset by state income taxes.

The Company’s effective tax rate for the third quarter of 2021 was lower compared to the third quarter of 2020 due primarily to the favorable impact of changes in unrecognized tax benefits, a higher mix of foreign earnings, and higher tax benefits from share-based compensation.

The Company’s effective tax rate for the first nine months of 2021 was lower compared to the same period in 2020 due primarily to higher tax benefits from share-based compensation, the favorable impact of changes in unrecognized tax benefits, and a higher mix of foreign earnings, partially offset by a one-time adjustment in 2020 of U.S.

foreign tax credits in response to regulations issued by the U.S.

Department of the Treasury in December 2019.

The Company’s effective tax rate for the first quarter of 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings and tax benefits from share-based compensation.

The Company’s effective tax rate for the first quarter of 2022 was higher compared to the same quarter in 2021 due primarily to lower tax benefits from share-based compensation and a change in geographic mix of earnings.

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of June 26, 2021 and September 26, 2020 and for the first nine months of 2021 and 2020 (in millions):

2021 September 26,

Cash, cash equivalents and marketable securities (1)

$ 193,644 $ 191,830

Property, plant and equipment, net $ 38,615 $ 36,766

Commercial paper $ 8,000 $ 4,996

Total term debt $ 113,791 $ 107,440

Working capital $ 6,669 $ 38,321

Nine Months Ended

2021 June 27,

Cash generated by operating activities $ 83,838 $ 60,098

Cash used in investing activities $ (15,380) $ (9,820)

Cash used in financing activities $ (72,971) $ (65,463)

(1) As of June 26, 2021 and September 26, 2020, total marketable securities included $18.9 billion and $18.6 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.

In connection with the State Aid Decision, as of June 26, 2021, the adjusted recovery amount of €12.7 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.

Further information regarding the State Aid Decision can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 5, “Income Taxes.”

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.

| Q3 2021 Form 10-Q | 28

During the nine months ended June 26, 2021, cash generated by operating activities of $83.8 billion was a result of $74.1 billion of net income, non-cash adjustments to net income of $12.8 billion and a decrease in the net change in operating assets and liabilities of $3.1 billion.

Cash used in investing activities of $15.4 billion during the nine months ended June 26, 2021 consisted primarily of cash used for purchases of marketable securities, net of maturities and sales, of $7.4 billion and cash used to acquire property, plant and equipment of $7.9 billion.

Cash used in financing activities of $73.0 billion during the nine months ended June 26, 2021 consisted primarily of cash used to repurchase common stock of $66.2 billion, cash used to pay dividends and dividend equivalents of $10.8 billion and cash used to repay or redeem term debt of $7.5 billion, partially offset by net proceeds from issuance of term debt of $13.9 billion.

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 issuance of term debt of $10.6 billion and proceeds from repurchase agreements of $5.2 billion.

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 26, 2021, the Company had $8.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.04% and maturities generally less than nine months.

As of June 26, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $113.2 billion (collectively the “Notes”).

During the first nine months of 2021, the Company issued $13.9 billion and repaid or redeemed $7.5 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

As of June 26, 2021, the Company was authorized to purchase up to $315 billion of the Company’s common stock under a share repurchase program (the “Program”).

During the nine months ended June 26, 2021, the Company repurchased 515 million shares of its common stock for $65.5 billion, including 32 million shares initially delivered under a $5.0 billion accelerated share repurchase agreement (“ASR”) entered into in May 2021, bringing the total utilization under the Program to $234.1 billion.

The Program does not obligate the Company to acquire any specific number of shares.

Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As of June 26, 2021, the Company’s quarterly cash dividend was $0.22 per share.

The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

Contractual Obligations

The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space.

The Company’s retail store and other facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.

The Company’s total fixed lease payment obligation of $13.7 billion as of June 26, 2021 included future payments under leases that had commenced as of June 26, 2021, and were therefore recorded on the Company’s Condensed Consolidated Balance Sheet, as well as leases that had been signed but not yet commenced as of June 26, 2021.

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.

The Company’s cash requirements have not changed materially since the 2021 Form 10-K, except for manufacturing purchase obligations.

| Q1 2022 Form 10-Q | 18

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 utilizes several outsourcing partners to manufacture subassemblies for the Company’s products and to perform final assembly and testing of finished products.

The Company also obtains individual components for its products from a wide variety of individual suppliers.

As of June 26, 2021, the Company expects to pay $38.2 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

Other Purchase Obligations

The Company’s other purchase obligations primarily consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process equipment, and noncancelable obligations related to advertising, content creation and Internet and telecommunications services.

As of June 26, 2021, the Company had other purchase obligations of $9.1 billion.

Deemed Repatriation Tax Payable

As of June 26, 2021, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act (the “Act”) was $24.9 billion, all of which was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company pays 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

Outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days.

As of December 25, 2021, the Company had manufacturing purchase obligations of $47.6 billion, with $47.5 billion payable within 12 months.

The Company’s manufacturing purchase obligations are primarily noncancelable.

In addition to its cash requirements, the Company has a capital return program authorized by the Board of Directors.

The share repurchase program (the “Program”) does not obligate the Company to acquire any specific number of shares.

As of December 25, 2021, the Company’s quarterly cash dividend was $0.22 per share.

The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

Critical Accounting 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 2020 Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2020 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 2020 Form 10-K.

Note 1, “Summary of Significant Accounting Policies” of the Notes to condensed consolidated Financial Statements 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 2021 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 estimates since the 2021 Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the first nine months of 2021.

There have been no material changes to the Company’s market risk during the first three months of 2022.

For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2021 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis