Apple Inc. 10-Q

Item 1. Financial Statements Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In millions, except number of shares which are reflected in thousands and per share amounts) Three Months Ended December 25, 2021 December 26, 2020 Net sales: Products $ 104,429 $ 95,678 Services 19,516 15,761 Total net sales 123,945 111,439 Cost of sales: Products 64,309 62,130 Services 5,393 4,981 Total cost of sales 69,702 67,111 Gross margin 54,243 44,328 Operating expenses: Research and development 6,306 5,163 Selling, general and administrative 6,449 5,631 Total operating expenses 12,755 10,794 Operating income 41,488 33,534 Other income/(expense), net ( 247 ) 45 Income before provision for income taxes 41,241 33,579 Provision for income taxes 6,611 4,824 Net income $ 34,630 $ 28,755 Earnings per share: Basic $ 2.11 $ 1.70 Diluted $ 2.10 $ 1.68 Shares used in computing earnings per share: Basic 16,391,724 16,935,119 Diluted 16,519,291 17,113,688 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2022 Form 10-Q | 1 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended December 25, 2021 December 26, 2020 Net income $ 34,630 $ 28,755 Other comprehensive income/(loss): Change in foreign currency translation, net of tax ( 360 ) 549 Change in unrealized gains/losses on derivative instruments, net of tax: Change in fair value of derivative instruments 362 ( 304 ) Adjustment for net (gains)/losses realized and included in net income 93 ( 183 ) Total change in unrealized gains/losses on derivative instruments 455 ( 487 ) Change in unrealized gains/losses on marketable debt securities, net of tax: Change in fair value of marketable debt securities ( 1,176 ) 628 Adjustment for net (gains)/losses realized and included in net income ( 9 ) ( 105 ) Total change in unrealized gains/losses on marketable debt securities ( 1,185 ) 523 Total other comprehensive income/(loss) ( 1,090 ) 585 Total comprehensive income $ 33,540 $ 29,340 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2022 Form 10-Q | 2 Apple Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions, except number of shares which are reflected in thousands and par value) December 25, 2021 September 25, 2021 ASSETS: Current assets: Cash and cash equivalents $ 37,119 $ 34,940 Marketable securities 26,794 27,699 Accounts receivable, net 30,213 26,278 Inventories 5,876 6,580 Vendor non-trade receivables 35,040 25,228 Other current assets 18,112 14,111 Total current assets 153,154 134,836 Non-current assets: Marketable securities 138,683 127,877 Property, plant and equipment, net 39,245 39,440 Other non-current assets 50,109 48,849 Total non-current assets 228,037 216,166 Total assets $ 381,191 $ 351,002 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 74,362 $ 54,763 Other current liabilities 49,167 47,493 Deferred revenue 7,876 7,612 Commercial paper 5,000 6,000 Term debt 11,169 9,613 Total current liabilities 147,574 125,481 Non-current liabilities: Term debt 106,629 109,106 Other non-current liabilities 55,056 53,325 Total non-current liabilities 161,685 162,431 Total liabilities 309,259 287,912 Commitments and contingencies Shareholders’ equity: Common stock and additional paid-in capital, $ 0.00001 par value: 50,400,000 shares authorized; 16,340,851 and 16,426,786 shares issued and outstanding, respectively 58,424 57,365 Retained earnings 14,435 5,562 Accumulated other comprehensive income/(loss) ( 927 ) 163 Total shareholders’ equity 71,932 63,090 Total liabilities and shareholders’ equity $ 381,191 $ 351,002 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2022 Form 10-Q | 3 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions, except per share amounts) Three Months Ended December 25, 2021 December 26, 2020 Total shareholders’ equity, beginning balances $ 63,090 $ 65,339 Common stock and additional paid-in capital: Beginning balances 57,365 50,779 Common stock withheld related to net share settlement of equity awards ( 1,263 ) ( 1,101 ) Share-based compensation 2,322 2,066 Ending balances 58,424 51,744 Retained earnings: Beginning balances 5,562 14,966 Net income 34,630 28,755 Dividends and dividend equivalents declared ( 3,665 ) ( 3,547 ) Common stock withheld related to net share settlement of equity awards ( 1,730 ) ( 1,873 ) Common stock repurchased ( 20,362 ) ( 24,000 ) Ending balances 14,435 14,301 Accumulated other comprehensive income/(loss): Beginning balances 163 ( 406 ) Other comprehensive income/(loss) ( 1,090 ) 585 Ending balances ( 927 ) 179 Total shareholders’ equity, ending balances $ 71,932 $ 66,224 Dividends and dividend equivalents declared per share or RSU $ 0.22 $ 0.205 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2022 Form 10-Q | 4 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended December 25, 2021 December 26, 2020 Cash, cash equivalents and restricted cash, beginning balances $ 35,929 $ 39,789 Operating activities: Net income 34,630 28,755 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 2,697 2,666 Share-based compensation expense 2,265 2,020 Deferred income tax expense/(benefit) 682 ( 58 ) Other 167 25 Changes in operating assets and liabilities: Accounts receivable, net ( 3,934 ) ( 10,945 ) Inventories 681 ( 950 ) Vendor non-trade receivables ( 9,812 ) ( 10,194 ) Other current and non-current assets ( 4,921 ) ( 3,526 ) Accounts payable 19,813 21,670 Deferred revenue 462 1,341 Other current and non-current liabilities 4,236 7,959 Cash generated by operating activities 46,966 38,763 Investing activities: Purchases of marketable securities ( 34,913 ) ( 39,800 ) Proceeds from maturities of marketable securities 11,309 25,177 Proceeds from sales of marketable securities 10,675 9,344 Payments for acquisition of property, plant and equipment ( 2,803 ) ( 3,500 ) Other ( 374 ) 195 Cash used in investing activities ( 16,106 ) ( 8,584 ) Financing activities: Payments for taxes related to net share settlement of equity awards ( 2,888 ) ( 2,861 ) Payments for dividends and dividend equivalents ( 3,732 ) ( 3,613 ) Repurchases of common stock ( 20,478 ) ( 24,775 ) Repayments of term debt — ( 1,000 ) Proceeds from/(Repayments of) commercial paper, net ( 1,000 ) 22 Other ( 61 ) ( 22 ) Cash used in financing activities ( 28,159 ) ( 32,249 ) Increase/(Decrease) in cash, cash equivalents and restricted cash 2,701 ( 2,070 ) Cash, cash equivalents and restricted cash, ending balances $ 38,630 $ 37,719 Supplemental cash flow disclosure: Cash paid for income taxes, net $ 5,235 $ 1,787 Cash paid for interest $ 531 $ 619 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2022 Form 10-Q | 5 Apple Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 – Summary of Significant Accounting Policies Basis of Presentation and Preparation The condensed consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September 25, 2021 (the “2021 Form 10-K”). The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters. The Company’s fiscal years 2022 and 2021 span 52 weeks each. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years. Earnings Per Share The following table shows the computation of basic and diluted earnings per share for the three months ended December 25, 2021 and December 26, 2020 (net income in millions and shares in thousands): Three Months Ended December 25, 2021 December 26, 2020 Numerator: Net income $ 34,630 $ 28,755 Denominator: Weighted-average basic shares outstanding 16,391,724 16,935,119 Effect of dilutive securities 127,567 178,569 Weighted-average diluted shares 16,519,291 17,113,688 Basic earnings per share $ 2.11 $ 1.70 Diluted earnings per share $ 2.10 $ 1.68 Apple Inc. | Q1 2022 Form 10-Q | 6 Note 2 – Revenue Net sales disaggregated by significant products and services for the three months ended December 25, 2021 and December 26, 2020 were as follows (in millions): Three Months Ended December 25, 2021 December 26, 2020 iPhone ® (1) $ 71,628 $ 65,597 Mac ® (1) 10,852 8,675 iPad ® (1) 7,248 8,435 Wearables, Home and Accessories (1)(2) 14,701 12,971 Services (3) 19,516 15,761 Total net sales (4) $ 123,945 $ 111,439 (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 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. (4) Includes $ 3.0 billion of revenue recognized in the three months ended December 25, 2021 that was included in deferred revenue as of September 25, 2021 and $ 2.5 billion of revenue recognized in the