What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-03 compared with 2022-10-28 · 74 added, 99 removed, 96 unchanged (64% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K.

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2021.

This Item generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022.

Fiscal Period

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 quarter of 2023.

The Company’s fiscal year 2023 spanned 53 weeks, whereas fiscal years 2022 and 2021 spanned 52 weeks each.

Fiscal Year Highlights

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 Company’s total net sales were $383.3 billion and net income was $97.0 billion during 2023.

The Company’s total net sales decreased 3% or $11.0 billion during 2023 compared to 2022.

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.

dollar accounted for more than the entire year-over-year decrease in total net sales, which consisted primarily of lower net sales of Mac and iPhone, partially offset by higher net sales of Services.

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

Significant announcements during fiscal 2022 included the following:

Significant announcements during fiscal year 2023 included the following:

First Quarter 2023:

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

• Third generation of AirPods.

• iPad and iPad Pro;

• Next-generation Apple TV 4K;

• MLS Season Pass, a Major League Soccer subscription streaming service.

Second Quarter 2023:

• 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.

• MacBook Pro 14”, MacBook Pro 16” and Mac mini;

• Second-generation HomePod.

Third Quarter 2023:

• 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.

• MacBook Air 15”, Mac Studio and Mac Pro;

• Apple Vision Pro™, the Company’s first spatial computer featuring its new visionOS™, expected to be available in early calendar year 2024;

• iOS 17, macOS Sonoma, iPadOS 17, tvOS 17 and watchOS 10, updates to the Company’s operating systems.

Fourth Quarter 2023:

• iPhone 15, iPhone 15 Plus, iPhone 15 Pro and iPhone 15 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.

• Apple Watch Series 9 and Apple Watch Ultra 2.

In May 2023, the Company announced a new share repurchase program of up to $90 billion and raised its quarterly dividend from $0.23 to $0.24 per share beginning in May 2023.

During 2023, the Company repurchased $76.6 billion of its common stock and paid dividends and dividend equivalents of $15.0 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.

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.

Macroeconomic Conditions

Macroeconomic conditions, including inflation, changes in interest rates, and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition.

| 2023 Form 10-K | 20

Segment Operating Performance

The following table shows net sales by reportable segment for 2023, 2022 and 2021 (dollars in millions):

2023 Change 2022 Change 2021

Net sales by reportable segment:

Americas $ 162,560 (4) % $ 169,658 11 % $ 153,306

Europe 94,294 (1) % 95,118 7 % 89,307

Greater China 72,559 (2) % 74,200 9 % 68,366

Japan 24,257 (7) % 25,977 (9) % 28,482

Rest of Asia Pacific 29,615 1 % 29,375 11 % 26,356

Total net sales $ 383,285 (3) % $ 394,328 8 % $ 365,817

Americas net sales decreased 4% or $7.1 billion during 2023 compared to 2022 due to lower net sales of iPhone and Mac, partially offset by higher net sales of Services.

Europe net sales decreased 1% or $824 million during 2023 compared to 2022.

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

dollar accounted for more than the entire year-over-year decrease in Europe net sales, which consisted primarily of lower net sales of Mac and Wearables, Home and Accessories, partially offset by higher net sales of iPhone and Services.

Greater China

Greater China net sales decreased 2% or $1.6 billion during 2023 compared to 2022.

The weakness in the renminbi relative to the U.S.

dollar accounted for more than the entire year-over-year decrease in Greater China net sales, which consisted primarily of lower net sales of Mac and iPhone.

Japan net sales decreased 7% or $1.7 billion during 2023 compared to 2022.

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

dollar accounted for more than the entire year-over-year decrease in Japan net sales, which consisted primarily of lower net sales of iPhone, Wearables, Home and Accessories and Mac.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased 1% or $240 million during 2023 compared to 2022.

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

dollar had a significantly unfavorable year-over-year impact on Rest of Asia Pacific net sales.

The net sales increase consisted of higher net sales of iPhone and Services, partially offset by lower net sales of Mac and iPad.

| 2023 Form 10-K | 21

Products and Services Performance

10 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 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 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.

(2) Services net sales include amortization of the deferred value of services bundled in the sales price of certain products.

iPhone net sales decreased 2% or $4.9 billion during 2023 compared to 2022 due to lower net sales of non-Pro iPhone models, partially offset by higher net sales of Pro iPhone models.

Mac net sales decreased 27% or $10.8 billion during 2023 compared to 2022 due primarily to lower net sales of laptops.

iPad net sales decreased 3% or $1.0 billion during 2023 compared to 2022 due primarily to lower net sales of iPad mini and iPad Air, partially offset by the combined net sales of iPad 9th and 10th generation.

Wearables, Home and Accessories

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

Segment Operating Performance

The Company manages its business primarily on a geographic basis.

The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.

Americas includes both North and South America.

Europe includes European countries, as well as India, the Middle East and Africa.

