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 31, 2022 December 25, 2021 Net sales: Products $ 96,388 $ 104,429 Services 20,766 19,516 Total net sales 117,154 123,945 Cost of sales: Products 60,765 64,309 Services 6,057 5,393 Total cost of sales 66,822 69,702 Gross margin 50,332 54,243 Operating expenses: Research and development 7,709 6,306 Selling, general and administrative 6,607 6,449 Total operating expenses 14,316 12,755 Operating income 36,016 41,488 Other income/(expense), net ( 393 ) ( 247 ) Income before provision for income taxes 35,623 41,241 Provision for income taxes 5,625 6,611 Net income $ 29,998 $ 34,630 Earnings per share: Basic $ 1.89 $ 2.11 Diluted $ 1.88 $ 2.10 Shares used in computing earnings per share: Basic 15,892,723 16,391,724 Diluted 15,955,718 16,519,291 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2023 Form 10-Q | 1 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended December 31, 2022 December 25, 2021 Net income $ 29,998 $ 34,630 Other comprehensive income/(loss): Change in foreign currency translation, net of tax ( 14 ) ( 360 ) Change in unrealized gains/losses on derivative instruments, net of tax: Change in fair value of derivative instruments ( 988 ) 362 Adjustment for net (gains)/losses realized and included in net income ( 1,766 ) 93 Total change in unrealized gains/losses on derivative instruments ( 2,754 ) 455 Change in unrealized gains/losses on marketable debt securities, net of tax: Change in fair value of marketable debt securities 900 ( 1,176 ) Adjustment for net (gains)/losses realized and included in net income 65 ( 9 ) Total change in unrealized gains/losses on marketable debt securities 965 ( 1,185 ) Total other comprehensive income/(loss) ( 1,803 ) ( 1,090 ) Total comprehensive income $ 28,195 $ 33,540 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2023 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 31, 2022 September 24, 2022 ASSETS: Current assets: Cash and cash equivalents $ 20,535 $ 23,646 Marketable securities 30,820 24,658 Accounts receivable, net 23,752 28,184 Inventories 6,820 4,946 Vendor non-trade receivables 30,428 32,748 Other current assets 16,422 21,223 Total current assets 128,777 135,405 Non-current assets: Marketable securities 114,095 120,805 Property, plant and equipment, net 42,951 42,117 Other non-current assets 60,924 54,428 Total non-current assets 217,970 217,350 Total assets $ 346,747 $ 352,755 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 57,918 $ 64,115 Other current liabilities 59,893 60,845 Deferred revenue 7,992 7,912 Commercial paper 1,743 9,982 Term debt 9,740 11,128 Total current liabilities 137,286 153,982 Non-current liabilities: Term debt 99,627 98,959 Other non-current liabilities 53,107 49,142 Total non-current liabilities 152,734 148,101 Total liabilities 290,020 302,083 Commitments and contingencies Shareholders’ equity: Common stock and additional paid-in capital, $ 0.00001 par value: 50,400,000 shares authorized; 15,842,407 and 15,943,425 shares issued and outstanding, respectively 66,399 64,849 Retained earnings/(Accumulated deficit) 3,240 ( 3,068 ) Accumulated other comprehensive income/(loss) ( 12,912 ) ( 11,109 ) Total shareholders’ equity 56,727 50,672 Total liabilities and shareholders’ equity $ 346,747 $ 352,755 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2023 Form 10-Q | 3 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions, except per share amounts) Three Months Ended December 31, 2022 December 25, 2021 Total shareholders’ equity, beginning balances $ 50,672 $ 63,090 Common stock and additional paid-in capital: Beginning balances 64,849 57,365 Common stock withheld related to net share settlement of equity awards ( 1,434 ) ( 1,263 ) Share-based compensation 2,984 2,322 Ending balances 66,399 58,424 Retained earnings/(Accumulated deficit): Beginning balances ( 3,068 ) 5,562 Net income 29,998 34,630 Dividends and dividend equivalents declared ( 3,712 ) ( 3,665 ) Common stock withheld related to net share settlement of equity awards ( 978 ) ( 1,730 ) Common stock repurchased ( 19,000 ) ( 20,362 ) Ending balances 3,240 14,435 Accumulated other comprehensive income/(loss): Beginning balances ( 11,109 ) 163 Other comprehensive income/(loss) ( 1,803 ) ( 1,090 ) Ending balances ( 12,912 ) ( 927 ) Total shareholders’ equity, ending balances $ 56,727 $ 71,932 Dividends and dividend equivalents declared per share or RSU $ 0.23 $ 0.22 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2023 Form 10-Q | 4 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended December 31, 2022 December 25, 2021 Cash, cash equivalents and restricted cash, beginning balances $ 24,977 $ 35,929 Operating activities: Net income 29,998 34,630 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 2,916 2,697 Share-based compensation expense 2,905 2,265 Other ( 317 ) 849 Changes in operating assets and liabilities: Accounts receivable, net 4,275 ( 3,934 ) Inventories ( 1,807 ) 681 Vendor non-trade receivables 2,320 ( 9,812 ) Other current and non-current assets ( 4,099 ) ( 4,921 ) Accounts payable ( 6,075 ) 19,813 Deferred revenue 131 462 Other current and non-current liabilities 3,758 4,236 Cash generated by operating activities 34,005 46,966 Investing activities: Purchases of marketable securities ( 5,153 ) ( 34,913 ) Proceeds from maturities of marketable securities 7,127 11,309 Proceeds from sales of marketable securities 509 10,675 Payments for acquisition of property, plant and equipment ( 3,787 ) ( 2,803 ) Other ( 141 ) ( 374 ) Cash used in investing activities ( 1,445 ) ( 16,106 ) Financing activities: Payments for taxes related to net share settlement of equity awards ( 2,316 ) ( 2,888 ) Payments for dividends and dividend equivalents ( 3,768 ) ( 3,732 ) Repurchases of common stock ( 19,475 ) ( 20,478 ) Repayments of term debt ( 1,401 ) — Repayments of commercial paper, net ( 8,214 ) ( 1,000 ) Other ( 389 ) ( 61 ) Cash used in financing activities ( 35,563 ) ( 28,159 ) Increase/(Decrease) in cash, cash equivalents and restricted cash ( 3,003 ) 2,701 Cash, cash equivalents and restricted cash, ending balances $ 21,974 $ 38,630 Supplemental cash flow disclosure: Cash paid for income taxes, net $ 828 $ 5,235 Cash paid for interest $ 703 $ 531 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2023 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 24, 2022. 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, which occurred in the first fiscal quarter of 2023. The Company’s fiscal years 2023 and 2022 span 53 and 52 weeks, respectively. 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 31, 2022 and December 25, 2021 (net income in millions and shares in thousands): Three Months Ended December 31, 2022 December 25, 2021 Numerator: Net income $ 29,998 $ 34,630 Denominator: Weighted-average basic shares outstanding 15,892,723 16,391,724 Effect of dilutive securities 62,995 127,567 Weighted-average diluted shares 15,955,718 16,519,291 Basic earnings per share $ 1.89 $ 2.11 Diluted earnings per share $ 1.88 $ 2.10 Approximately 89 million restricted stock units (“RSUs”) were excluded from the computation of diluted earnings per share for the three months ended December 31, 2022 because their effect would have been antidilutive. Apple Inc. | Q1 2023 Form 10-Q | 6 Note 2 – Revenue Net sales disaggregated by significant products and services for the three months ended December 31, 2022 and December 25, 2021 were as follows (in millions): Three Months Ended December 31, 2022 December 25, 2021 iPhone ® (1) $ 65,775 $ 71,628 Mac ® (1) 7,735 10,852 iPad ® (1) 9,396 7,248 Wearables, Home and Accessories (1)(2) 13,482 14,701 Services (3) 20,766 19,516 Total net sales (4) $ 117,154 $ 123,945 (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 ® 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 $ 3.4 billion of revenue recognized in the three months ended December 31, 2022 that was included in deferred revenue as of September 24, 2022 and $ 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. 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 31, 2022 and December 25, 2021, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of December 31, 2022 and September 24, 2022, the Company had total deferred revenue of $ 12.6 billion and $ 12.4 billion, respectively. As of December 31, 2022, the Company expects 63 % 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 2 % in greater than three years. Apple Inc. | Q1 2023 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 31, 2022 and September 24, 2022 (in millions): December 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 17,908 $ — $ — $ 17,908 $ 17,908 $ — $ — Level 1 (1) : Money market funds 818 — — 818 818 — — Mutual funds 330 2 ( 40 ) 292 — 292 — Subtotal 1,148 2 ( 40 ) 1,110 818 292 — Level 2 (2) : U.S. Treasury securities 24,128 1 ( 1,576 ) 22,553 13 9,105 13,435 U.S. agency securities 5,743 — ( 643 ) 5,100 — 310 4,790 Non-U.S. government securities 17,778 14 ( 1,029 ) 16,763 — 9,907 6,856 Certificates of deposit and time deposits 2,025 — — 2,025 1,795 230 — Commercial paper 237 — — 237 — 237 — Corporate debt securities 85,895 14 ( 7,039 ) 78,870 1 10,377 68,492 Municipal securities 864 — ( 26 ) 838 — 278 560 Mortgage- and asset-backed securities 22,448 3 ( 2,405 ) 20,046 — 84 19,962 Subtotal 159,118 32 ( 12,718 ) 146,432 1,809 30,528 114,095 Total (3) $ 178,174 $ 34 $ ( 12,758 ) $ 165,450 $ 20,535 $ 30,820 $ 114,095 September 24, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 18,546 $ — $ — $ 18,546 $ 18,546 $ — $ — Level 1 (1) : Money market funds 2,929 — — 2,929 2,929 — — Mutual funds 274 — ( 47 ) 227 — 227 — Subtotal 3,203 — ( 47 ) 3,156 2,929 227 — Level 2 (2) : U.S. Treasury securities 25,134 — ( 1,725 ) 23,409 338 5,091 17,980 U.S. agency securities 5,823 — ( 655 ) 5,168 — 240 4,928 Non-U.S. government securities 16,948 2 ( 1,201 ) 15,749 — 8,806 6,943 Certificates of deposit and time deposits 2,067 — — 2,067 1,805 262 — Commercial paper 718 — — 718 28 690 — Corporate debt securities 87,148 9 ( 7,707 ) 79,450 — 9,023 70,427 Municipal securities 921 — ( 35 ) 886 — 266 620 Mortgage- and asset-backed securities 22,553 — ( 2,593 ) 19,960 — 53 19,907 Subtotal 161,312 11 ( 13,916 ) 147,407 2,171 24,431 120,805 Total (3) $ 183,061 $ 11 $ ( 13,963 ) $ 169,109 $ 23,646 $ 24,658 $ 120,805 (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 31, 2022 and September 24, 2022, total marketable securities included $ 13.6 billion and $ 12.7 billion, respectively, that were 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 2023 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 31, 2022 (in millions): Due after 1 year through 5 years $ 82,497 Due after 5 years through 10 years 14,243 Due after 10 years 17,355 Total fair value $ 114,095 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 31, 2022, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debt–related foreign currency transactions is 20 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 31, 2022 and September 24, 2022 were as follows (in millions): December 31, 2022 September 24, 2022 Derivative instruments designated as accounting hedges: Foreign exchange contracts $ 66,054 $ 102,670 Interest rate contracts $ 20,125 $ 20,125 Derivative instruments not designated as accounting hedges: Foreign exchange contracts $ 134,971 $ 185,381 Apple Inc. | Q1 2023 Form 10-Q | 9 The gross fair values of the Company’s derivative assets and liabilities as of September 24, 2022 were as follows (in millions): September 24, 2022 Fair Value of Derivatives Designated as Accounting Hedges Fair Value of Derivatives Not Designated as Accounting Hedges Total Fair Value Derivative assets (1) : Foreign exchange contracts $ 4,317 $ 2,819 $ 7,136 Derivative liabilities (2) : Foreign exchange contracts $ 2,205 $ 2,547 $ 4,752 Interest rate contracts $ 1,367 $ — $ 1,367 (1) Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet. (2) Derivative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheet. The derivative assets above represent the Company’s gross credit exposure if all counterparties failed to perform. To mitigate credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established thresholds. To further limit credit risk, the Company generally enters into master netting arrangements with the respective counterparties to the Company’s derivative contracts, under which the Company is allowed to settle transactions with a single net amount payable by one party to the other. As of September 24, 2022, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $ 7.8 billion, resulting in a net derivative asset of $ 412 million. The carrying amounts of the Company’s hedged items in fair value hedges as of December 31, 2022 and September 24, 2022 were as follows (in millions): December 31, 2022 September 24, 2022 Hedged assets/(liabilities): Current and non-current marketable securities $ 14,311 $ 13,378 Current and non-current term debt $ ( 18,731 ) $ ( 18,739 ) 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. As of both December 31, 2022 and September 24, 2022, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 11 % and 10 %, respectively. The Company’s cellular network carriers accounted for 43 % and 44 % of total trade receivables as of December 31, 2022 and September 24, 2022, 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 31, 2022, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54 % and 16 %. As of September 24, 2022, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54 % and 13 %. Apple Inc. | Q1 2023 Form 10-Q | 10 Note 4 – Condensed Consolidated Financial Statement Details The following tables show the Company’s condensed consolidated financial statement details as of December 31, 2022 and September 24, 2022 (in millions): Inventories December 31, 2022 September 