What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-10-28 compared with 2021-10-29 · 64 added, 52 removed, 131 unchanged (47% of the section changed)

4 unchanged sentences

Fiscal Year Highlights

COVID-19 Update

Fiscal 2022 Highlights

Total net sales increased 8% or $28.5 billion during 2022 compared to 2021, driven primarily by higher net sales of iPhone, Services and Mac.

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

dollar had an unfavorable year-over-year impact on all Products and Services net sales during 2022.

The Company announces new product, service and software offerings at various times during the year.

Significant announcements during fiscal 2022 included the following:

First Quarter 2022:

• Updated MacBook Pro 14” and MacBook Pro 16”, powered by the Apple M1 Pro or M1 Max chip;

• Third generation of AirPods.

Second Quarter 2022:

• Updated iPhone SE with 5G technology;

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

• All-new Studio Display™;

• Updated iPad Air with 5G technology, powered by the Apple M1 chip.

Third Quarter 2022:

• Updated MacBook Air and MacBook Pro 13”, both powered by the Apple M2 chip;

• iOS 16, macOS Ventura, iPadOS 16 and watchOS 9, updates to the Company’s operating systems;

• Apple Pay Later, a buy now, pay later service.

Fourth Quarter 2022:

• iPhone 14, iPhone 14 Plus, iPhone 14 Pro and iPhone 14 Pro Max;

• Second generation of AirPods Pro;

• Apple Watch Series 8, updated Apple Watch SE and all-new Apple Watch Ultra.

In April 2022, the Company announced an increase to its Program authorization from $315 billion to $405 billion and raised its quarterly dividend from $0.22 to $0.23 per share beginning in May 2022.

During 2022, the Company repurchased $90.2 billion of its common stock and paid dividends and dividend equivalents of $14.8 billion.

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 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 all of its retail stores and substantially all of its other facilities, 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 facilities, subject to local rules and regulations.

During the fourth quarter of 2021, certain of the Company’s component suppliers and logistical service providers experienced disruptions, resulting in supply shortages that affected 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 this Form 10-K under the heading “Risk Factors” for more information.

Fiscal 2021 Highlights

Total net sales increased 33% or $91.3 billion during 2021 compared to 2020, driven by growth in all Products and Services categories.

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

In April 2021, the Company announced an increase to its current share repurchase program authorization from $225 billion to $315 billion and raised its quarterly dividend from $0.205 to $0.22 per share beginning in May 2021.

During 2021, the Company repurchased $85.5 billion of its common stock and paid dividends and dividend equivalents of $14.5 billion.

| 2022 Form 10-K | 20

11 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, 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 2021 compared to 2020 due primarily to higher net sales from the Company’s new iPhone models launched in the first quarter and fourth quarter of 2021 and a favorable mix of iPhone sales.

Mac net sales increased during 2021 compared to 2020 due primarily to higher net sales of MacBook Air, MacBook Pro and iMac.

iPad net sales increased during 2021 compared to 2020 due primarily to higher net sales of iPad Air and iPad Pro.

iPhone net sales increased during 2022 compared to 2021 due primarily to higher net sales from the Company’s new iPhone models released since the beginning of the fourth quarter of 2021.

Mac net sales increased during 2022 compared to 2021 due primarily to higher net sales of laptops.

iPad net sales decreased during 2022 compared to 2021 due primarily to lower net sales of iPad Pro.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during 2021 compared to 2020 due primarily to higher net sales of accessories and Apple Watch.

Services net sales increased during 2021 compared to 2020 due primarily to higher net sales from advertising, the App Store and cloud services.

Wearables, Home and Accessories net sales increased during 2022 compared to 2021 due primarily to higher net sales of Apple Watch and AirPods.

Services net sales increased during 2022 compared to 2021 due primarily to higher net sales from advertising, cloud services and the App Store.

| 2022 Form 10-K | 21

20 unchanged sentences

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

Europe net sales increased during 2021 compared to 2020 due primarily to higher net sales of iPhone, Services and iPad.

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

dollar had a net favorable impact on Europe net sales during 2021.

Europe net sales increased during 2022 compared to 2021 due primarily to higher net sales of iPhone and Services.

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

dollar had a net unfavorable year-over-year impact on Europe net sales during 2022.

Greater China

Greater China net sales increased during 2021 compared to 2020 due primarily to higher net sales of iPhone, iPad and Services.

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

dollar had a favorable impact on Greater China net sales during 2021.

Japan net sales increased during 2021 compared to 2020 due primarily to higher net sales of iPhone and Services.

Greater China net sales increased during 2022 compared to 2021 due primarily to higher net sales of iPhone and Services.

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

dollar had a favorable year-over-year impact on Greater China net sales during 2022.

Japan net sales decreased during 2022 compared to 2021 due to the weakness of the yen relative to the U.S.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during 2021 compared to 2020 due primarily to higher net sales of iPhone, iPad 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 2021.

Rest of Asia Pacific net sales increased during 2022 compared to 2021 due primarily to higher net sales of iPhone, Mac and Services.