Greater China includes China mainland, Hong Kong and Taiwan.

Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.

Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.

Further information regarding the Company’s reportable segments can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for 2022, 2021 and 2020 (dollars in millions):

2022 Change 2021 Change 2020

Net sales by reportable segment:

$ 169,658 11 % $ 153,306 23 % $ 124,556

95,118 7 % 89,307 30 % 68,640

Greater China

74,200 9 % 68,366 70 % 40,308

25,977 (9) % 28,482 33 % 21,418

Rest of Asia Pacific

29,375 11 % 26,356 35 % 19,593

Total net sales $ 394,328 8 % $ 365,817 33 % $ 274,515

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 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 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 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.

Wearables, Home and Accessories net sales decreased 3% or $1.4 billion during 2023 compared to 2022 due primarily to lower net sales of Wearables and Accessories.

Services net sales increased 9% or $7.1 billion during 2023 compared to 2022 due to higher net sales across all lines of business.

| 2023 Form 10-K | 22

10 unchanged sentences

Products Gross Margin

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.

Products gross margin decreased during 2023 compared to 2022 due to the weakness in foreign currencies relative to the U.S.

dollar and lower Products volume, partially offset by cost savings and a different Products mix.

Products gross margin percentage increased during 2023 compared to 2022 due to cost savings and a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

dollar and decreased leverage.

Services Gross Margin

Services gross margin increased during 2023 compared to 2022 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.

dollar and higher Services costs.

Services gross margin percentage decreased during 2023 compared to 2022 due to higher Services costs and the weakness in foreign currencies relative to the U.S.

dollar, partially offset by a different Services mix.

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.

3 unchanged sentences

Research and development $ 29,915 14 % $ 26,251 20 % $ 21,914

$ 26,251 20 % $ 21,914 17 % $ 18,752

Percentage of total net sales 8 % 7 % 6 %

Selling, general and administrative $ 24,932 (1) % $ 25,094 14 % $ 21,973

$ 25,094 14 % $ 21,973 10 % $ 19,916

Percentage of total net sales 7 % 6 % 6 %

Total operating expenses $ 54,847 7 % $ 51,345 17 % $ 43,887

$ 51,345 17 % $ 43,887 13 % $ 38,668

Percentage of total net sales 14 % 13 % 12 %

13 % 12 % 14 %

Research and Development

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

The year-over-year growth in R&D expense in 2023 was driven primarily by increases in headcount-related expenses.

Selling, General and Administrative

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.

Selling, general and administrative expense was relatively flat in 2023 compared to 2022.

| 2023 Form 10-K | 23

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for 2022, 2021 and 2020 was as follows (dollars in millions):

2022 Change 2021 Change 2020

Interest and dividend income

$ 2,825 $ 2,843 $ 3,763

Interest expense

(2,931) (2,645) (2,873)

Other income/(expense), net (228) 60 (87)

Total other income/(expense), net

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

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

2 unchanged sentences

Provision for income taxes $ 16,741 $ 19,300 $ 14,527

$ 19,300 $ 14,527 $ 9,680

Effective tax rate 14.7 % 16.2 % 13.3 %

16.2 % 13.3 % 14.4 %

Statutory federal income tax rate 21 % 21 % 21 %

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 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.

The Company’s effective tax rate for 2023 and 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, the impact of the U.S.

federal R&D credit, and tax benefits from share-based compensation, partially offset by state income taxes.

The Company’s effective tax rate for 2023 was lower compared to 2022 due primarily to a lower effective tax rate on foreign earnings and the impact of U.S.

foreign tax credit regulations issued by the U.S.

Department of the Treasury in 2022, partially offset by lower tax benefits from share-based compensation.

Liquidity and Capital Resources

3 unchanged sentences

Future interest payments associated with the Notes total $41.1 billion, with $2.9 billion payable within 12 months.

The Company also issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program.

The Company also issues unsecured short-term promissory notes pursuant to a commercial paper program.

As of September 30, 2023, the Company had $6.0 billion of commercial paper outstanding, all of which was payable within 12 months.

1 unchanged sentence

As of September 30, 2023, the Company had fixed lease payment obligations of $15.8 billion, with $2.0 billion payable within 12 months.

| 2022 Form 10-K | 24

Manufacturing Purchase Obligations

1 unchanged sentence

The Company also obtains individual components for its products from a wide variety of individual suppliers.

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 September 30, 2023, the Company had manufacturing purchase obligations of $53.1 billion, with $52.9 billion payable within 12 months.

1 unchanged sentence

Other Purchase Obligations

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 30, 2023, the Company had other purchase obligations of $21.9 billion, with $5.6 billion payable within 12 months.

2 unchanged sentences

Tax Cuts and Jobs Act of 2017 (the “Act”) was $22.0 billion, with $6.5 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.

| 2023 Form 10-K | 24

Capital Return Program

In addition to its contractual cash requirements, the Company has an authorized share repurchase program.

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

19 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