three months ended December 26, 2020 that was included in deferred revenue as of September 26, 2020. The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 9, “Segment Information and Geographic Data” for the three months ended December 25, 2021 and December 26, 2020, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of December 25, 2021 and September 25, 2021, the Company had total deferred revenue of $ 12.4 billion and $ 11.9 billion, respectively. As of December 25, 2021, the Company expects 64 % of total deferred revenue to be realized in less than a year, 27 % within one-to-two years, 8 % within two-to-three years and 1 % in greater than three years. Apple Inc. | Q1 2022 Form 10-Q | 7 Note 3 – Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of December 25, 2021 and September 25, 2021 (in millions): December 25, 2021 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 17,992 $ — $ — $ 17,992 $ 17,992 $ — $ — Level 1 (1) : Money market funds 11,356 — — 11,356 11,356 — — Mutual funds 215 16 ( 2 ) 229 — 229 — Subtotal 11,571 16 ( 2 ) 11,585 11,356 229 — Level 2 (2) : Equity securities 1,527 — ( 850 ) 677 — 677 — U.S. Treasury securities 29,221 64 ( 171 ) 29,114 3,247 5,775 20,092 U.S. agency securities 7,934 1 ( 116 ) 7,819 1,066 1,581 5,172 Non-U.S. government securities 18,983 160 ( 177 ) 18,966 200 3,279 15,487 Certificates of deposit and time deposits 3,648 — — 3,648 2,527 1,121 — Commercial paper 2,261 — — 2,261 702 1,559 — Corporate debt securities 88,617 718 ( 754 ) 88,581 29 11,665 76,887 Municipal securities 993 10 ( 1 ) 1,002 — 150 852 Mortgage- and asset-backed securities 21,072 102 ( 223 ) 20,951 — 758 20,193 Subtotal 174,256 1,055 ( 2,292 ) 173,019 7,771 26,565 138,683 Total (3) $ 203,819 $ 1,071 $ ( 2,294 ) $ 202,596 $ 37,119 $ 26,794 $ 138,683 September 25, 2021 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 17,305 $ — $ — $ 17,305 $ 17,305 $ — $ — Level 1 (1) : Money market funds 9,608 — — 9,608 9,608 — — Mutual funds 175 11 ( 1 ) 185 — 185 — Subtotal 9,783 11 ( 1 ) 9,793 9,608 185 — Level 2 (2) : Equity securities 1,527 — ( 564 ) 963 — 963 — U.S. Treasury securities 22,878 102 ( 77 ) 22,903 3,596 6,625 12,682 U.S. agency securities 8,949 2 ( 64 ) 8,887 1,775 1,930 5,182 Non-U.S. government securities 20,201 211 ( 101 ) 20,311 390 3,091 16,830 Certificates of deposit and time deposits 1,300 — — 1,300 490 810 — Commercial paper 2,639 — — 2,639 1,776 863 — Corporate debt securities 83,883 1,242 ( 267 ) 84,858 — 12,327 72,531 Municipal securities 967 14 — 981 — 130 851 Mortgage- and asset-backed securities 20,529 171 ( 124 ) 20,576 — 775 19,801 Subtotal 162,873 1,742 ( 1,197 ) 163,418 8,027 27,514 127,877 Total (3) $ 189,961 $ 1,753 $ ( 1,198 ) $ 190,516 $ 34,940 $ 27,699 $ 127,877 (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 25, 2021 and September 25, 2021, total marketable securities included $ 16.8 billion and $ 17.9 billion, respectively, that was restricted from general use, related to the European Commission decision finding that Ireland granted state aid to the Company, and other agreements. Apple Inc. | Q1 2022 Form 10-Q | 8 The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of December 25, 2021 (in millions): Due after 1 year through 5 years $ 93,206 Due after 5 years through 10 years 25,183 Due after 10 years 20,294 Total fair value $ 138,683 Derivative Instruments and Hedging The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk. However, the Company may choose not to hedge certain exposures for a variety of reasons, including 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 exchange or interest rates. Foreign Exchange Risk To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, 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 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. The Company designates these instruments as either cash flow or fair value hedges. As of December 25, 2021, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 21 years. The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates, as well as 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. Interest Rate Risk To protect the Company’s term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. The Company designates these instruments as either cash flow or fair value hedges. The notional amounts of the Company’s outstanding derivative instruments as of December 25, 2021 and September 25, 2021 were as follows (in millions): December 25, 2021 September 25, 2021 Derivative instruments designated as accounting hedges: Foreign exchange contracts $ 77,009 $ 76,475 Interest rate contracts $ 16,875 $ 16,875 Derivative instruments not designated as accounting hedges: Foreign exchange contracts $ 176,268 $ 126,918 The gross fair values of the Company’s derivative assets and liabilities were not material as of December 25, 2021 and September 25, 2021. The gains and losses recognized in other comprehensive income and amounts reclassified from accumulated other comprehensive income to net income for the Company’s derivative instruments designated as cash flow hedges were not material in the three months ended December 25, 2021 and December 26, 2020. Apple Inc. | Q1 2022 Form 10-Q | 9 The carrying amounts of the Company’s hedged items in fair value hedges as of December 25, 2021 and September 25, 2021 were as follows (in millions): December 25, 2021 September 25, 2021 Hedged assets/(liabilities): Current and non-current marketable securities $ 15,322 $ 15,954 Current and non-current term debt $ ( 17,444 ) $ ( 17,857 ) The gains and losses on the Company’s derivative instruments designated as fair value hedges and the related hedged item adjustments were not material in the three months ended December 25, 2021 and December 26, 2020. 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. The Company’s cellular network carriers accounted for 45 % and 42 % of total trade receivables as of December 25, 2021 and September 25, 2021, 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 subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of December 25, 2021, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54 %, 13 % and 12 %. As of September 25, 2021, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 52 %, 11 % and 11 %. Note 4 – Condensed Consolidated Financial Statement Details The following tables show the Company’s condensed consolidated financial statement details as of December 25, 2021 and September 25, 2021 (in millions): Property, Plant and Equipment, Net December 25, 2021 September 25, 2021 Gross property, plant and equipment $ 107,699 $ 109,723 Accumulated depreciation and amortization ( 68,454 ) ( 70,283 ) Total property, plant and equipment, net $ 39,245 $ 39,440 Other Non-Current Liabilities December 25, 2021 September 25, 2021 Long-term taxes payable $ 24,689 $ 24,689 Other non-current liabilities 30,367 28,636 Total other non-current liabilities $ 55,056 $ 53,325 Apple Inc. | Q1 2022 Form 10-Q | 10 Other Income/(Expense), Net The following table shows the detail of other income/(expense), net for the three months ended December 25, 2021 and December 26, 2020 (in millions): Three Months Ended December 25, 2021 December 26, 2020 Interest and dividend income $ 650 $ 747 Interest expense ( 694 ) ( 638 ) Other expense, net ( 203 ) ( 64 ) Total other income/(expense), net $ ( 247 ) $ 45 Note 5 – Debt Commercial Paper The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of December 25, 2021 and September 25, 2021, the Company had $ 5.0 billion and $ 6.0 billion of Commercial Paper outstanding, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the three months ended December 25, 2021 and December 26, 2020 (in millions): Three Months Ended December 25, 2021 December 26, 2020 Maturities 90 days or less: Proceeds from commercial paper, net $ 1,339 $ 1,439 Maturities greater than 90 days: Proceeds from commercial paper 1,191 780 Repayments of commercial paper ( 3,530 ) ( 2,197 ) Repayments of commercial paper, net ( 2,339 ) ( 1,417 ) Total proceeds from/(repayments of) commercial paper, net $ ( 1,000 ) $ 22 Term Debt As of December 25, 2021 and September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate carrying amount of $ 117.8 billion and $ 118.7 billion, respectively (collectively the “Notes”). As of December 25, 2021 and September 25, 2021, the fair value of the Company’s Notes, based on Level 2 inputs, was $ 123.5 billion and $ 125.3 billion, respectively. Note 6 – Shareholders’ Equity Share Repurchase Program As of December 25, 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 three months ended December 25, 2021, the Company repurchased 124 million shares of its common stock for $ 20.4 billion, including 30 million shares initially delivered under accelerated share repurchase agreements (“ASRs”) entered into in November 2021, bringing the total utilization under the Program to $ 274.5 billion as of December 25, 2021. 