What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2022-01-28 · 93 added, 62 removed, 108 unchanged (59% of the section changed)

16 unchanged sentences

Further, the Company’s references to website URLs are intended to be inactive textual references only.

Quarterly Highlights

Business Seasonality and Product Introductions

3 unchanged sentences

Net sales can also be affected when consumers and distributors anticipate a product introduction.

Quarterly Highlights

Total net sales increased 9% or $7.7 billion during the second quarter of 2022 compared to the same quarter in 2021, driven primarily by growth in Services, iPhone and Mac.

During the second quarter of 2022, the Company released the following products:

• iPhone SE ® with 5G technology;

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

• All-new Mac Studio™, powered by the Apple M1 Max or the new Apple M1 Ultra chip;

• All-new Apple Studio Display™.

The Company repurchased $22.9 billion of its common stock and paid dividends and dividend equivalents of $3.6 billion during the second quarter of 2022.

| Q2 2022 Form 10-Q | 14

COVID-19 Update

2 unchanged sentences

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 and financial condition, as well as the price of the Company’s stock.

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

During the second 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 many of the Company’s retail stores operating at limited capacity or temporarily closing at various times.

Substantially all of the Company’s other facilities are open, subject to operating restrictions to protect public health and the health and safety of employees.

The Company continues to work on safely reopening the remainder of its facilities, subject to local rules and regulations.

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

Similar disruptions could occur in the future.

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 months ended December 25, 2021 and December 26, 2020 (dollars in millions):

Three Months Ended

2021 December 26,

The following table shows net sales by category for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 Change March 26,

2022 March 27,

Net sales by category:

10 unchanged sentences

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.

iPhone net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales from the Company’s new iPhone models.

Mac net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of MacBook Pro ® , partially offset by lower net sales of MacBook Air ® .

| Q2 2022 Form 10-Q | 15

iPad net sales decreased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to lower net sales of the 10-inch version of iPad, offset by higher net sales of iPad Pro ® and iPad mini ® .

Year-over-year iPad net sales decreased during the first six months of 2022 due primarily to lower net sales of the 10-inch version of iPad, partially offset by higher net sales of iPad mini.

Wearables, Home and Accessories

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.

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

Services net sales increased during the second quarter and first six months of 2022 compared to the same periods 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 months ended December 25, 2021 and December 26, 2020 (dollars in millions):

Three Months Ended

2021 December 26,

The following table shows net sales by reportable segment for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 Change March 26,

2022 March 27,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 97,278 $ 89,584 9 % $ 221,223 $ 201,023 10 %

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.

Americas net sales increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to higher net sales of iPhone, Services and Mac.

Year-over-year Americas net sales increased during the first six months of 2022 due primarily to higher net sales of iPhone, Services and Wearables, Home and Accessories.

Europe net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of Services and Mac.

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

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

dollar had a net unfavorable impact on Europe net sales during the second quarter and first six months of 2022.

Greater China

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.

Greater China net sales increased during the second quarter and first six months of 2022 compared to the same periods 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 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.

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

| Q2 2022 Form 10-Q | 16

Japan net sales were flat during the second quarter of 2022 compared to the second quarter of 2021 due primarily to the weakness of the Japanese yen relative to the U.S.

dollar, offset by higher net sales of iPhone and Services.

Year-over-year Japan net sales decreased during the first six months of 2022 due primarily to the weakness of the Japanese yen relative to the U.S.

Rest of Asia Pacific

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,

Rest of Asia Pacific net sales decreased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Mac.

Year-over-year Rest of Asia Pacific net sales increased during the first six months of 2022 due primarily to higher net sales of Services, Mac and Wearables, Home and Accessories.

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

dollar had a net unfavorable impact on Rest of Asia Pacific net sales during the second quarter and first six months of 2022.

Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 March 26,

2022 March 27,

Gross margin:

7 unchanged sentences

Products Gross Margin

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.

Products gross margin increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to higher Products volume.

Year-over-year Products gross margin increased during the first six months of 2022 due primarily to a different Products mix and higher Products volume.

Products gross margin percentage increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to improved leverage.

Year-over-year Products gross margin percentage increased during the first six months of 2022 due primarily to a different Products mix.

Services Gross Margin

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.

Services gross margin increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher Services net sales and a different Services mix, partially offset by the weakness in foreign currencies relative to the U.S.

Services gross margin percentage increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to a different Services mix and improved leverage, partially offset by the weakness in foreign currencies relative to the U.S.

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.

| Q2 2022 Form 10-Q | 17

Operating Expenses

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,

Operating expenses for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 March 26,

2022 March 27,

Research and development $ 6,387 $ 5,262 $ 12,693 $ 10,425

4 unchanged sentences

Percentage of total net sales 13 % 12 % 11 % 11 %

| Q1 2022 Form 10-Q | 17

Research and Development

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

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 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.

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

Year-over-year selling, general and administrative expense increased during the first six months of 2022 due primarily to increases in headcount-related expenses, advertising and variable selling expenses.

Other Income/(Expense), Net

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,

Other income/(expense), net (“OI&E”) for the three- and six-month periods ended March 26, 2022 and March 27, 2021 was as follows (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 Change March 26,

2022 March 27,

Interest and dividend income $ 700 $ 718 $ 1,350 $ 1,465

Interest expense (691) (670) (1,385) (1,308)

Other expense, net (203) (64)

Other income/(expense), net 151 460 (52) 396

Total other income/(expense), net $ 160 $ 508 (69) % $ (87) $ 553 (116) %

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.

OI&E decreased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to fair value adjustments on marketable securities, partially offset by foreign exchange gains.

| Q2 2022 Form 10-Q | 18

Provision for Income Taxes

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, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2022 March 27,

2021 March 26,

2022 March 27,

Provision for income taxes $ 5,129 $ 4,381 $ 11,740 $ 9,205

1 unchanged sentence

Statutory federal income tax rate 21 % 21 % 21 % 21 %

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.

The Company’s effective tax rate for the second quarter of 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits, partially offset by the impact to U.S.

foreign tax credits as a result of regulations issued by the U.S.

Department of the Treasury in January 2022 (the “Regulations”).

The Company’s effective tax rate for the first six months of 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits.

The Company’s effective tax rate for the second quarter of 2022 was higher compared to the second quarter of 2021 due primarily to the impact to U.S.

foreign tax credits as a result of the Regulations, partially offset by a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits.

The Company’s effective tax rate for the first six months of 2022 was higher compared to the same period in 2021 due primarily to the impact to U.S.

foreign tax credits as a result of the Regulations and lower tax benefits from share-based compensation.

Liquidity and Capital Resources

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

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

Manufacturing Purchase Obligations

2 unchanged sentences

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.

As of March 26, 2022, the Company had manufacturing purchase obligations of $40.6 billion, with $40.5 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.

In addition to its contractual cash requirements, the Company has a share repurchase program authorized by the Board of Directors (the “Program”).

As of March 26, 2022, the remaining availability under the Program was $17.6 billion.

On April 28, 2022, the Company announced the Board of Directors increased the Program authorization by $90 billion.

The Program does not obligate the Company to acquire a minimum amount of shares.

On April 28, 2022, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.22 to $0.23 per share, beginning with the dividend to be paid during the third quarter of 2022.

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

4 unchanged sentences

There have been no material changes to the Company’s critical accounting estimates since the 2021 Form 10-K.

| Q2 2022 Form 10-Q | 19

Quantitative and Qualitative Disclosures About Market Risk

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

There have been no material changes to the Company’s market risk during the first six 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