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 Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Net sales: Products $ 60,584 $ 63,355 $ 230,901 $ 245,241 Services 21,213 19,604 62,886 58,941 Total net sales 81,797 82,959 293,787 304,182 Cost of sales: Products 39,136 41,485 146,696 155,084 Services 6,248 5,589 18,370 16,411 Total cost of sales 45,384 47,074 165,066 171,495 Gross margin 36,413 35,885 128,721 132,687 Operating expenses: Research and development 7,442 6,797 22,608 19,490 Selling, general and administrative 5,973 6,012 18,781 18,654 Total operating expenses 13,415 12,809 41,389 38,144 Operating income 22,998 23,076 87,332 94,543 Other income/(expense), net ( 265 ) ( 10 ) ( 594 ) ( 97 ) Income before provision for income taxes 22,733 23,066 86,738 94,446 Provision for income taxes 2,852 3,624 12,699 15,364 Net income $ 19,881 $ 19,442 $ 74,039 $ 79,082 Earnings per share: Basic $ 1.27 $ 1.20 $ 4.69 $ 4.86 Diluted $ 1.26 $ 1.20 $ 4.67 $ 4.82 Shares used in computing earnings per share: Basic 15,697,614 16,162,945 15,792,497 16,277,824 Diluted 15,775,021 16,262,203 15,859,263 16,394,937 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q3 2023 Form 10-Q | 1 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Net income $ 19,881 $ 19,442 $ 74,039 $ 79,082 Other comprehensive income/(loss): Change in foreign currency translation, net of tax ( 385 ) ( 721 ) ( 494 ) ( 1,102 ) Change in unrealized gains/losses on derivative instruments, net of tax: Change in fair value of derivative instruments 509 852 ( 492 ) 1,548 Adjustment for net (gains)/losses realized and included in net income 103 121 ( 1,854 ) ( 87 ) Total change in unrealized gains/losses on derivative instruments 612 973 ( 2,346 ) 1,461 Change in unrealized gains/losses on marketable debt securities, net of tax: Change in fair value of marketable debt securities ( 340 ) ( 3,150 ) 1,963 ( 9,959 ) Adjustment for net (gains)/losses realized and included in net income 58 95 185 140 Total change in unrealized gains/losses on marketable debt securities ( 282 ) ( 3,055 ) 2,148 ( 9,819 ) Total other comprehensive income/(loss) ( 55 ) ( 2,803 ) ( 692 ) ( 9,460 ) Total comprehensive income $ 19,826 $ 16,639 $ 73,347 $ 69,622 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q3 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) July 1, 2023 September 24, 2022 ASSETS: Current assets: Cash and cash equivalents $ 28,408 $ 23,646 Marketable securities 34,074 24,658 Accounts receivable, net 19,549 28,184 Inventories 7,351 4,946 Vendor non-trade receivables 19,637 32,748 Other current assets 13,640 21,223 Total current assets 122,659 135,405 Non-current assets: Marketable securities 104,061 120,805 Property, plant and equipment, net 43,550 42,117 Other non-current assets 64,768 54,428 Total non-current assets 212,379 217,350 Total assets $ 335,038 $ 352,755 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 46,699 $ 64,115 Other current liabilities 58,897 60,845 Deferred revenue 8,158 7,912 Commercial paper 3,993 9,982 Term debt 7,216 11,128 Total current liabilities 124,963 153,982 Non-current liabilities: Term debt 98,071 98,959 Other non-current liabilities 51,730 49,142 Total non-current liabilities 149,801 148,101 Total liabilities 274,764 302,083 Commitments and contingencies Shareholders’ equity: Common stock and additional paid-in capital, $ 0.00001 par value: 50,400,000 shares authorized; 15,647,868 and 15,943,425 shares issued and outstanding, respectively 70,667 64,849 Retained earnings/(Accumulated deficit) 1,408 ( 3,068 ) Accumulated other comprehensive income/(loss) ( 11,801 ) ( 11,109 ) Total shareholders’ equity 60,274 50,672 Total liabilities and shareholders’ equity $ 335,038 $ 352,755 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q3 2023 Form 10-Q | 3 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions, except per share amounts) Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Total shareholders’ equity, beginning balances $ 62,158 $ 67,399 $ 50,672 $ 63,090 Common stock and additional paid-in capital: Beginning balances 69,568 61,181 64,849 57,365 Common stock issued — — 690 593 Common stock withheld related to net share settlement of equity awards ( 1,595 ) ( 1,371 ) ( 3,310 ) ( 2,783 ) Share-based compensation 2,694 2,305 8,438 6,940 Ending balances 70,667 62,115 70,667 62,115 Retained earnings/(Accumulated deficit): Beginning balances 4,336 12,712 ( 3,068 ) 5,562 Net income 19,881 19,442 74,039 79,082 Dividends and dividend equivalents declared ( 3,811 ) ( 3,760 ) ( 11,207 ) ( 11,058 ) Common stock withheld related to net share settlement of equity awards ( 858 ) ( 1,403 ) ( 1,988 ) ( 3,323 ) Common stock repurchased ( 18,140 ) ( 21,702 ) ( 56,368 ) ( 64,974 ) Ending balances 1,408 5,289 1,408 5,289 Accumulated other comprehensive income/(loss): Beginning balances ( 11,746 ) ( 6,494 ) ( 11,109 ) 163 Other comprehensive income/(loss) ( 55 ) ( 2,803 ) ( 692 ) ( 9,460 ) Ending balances ( 11,801 ) ( 9,297 ) ( 11,801 ) ( 9,297 ) Total shareholders’ equity, ending balances $ 60,274 $ 58,107 $ 60,274 $ 58,107 Dividends and dividend equivalents declared per share or RSU $ 0.24 $ 0.23 $ 0.70 $ 0.67 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q3 2023 Form 10-Q | 4 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Nine Months Ended July 1, 2023 June 25, 2022 Cash, cash equivalents and restricted cash, beginning balances $ 24,977 $ 35,929 Operating activities: Net income 74,039 79,082 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 8,866 8,239 Share-based compensation expense 8,208 6,760 Other ( 1,651 ) 2,695 Changes in operating assets and liabilities: Accounts receivable, net 7,609 4,561 Inventories ( 2,570 ) 1,049 Vendor non-trade receivables 13,111 4,789 Other current and non-current assets ( 4,863 ) ( 3,289 ) Accounts payable ( 16,790 ) ( 6,108 ) Other current and non-current liabilities 2,986 246 Cash generated by operating activities 88,945 98,024 Investing activities: Purchases of marketable securities ( 20,956 ) ( 70,178 ) Proceeds from maturities of marketable securities 27,857 24,203 Proceeds from sales of marketable securities 3,959 33,609 Payments for acquisition of property, plant and equipment ( 8,796 ) ( 7,419 ) Other ( 753 ) ( 1,352 ) Cash generated by/(used in) investing activities 1,311 ( 21,137 ) Financing activities: Payments for taxes related to net share settlement of equity awards ( 5,119 ) ( 5,915 ) Payments for dividends and dividend equivalents ( 11,267 ) ( 11,138 ) Repurchases of common stock ( 56,547 ) ( 64,974 ) Proceeds from issuance of term debt, net 5,228 — Repayments of term debt ( 11,151 ) ( 6,750 ) Proceeds from/(Repayments of) commercial paper, net ( 5,971 ) 4,970 Other ( 508 ) ( 148 ) Cash used in financing activities ( 85,335 ) ( 83,955 ) Increase/(Decrease) in cash, cash equivalents and restricted cash 4,921 ( 7,068 ) Cash, cash equivalents and restricted cash, ending balances $ 29,898 $ 28,861 Supplemental cash flow disclosure: Cash paid for income taxes, net $ 7,020 $ 12,251 Cash paid for interest $ 2,590 $ 1,910 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q3 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- and nine-month periods ended July 1, 2023 and June 25, 2022 (net income in millions and shares in thousands): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Numerator: Net income $ 19,881 $ 19,442 $ 74,039 $ 79,082 Denominator: Weighted-average basic shares outstanding 15,697,614 16,162,945 15,792,497 16,277,824 Effect of dilutive securities 77,407 99,258 66,766 117,113 Weighted-average diluted shares 15,775,021 16,262,203 15,859,263 16,394,937 Basic earnings per share $ 1.27 $ 1.20 $ 4.69 $ 4.86 Diluted earnings per share $ 1.26 $ 1.20 $ 4.67 $ 4.82 Approximately 32 million restricted stock units (“RSUs”) were excluded from the computation of diluted earnings per share for the nine months ended July 1, 2023 because their effect would have been antidilutive. Apple Inc. | Q3 2023 Form 10-Q | 6 Note 2 – Revenue Net sales disaggregated by significant products and services for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 were as follows (in millions): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 iPhone ® $ 39,669 $ 40,665 $ 156,778 $ 162,863 Mac ® 6,840 7,382 21,743 28,669 iPad ® 5,791 7,224 21,857 22,118 Wearables, Home and Accessories 8,284 8,084 30,523 31,591 Services 21,213 19,604 62,886 58,941 Total net sales $ 81,797 $ 82,959 $ 293,787 $ 304,182 Total net sales include $ 3.3 billion of revenue recognized in the three months ended July 1, 2023 that was included in deferred revenue as of April 1, 2023, $ 3.1 billion of revenue recognized in the three months ended June 25, 2022 that was included in deferred revenue as of March 26, 2022, $ 7.0 billion of revenue recognized in the nine months ended July 1, 2023 that was included in deferred revenue as of September 24, 2022, and $ 6.3 billion of revenue recognized in the nine months ended June 25, 2022 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 10, “Segment Information and Geographic Data” for the three- and nine-month periods ended July 1, 2023 and June 25, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of July 1, 2023 and September 24, 2022, the Company had total deferred revenue of $ 12.2 billion and $ 12.4 billion, respectively. As of July 1, 2023, the Company expects 67 % of total deferred revenue to be realized in less than a year, 26 % within one-to-two years, 6 % within two-to-three years and 1 % in greater than three years. 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 July 1, 2023 and September 24, 2022 (in millions): July 1, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 25,337 $ — $ — $ 25,337 $ 25,337 $ — $ — Level 1 (1) : Money market funds 1,108 — — 1,108 1,108 — — Mutual funds 366 15 ( 19 ) 362 — 362 — Subtotal 1,474 15 ( 19 ) 1,470 1,108 362 — Level 2 (2) : U.S. Treasury securities 22,274 — ( 1,354 ) 20,920 — 8,076 12,844 U.S. agency securities 5,709 — ( 594 ) 5,115 3 272 4,840 Non-U.S. government securities 17,588 19 ( 927 ) 16,680 — 11,262 5,418 Certificates of deposit and time deposits 2,315 — — 2,315 1,960 355 — Commercial paper 364 — — 364 — 364 — Corporate debt securities 79,621 22 ( 6,079 ) 73,564 — 13,005 60,559 Municipal securities 713 — ( 23 ) 690 — 213 477 Mortgage- and asset-backed securities 22,383 4 ( 2,299 ) 20,088 — 165 19,923 Subtotal 150,967 45 ( 11,276 ) 139,736 1,963 33,712 104,061 Total (3) $ 177,778 $ 60 $ ( 11,295 ) $ 166,543 $ 28,408 $ 34,074 $ 104,061 Apple Inc. | Q3 2023 Form 10-Q | 7 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 July 1, 2023 and September 24, 2022, total marketable securities included $ 14.1 billion and $ 12.7 billion, respectively, that were restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements. The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of July 1, 2023 (in millions): Due after 1 year through 5 years $ 76,267 Due after 5 years through 10 years 11,148 Due after 10 years 16,646 Total fair value $ 104,061 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 July 1, 2023, 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 19 years. Apple Inc. | Q3 2023 Form 10-Q | 8 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 July 1, 2023 and September 24, 2022 were as follows (in millions): July 1, 2023 September 24, 2022 Derivative instruments designated as accounting hedges: Foreign exchange contracts $ 45,425 $ 102,670 Interest rate contracts $ 19,375 $ 20,125 Derivative instruments not designated as accounting hedges: Foreign exchange contracts $ 90,977 $ 185,381 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 July 1, 2023 and September 24, 2022 were as follows (in millions): July 1, 2023 September 24, 2022 Hedged assets/(liabilities): Current and non-current marketable securities $ 14,863 $ 13,378 Current and non-current term debt $ ( 17,986 ) $ ( 18,739 ) Apple Inc. | Q3 2023 Form 10-Q | 9 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 September 24, 2022, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10 % . The Company’s cellular network carriers accounted for 44 % of total trade receivables as of September 24, 2022. 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 July 1, 2023, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54 % and 14 % . 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 %. Note 4 – Condensed Consolidated Financial Statement Details The following tables show the Company’s condensed consolidated financial statement details as of July 1, 2023 and September 24, 2022 (in millions): Inventories July 1, 2023 September 24, 2022 Components $ 3,788 $ 1,637 Finished goods 3,563 3,309 Total inventories $ 7,351 $ 4,946 Property, Plant and Equipment, Net July 1, 2023 September 24, 2022 Gross property, plant and equipment $ 114,337 $ 114,457 Accumulated depreciation and amortization ( 70,787 ) ( 72,340 ) Total property, plant and equipment, net $ 43,550 $ 42,117 Other Income/(Expense), Net The following table shows the detail of other income/(expense), net for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 (in millions): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Interest and dividend income $ 980 $ 722 $ 2,766 $ 2,072 Interest expense ( 998 ) ( 719 ) ( 2,931 ) ( 2,104 ) Other expense, net ( 247 ) ( 13 ) ( 429 ) ( 65 ) Total other income/(expense), net $ ( 265 ) $ ( 10 ) $ ( 594 ) $ ( 97 ) Apple Inc. | Q3 2023 Form 10-Q | 10 Note 5 – Income Taxes European Commission State Aid Decision On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice (the “ECJ”) and a hearing was held on May 23, 2023. A decision from the ECJ is expected in calendar year 2024. The Company believes it would be eligible to claim a U.S. foreign tax credit for a portion of any incremental Irish corporate income taxes potentially due related to the State Aid Decision. Note 6 – 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 July 1, 2023 and September 24, 2022, the Company had $ 4.0 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 nine months ended July 1, 2023 and June 25, 2022 (in millions): Nine Months Ended July 1, 2023 June 25, 2022 Maturities 90 days or less: Proceeds from/(Repayments of) commercial paper, net $ ( 3,326 ) $ 4,383 Maturities greater than 90 days: Proceeds from commercial paper — 5,731 Repayments of commercial paper ( 2,645 ) ( 5,144 ) Proceeds from/(Repayments of) commercial paper, net ( 2,645 ) 587 Total proceeds from/(repayments of) commercial paper, net $ ( 5,971 ) $ 4,970 Term Debt As of July 1, 2023 and September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $ 105.3 billion and $ 110.1 billion, respectively (collectively the “Notes”). As of July 1, 2023 and September 24, 2022, the fair value of the Company’s Notes, based on Level 2 inputs, was $ 95.3 billion and $ 98.8 billion, respectively. Note 7 – Shareholders’ Equity Share Repurchase Program During the nine months ended July 1, 2023, the Company repurchased 365 million shares of its common stock for $ 56.1 billion, excluding excise tax due under the Inflation Reduction Act of 2022. The Company’s share repurchase programs do not obligate the Company to acquire a minimum amount of shares. Under the programs, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Apple Inc. | Q3 2023 Form 10-Q | 11 Note 8 – Benefit Plans Restricted Stock Units A summary of the Company’s RSU activity and related information for the nine months ended July 1, 2023 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 86,896 $ 150.23 RSUs vested ( 96,681 ) $ 95.97 RSUs canceled ( 7,000 ) $ 126.48 Balance as of July 1, 2023 184,716 $ 135.08 $ 35,829 The fair value as of the respective vesting dates of RSUs was $ 7.0 billion and $ 14.9 billion for the three- and nine-month periods ended July 1, 2023, respectively, and was $ 7.8 billion and $ 17.3 billion for the three- and nine-month periods ended June 25, 2022, 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- and nine-month periods ended July 1, 2023 and June 25, 2022 (in millions): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Share-based compensation expense $ 2,617 $ 2,243 $ 8,208 $ 6,760 Income tax benefit related to share-based compensation expense $ ( 993 ) $ ( 1,231 ) $ ( 2,791 ) $ ( 3,416 ) As of July 1, 2023, the total unrecognized compensation cost related to outstanding RSUs and stock options was $ 20.9 billion, which the Company expects to recognize over a weighted-average period of 2.7 years. Note 9 – 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 intellectual property and content, and distribution rights. Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of July 1, 2023, are as follows (in millions): 2023 (remaining three months) $ 1,260 2024 3,417 2025 1,990 2026 3,079 2027 1,013 Thereafter 8,198 Total $ 18,957 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. Apple Inc. | Q3 2023 Form 10-Q | 12 Note 10 – Segment Information and Geographic Data The following table shows information by reportable segment for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 (in millions): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Americas: Net sales $ 35,383 $ 37,472 $ 122,445 $ 129,850 Operating income $ 13,117 $ 13,914 $ 44,908 $ 48,778 Europe: Net sales $ 20,205 $ 19,287 $ 71,831 $ 72,323 Operating income $ 7,995 $ 7,124 $ 27,380 $ 27,174 Greater China: Net sales $ 15,758 $ 14,604 $ 57,475 $ 58,730 Operating income $ 6,207 $ 5,760 $ 24,175 $ 25,055 Japan: Net sales $ 4,821 $ 5,446 $ 18,752 $ 20,277 Operating income $ 2,443 $ 2,418 $ 9,073 $ 9,263 Rest of Asia Pacific: Net sales $ 5,630 $ 6,150 $ 23,284 $ 23,002 Operating income $ 2,328 $ 2,367 $ 9,447 $ 9,185 A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 is as follows (in millions): Three Months Ended Nine Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Segment operating income $ 32,090 $ 31,583 $ 114,983 $ 119,455 Research and development expense ( 7,442 ) ( 6,797 ) ( 22,608 ) ( 19,490 ) Other corporate expenses, net ( 1,650 ) ( 1,710 ) ( 5,043 ) ( 5,422 ) Total operating income $ 22,998 $ 23,076 $ 87,332 $ 94,543 Apple Inc. | Q3 2023 Form 10-Q | 13