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. Apple Inc. | Q1 2022 Form 10-Q | 11 Under the terms of the Company’s ASRs, two financial institutions committed to deliver shares of the Company’s common stock during the purchase periods in exchange for up-front payments totaling $ 6.0 billion. The total number of shares ultimately delivered under the ASRs, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of the Company’s common stock during the ASRs’ purchase periods, which end in the second quarter of 2022. The shares received are retired in the periods they are delivered, and the up-front payments are accounted for as a reduction to retained earnings in the Company’s Condensed Consolidated Statement of Shareholders’ Equity in the period the payments are made. Note 7 – Benefit Plans Restricted Stock Units A summary of the Company’s restricted stock unit (“RSU”) activity and related information for the three months ended December 25, 2021 is as follows: Number of RSUs (in thousands) Weighted-Average Grant Date Fair Value Per RSU Aggregate Fair Value (in millions) Balance as of September 25, 2021 240,427 $ 75.16 RSUs granted 67,645 $ 147.33 RSUs vested ( 56,649 ) $ 61.75 RSUs canceled ( 4,886 ) $ 93.21 Balance as of December 25, 2021 246,537 $ 97.69 $ 43,460 The fair value as of the respective vesting dates of RSUs was $ 8.5 billion for the three months ended both December 25, 2021 and December 26, 2020. Share-Based Compensation The following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of Operations for the three months ended December 25, 2021 and December 26, 2020 (in millions): Three Months Ended December 25, 2021 December 26, 2020 Share-based compensation expense $ 2,265 $ 2,020 Income tax benefit related to share-based compensation expense $ ( 1,536 ) $ ( 1,624 ) As of December 25, 2021, the total unrecognized compensation cost related to outstanding RSUs and stock options was $ 20.6 billion, which the Company expects to recognize over a weighted-average period of 3.0 years. Note 8 – Commitments and Contingencies Accrued Warranty The following table shows changes in the Company’s accrued warranties and related costs for the three months ended December 25, 2021 and December 26, 2020 (in millions): Three Months Ended December 25, 2021 December 26, 2020 Beginning accrued warranty and related costs $ 3,364 $ 3,354 Cost of warranty claims ( 672 ) ( 723 ) Accruals for product warranty 838 1,493 Ending accrued warranty and related costs $ 3,530 $ 4,124 Apple Inc. | Q1 2022 Form 10-Q | 12 Contingencies The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims. Note 9 – Segment Information and Geographic Data The following table shows information by reportable segment for the three months ended December 25, 2021 and December 26, 2020 (in millions): Three Months Ended December 25, 2021 December 26, 2020 Americas: Net sales $ 51,496 $ 46,310 Operating income $ 19,585 $ 15,785 Europe: Net sales $ 29,749 $ 27,306 Operating income $ 11,545 $ 9,589 Greater China: Net sales $ 25,783 $ 21,313 Operating income $ 11,183 $ 8,530 Japan: Net sales $ 7,107 $ 8,285 Operating income $ 3,349 $ 3,503 Rest of Asia Pacific: Net sales $ 9,810 $ 8,225 Operating income $ 3,995 $ 2,953 A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December 25, 2021 and December 26, 2020 is as follows (in millions): Three Months Ended December 25, 2021 December 26, 2020 Segment operating income $ 49,657 $ 40,360 Research and development expense ( 6,306 ) ( 5,163 ) Other corporate expenses, net ( 1,863 ) ( 1,663 ) Total operating income $ 41,488 $ 33,534 Apple Inc. | Q1 2022 Form 10-Q | 13