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

dollar had an unfavorable year-over-year impact on Rest of Asia Pacific net sales during 2022.

| 2022 Form 10-K | 22

10 unchanged sentences

Products Gross Margin

Products gross margin increased during 2021 compared to 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 2021 compared to 2020 due primarily to a different Products mix, improved leverage and the strength in foreign currencies relative to the U.S.

Products gross margin increased during 2022 compared to 2021 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 increased during 2022 compared to 2021 due primarily to a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

Services Gross Margin

Services gross margin increased during 2021 compared to 2020 due primarily to higher Services net sales and a different Services mix.

Services gross margin percentage increased during 2021 compared to 2020 due primarily to a different Services mix and improved leverage, partially offset by higher Services costs.

Services gross margin increased during 2022 compared to 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 2022 compared to 2021 due primarily to improved leverage and a different Services mix, 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 this 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.

13 unchanged sentences

Research and Development

The year-over-year growth in R&D expense in 2021 was driven primarily by increases in headcount-related expenses, R&D-related professional services 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.

The year-over-year growth in R&D expense in 2022 was driven primarily by increases in headcount-related expenses and engineering program costs.

Selling, General and Administrative

The year-over-year growth in selling, general and administrative expense in 2021 was driven primarily by increases in headcount-related expenses, variable selling expenses and professional services.

The year-over-year growth in selling, general and administrative expense in 2022 was driven primarily by increases in headcount-related expenses, advertising and professional services.

| 2022 Form 10-K | 23

9 unchanged sentences

$ (334) (229) % $ 258 (68) % $ 803

The year-over-year decrease in OI&E during 2021 was due primarily to lower interest income and net losses on marketable securities, partially offset by positive fair value adjustments on non-marketable securities and lower interest expense on term debt.

The decrease in OI&E during 2022 compared to 2021 was due primarily to higher realized losses on debt securities, unfavorable fair value adjustments on equity securities and higher interest expense, partially offset by higher foreign exchange gains.

Provision for Income Taxes

7 unchanged sentences

21 % 21 % 21 %

The Company’s effective tax rate for 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 credit, partially offset by state income taxes.

The Company’s effective tax rate for 2021 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 foreign-derived intangible income deductions.

The Company’s effective tax rate for 2020 was lower than the statutory federal income tax rate due primarily to the lower tax rate on foreign earnings, including the impact of tax settlements, and tax benefits from share-based compensation.

The Company’s effective tax rate for 2021 was lower compared to 2020 due primarily to higher tax benefits from foreign-derived intangible income deductions and share-based compensation and the favorable impact of changes in unrecognized tax benefits, 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.

During 2021, the Company established deferred tax assets (“DTAs”) for foreign tax credit carryforwards in Ireland and increased DTAs for R&D tax credit carryforwards in California, which resulted in a combined $3.5 billion increase in the valuation allowance on the Company’s DTAs, with no effect on net income.

Management believes it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to realize substantially all of the Company’s remaining DTAs.

The Company’s effective tax rate for 2022 was higher compared to 2021 due primarily to a higher effective tax rate on foreign earnings, including the impact to U.S.

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

Department of the Treasury in 2022, and lower tax benefits from foreign-derived intangible income deductions and share-based compensation.

Liquidity and Capital Resources

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, which totaled $156.4 billion as of September 24, 2022, 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 material cash requirements include the following contractual and other obligations.

As of September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $118.1 billion (collectively the “Notes”), with $9.6 billion payable within 12 months.

The Company’s material cash requirements include the following contractual obligations.

As of September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $111.8 billion (collectively the “Notes”), with $11.1 billion payable within 12 months.

Future interest payments associated with the Notes total $41.3 billion, with $2.9 billion payable within 12 months.

1 unchanged sentence

As of September 24, 2022, the Company had $10.0 billion of Commercial Paper outstanding, all of which was payable within 12 months.

| 2021 Form 10-K | 24

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

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

As of September 24, 2022, the Company had fixed lease payment obligations of $15.3 billion, with $2.0 billion payable within 12 months.

| 2022 Form 10-K | 24

Manufacturing Purchase Obligations

5 unchanged sentences

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.

The Company’s other purchase obligations primarily consist of noncancelable obligations to acquire capital assets, including assets related to product manufacturing, and noncancelable obligations related to internet services and content creation.

As of September 24, 2022, the Company had other purchase obligations of $17.8 billion, with $6.8 billion payable within 12 months.

1 unchanged sentence

As of September 24, 2022, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act of 2017 (the “Act”) was $24.6 billion, none of which is payable within 12 months.

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

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

Tax Cuts and Jobs Act of 2017 (the “Act”) was $22.0 billion, with $5.3 billion expected to be paid within 12 months.

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

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

As of September 24, 2022, the Company’s quarterly cash dividend was $0.23 per share.

9 unchanged sentences

The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws, including the Act and matters related to the allocation of international taxation rights between countries.

Although management believes the Company’s reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s reserves.

Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination or the refinement of an estimate.

Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves.

Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination.

Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.

5 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis