What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 88 added, 92 removed, 109 unchanged (62% of the section changed)

22 unchanged sentences

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.

Total net sales increased 2% or $1.5 billion during the third quarter of 2022 compared to the same quarter in 2021, driven primarily by higher net sales of Services and iPhone, partially offset by lower net sales of Mac and Wearables, Home and Accessories.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on all Products and Services net sales during the third quarter of 2022.

At the end of the third quarter of 2022, the Company introduced an all-new MacBook Air ® and an updated 13-inch MacBook Pro ® , both powered by the new Apple M2 chip.

The Company also announced iOS 16, macOS ® Ventura, iPadOS ® 16 and watchOS ® 9, updates to its operating systems that are expected to be available in the fall of 2022.

The Company repurchased $21.7 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the third quarter of 2022.

| Q3 2022 Form 10-Q | 14

COVID-19 Update

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.

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 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.

Certain of the Company’s outsourcing partners, component suppliers and logistical service providers have experienced disruptions during the COVID-19 pandemic, resulting in supply shortages.

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.

Products and Services Performance

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,

The following table shows net sales by category for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 Change June 25,

2022 June 26,

Net sales by category:

7 unchanged sentences

(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.

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

iPhone net sales increased during the third quarter and first nine 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 decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to lower net sales of MacBook Air and iMac ® , partially offset by higher net sales of MacBook Pro.

Year-over-year Mac net sales increased during the first nine months of 2022 due primarily to higher net sales of MacBook Pro, partially offset by lower net sales of MacBook Air.

iPad net sales decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to lower net sales of iPad Pro ® , partially offset by higher net sales of all other iPad models.

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

Wearables, Home and Accessories

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.

Wearables, Home and Accessories net sales decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to lower net sales of AirPods and Apple Watch.

Year-over-year Wearables, Home and Accessories net sales increased during the first nine months of 2022 due primarily to higher net sales of Apple Watch and AirPods.

| Q3 2022 Form 10-Q | 15

Services net sales increased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to higher net sales from advertising, cloud services and AppleCare.

Year-over-year Services net sales increased during the first nine months of 2022 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 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,

The following table shows net sales by reportable segment for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 Change June 25,

2022 June 26,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 82,959 $ 81,434 2 % $ 304,182 $ 282,457 8 %

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

Americas net sales increased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to higher net sales of Services and iPhone, partially offset by lower net sales of Mac and Wearables, Home and Accessories.

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

Europe net sales increased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to higher net sales of iPhone, partially offset by lower net sales of Mac.

Year-over-year Europe net sales increased during the first nine months of 2022 due primarily to higher net sales of Services and iPhone.

The weakness in foreign currencies relative to the U.S.

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

Greater China

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 second quarter and first six months of 2022.

Greater China net sales decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services.

Year-over-year Greater China net sales increased during the first nine months of 2022 due primarily to higher net sales of iPhone and Services.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on Greater China net sales during the third quarter of 2022.

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

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

Japan net sales decreased during the third quarter and first nine months of 2022 compared to the same periods in 2021 due primarily to lower net sales of iPhone and iPad.

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

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

| Q3 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 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,

Rest of Asia Pacific net sales increased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to higher net sales of iPhone and Services.

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

The weakness in foreign currencies relative to the U.S.

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

Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 June 25,

2022 June 26,

Gross margin:

7 unchanged sentences

Products Gross Margin

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.

Products gross margin decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to the weakness in foreign currencies relative to the U.S.

Year-over-year Products gross margin increased during the first nine months of 2022 due primarily to a different Products mix and higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S.

Products gross margin percentage decreased during the third quarter of 2022 compared to the third quarter of 2021 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and a different Products mix.

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

Services Gross Margin

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.

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

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

dollar and 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.

1 unchanged sentence

Operating Expenses

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,

Operating expenses for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 June 25,

2022 June 26,

Research and development $ 6,797 $ 5,717 $ 19,490 $ 16,142

5 unchanged sentences

Research and Development

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 growth in research and development (“R&D”) expense during the third quarter and first nine 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 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.

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

Other Income/(Expense), Net

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,

Other income/(expense), net (“OI&E”) for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 was as follows (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 Change June 25,

2022 June 26,

Interest and dividend income $ 722 $ 719 $ 2,072 $ 2,184

2 unchanged sentences

Total other income/(expense), net $ (10) $ 243 (104) % $ (97) $ 796 (112) %

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

OI&E decreased during the third quarter and first nine months of 2022 compared to the same periods in 2021 due primarily to fair value adjustments and realized losses on marketable securities and higher interest expense, partially offset by foreign exchange gains.

Provision for Income Taxes

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, effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended June 25, 2022 and June 26, 2021 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2022 June 26,

2021 June 25,

2022 June 26,

Provision for income taxes $ 3,624 $ 2,625 $ 15,364 $ 11,830

1 unchanged sentence

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

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.

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

federal R&D tax credit, partially offset by state income taxes.

| Q3 2022 Form 10-Q | 18

The Company’s effective tax rate for the third quarter of 2022 was higher compared to the third quarter of 2021 due primarily to a higher effective tax rate on foreign earnings and an adjustment to prior years’ foreign-derived intangible income deductions.

The Company’s effective tax rate for the first nine months of 2022 was higher compared to the same period in 2021 due primarily to a higher effective tax rate on foreign earnings, lower tax benefits from share-based compensation, and 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.

Department of the Treasury in January 2022.

Liquidity and Capital Resources

5 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 March 26, 2022, the Company had manufacturing purchase obligations of $40.6 billion, with $40.5 billion payable within 12 months.

As of June 25, 2022, the Company had manufacturing purchase obligations of $43.1 billion, with $43.0 billion payable within 12 months.

The Company’s manufacturing purchase obligations are primarily noncancelable.

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.

As of June 25, 2022, the Company’s quarterly cash dividend was $0.23 per share.

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 six months of 2022.

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