24, 2022 Components $ 2,513 $ 1,637 Finished goods 4,307 3,309 Total inventories $ 6,820 $ 4,946 Property, Plant and Equipment, Net December 31, 2022 September 24, 2022 Gross property, plant and equipment $ 110,995 $ 114,457 Accumulated depreciation and amortization ( 68,044 ) ( 72,340 ) Total property, plant and equipment, net $ 42,951 $ 42,117 Other Income/(Expense), Net The following table shows the detail of other income/(expense), net for the three months ended December 31, 2022 and December 25, 2021 (in millions): Three Months Ended December 31, 2022 December 25, 2021 Interest and dividend income $ 868 $ 650 Interest expense ( 1,003 ) ( 694 ) Other expense, net ( 258 ) ( 203 ) Total other income/(expense), net $ ( 393 ) $ ( 247 ) 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 31, 2022 and September 24, 2022, the Company had $ 1.7 billion and $ 10.0 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 31, 2022 and December 25, 2021 (in millions): Three Months Ended December 31, 2022 December 25, 2021 Maturities 90 days or less: Proceeds from/(Repayments of) commercial paper, net $ ( 5,569 ) $ 1,339 Maturities greater than 90 days: Proceeds from commercial paper — 1,191 Repayments of commercial paper ( 2,645 ) ( 3,530 ) Repayments of commercial paper, net ( 2,645 ) ( 2,339 ) Total repayments of commercial paper, net $ ( 8,214 ) $ ( 1,000 ) Apple Inc. | Q1 2023 Form 10-Q | 11 Term Debt As of December 31, 2022 and September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $ 109.4 billion and $ 110.1 billion, respectively (collectively the “Notes”). As of December 31, 2022 and September 24, 2022, the fair value of the Company’s Notes, based on Level 2 inputs, was $ 98.0 billion and $ 98.8 billion, respectively. Note 6 – Shareholders’ Equity Share Repurchase Program During the three months ended December 31, 2022, the Company repurchased 133 million shares of its common stock for $ 19.0 billion under a share repurchase program authorized by the Board of Directors (the “Program”). The Program does not obligate the Company to acquire a minimum amount 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. Note 7 – Benefit Plans Restricted Stock Units A summary of the Company’s RSU activity and related information for the three months ended December 31, 2022 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 24, 2022 201,501 $ 109.48 RSUs granted 82,123 $ 149.85 RSUs vested ( 47,298 ) $ 84.46 RSUs canceled ( 2,958 ) $ 120.26 Balance as of December 31, 2022 233,368 $ 128.62 $ 30,322 The fair value as of the respective vesting dates of RSUs was $ 6.8 billion and $ 8.5 billion for the three months ended December 31, 2022 and December 25, 2021, respectively. 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 31, 2022 and December 25, 2021 (in millions): Three Months Ended December 31, 2022 December 25, 2021 Share-based compensation expense $ 2,905 $ 2,265 Income tax benefit related to share-based compensation expense $ ( 1,178 ) $ ( 1,536 ) As of December 31, 2022, the total unrecognized compensation cost related to outstanding RSUs and stock options was $ 25.5 billion, which the Company expects to recognize over a weighted-average period of 3.0 years. Apple Inc. | Q1 2023 Form 10-Q | 12 Note 8 – Commitments and Contingencies Unconditional Purchase Obligations The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of supplier arrangements, licensed content and distribution rights. Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of December 31, 2022, are as follows (in millions): 2023 (remaining nine months) $ 2,899 2024 2,897 2025 1,584 2026 6,554 2027 348 Thereafter 444 Total $ 14,726 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 31, 2022 and December 25, 2021 (in millions): Three Months Ended December 31, 2022 December 25, 2021 Americas: Net sales $ 49,278 $ 51,496 Operating income $ 17,864 $ 19,585 Europe: Net sales $ 27,681 $ 29,749 Operating income $ 10,017 $ 11,545 Greater China: Net sales $ 23,905 $ 25,783 Operating income $ 10,437 $ 11,183 Japan: Net sales $ 6,755 $ 7,107 Operating income $ 3,236 $ 3,349 Rest of Asia Pacific: Net sales $ 9,535 $ 9,810 Operating income $ 3,851 $ 3,995 Apple Inc. | Q1 2023 Form 10-Q | 13 A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December 31, 2022 and December 25, 2021 is as follows (in millions): Three Months Ended December 31, 2022 December 25, 2021 Segment operating income $ 45,405 $ 49,657 Research and development expense ( 7,709 ) ( 6,306 ) Other corporate expenses, net ( 1,680 ) ( 1,863 ) Total operating income $ 36,016 $ 41,488 Apple Inc. | Q1 2023 Form 10-Q | 14