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 30, 2023 December 31, 2022 Net sales: Products $ 96,458 $ 96,388 Services 23,117 20,766 Total net sales 119,575 117,154 Cost of sales: Products 58,440 60,765 Services 6,280 6,057 Total cost of sales 64,720 66,822 Gross margin 54,855 50,332 Operating expenses: Research and development 7,696 7,709 Selling, general and administrative 6,786 6,607 Total operating expenses 14,482 14,316 Operating income 40,373 36,016 Other income/(expense), net ( 50 ) ( 393 ) Income before provision for income taxes 40,323 35,623 Provision for income taxes 6,407 5,625 Net income $ 33,916 $ 29,998 Earnings per share: Basic $ 2.19 $ 1.89 Diluted $ 2.18 $ 1.88 Shares used in computing earnings per share: Basic 15,509,763 15,892,723 Diluted 15,576,641 15,955,718 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2024 Form 10-Q | 1 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions) Three Months Ended December 30, 2023 December 31, 2022 Net income $ 33,916 $ 29,998 Other comprehensive income/(loss): Change in foreign currency translation, net of tax 308 ( 14 ) Change in unrealized gains/losses on derivative instruments, net of tax: Change in fair value of derivative instruments ( 531 ) ( 988 ) Adjustment for net (gains)/losses realized and included in net income ( 823 ) ( 1,766 ) Total change in unrealized gains/losses on derivative instruments ( 1,354 ) ( 2,754 ) Change in unrealized gains/losses on marketable debt securities, net of tax: Change in fair value of marketable debt securities 3,045 900 Adjustment for net (gains)/losses realized and included in net income 75 65 Total change in unrealized gains/losses on marketable debt securities 3,120 965 Total other comprehensive income/(loss) 2,074 ( 1,803 ) Total comprehensive income $ 35,990 $ 28,195 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2024 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 30, 2023 September 30, 2023 ASSETS: Current assets: Cash and cash equivalents $ 40,760 $ 29,965 Marketable securities 32,340 31,590 Accounts receivable, net 23,194 29,508 Vendor non-trade receivables 26,908 31,477 Inventories 6,511 6,331 Other current assets 13,979 14,695 Total current assets 143,692 143,566 Non-current assets: Marketable securities 99,475 100,544 Property, plant and equipment, net 43,666 43,715 Other non-current assets 66,681 64,758 Total non-current assets 209,822 209,017 Total assets $ 353,514 $ 352,583 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 58,146 $ 62,611 Other current liabilities 54,611 58,829 Deferred revenue 8,264 8,061 Commercial paper 1,998 5,985 Term debt 10,954 9,822 Total current liabilities 133,973 145,308 Non-current liabilities: Term debt 95,088 95,281 Other non-current liabilities 50,353 49,848 Total non-current liabilities 145,441 145,129 Total liabilities 279,414 290,437 Commitments and contingencies Shareholders’ equity: Common stock and additional paid-in capital, $ 0.00001 par value: 50,400,000 shares authorized; 15,460,223 and 15,550,061 shares issued and outstanding, respectively 75,236 73,812 Retained earnings/(Accumulated deficit) 8,242 ( 214 ) Accumulated other comprehensive loss ( 9,378 ) ( 11,452 ) Total shareholders’ equity 74,100 62,146 Total liabilities and shareholders’ equity $ 353,514 $ 352,583 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2024 Form 10-Q | 3 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions, except per-share amounts) Three Months Ended December 30, 2023 December 31, 2022 Total shareholders’ equity, beginning balances $ 62,146 $ 50,672 Common stock and additional paid-in capital: Beginning balances 73,812 64,849 Common stock withheld related to net share settlement of equity awards ( 1,660 ) ( 1,434 ) Share-based compensation 3,084 2,984 Ending balances 75,236 66,399 Retained earnings/(Accumulated deficit): Beginning balances ( 214 ) ( 3,068 ) Net income 33,916 29,998 Dividends and dividend equivalents declared ( 3,774 ) ( 3,712 ) Common stock withheld related to net share settlement of equity awards ( 1,018 ) ( 978 ) Common stock repurchased ( 20,668 ) ( 19,000 ) Ending balances 8,242 3,240 Accumulated other comprehensive income/(loss): Beginning balances ( 11,452 ) ( 11,109 ) Other comprehensive income/(loss) 2,074 ( 1,803 ) Ending balances ( 9,378 ) ( 12,912 ) Total shareholders’ equity, ending balances $ 74,100 $ 56,727 Dividends and dividend equivalents declared per share or RSU $ 0.24 $ 0.23 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2024 Form 10-Q | 4 Apple Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three Months Ended December 30, 2023 December 31, 2022 Cash, cash equivalents and restricted cash, beginning balances $ 30,737 $ 24,977 Operating activities: Net income 33,916 29,998 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 2,848 2,916 Share-based compensation expense 2,997 2,905 Other ( 989 ) ( 317 ) Changes in operating assets and liabilities: Accounts receivable, net 6,555 4,275 Vendor non-trade receivables 4,569 2,320 Inventories ( 137 ) ( 1,807 ) Other current and non-current assets ( 1,457 ) ( 4,099 ) Accounts payable ( 4,542 ) ( 6,075 ) Other current and non-current liabilities ( 3,865 ) 3,889 Cash generated by operating activities 39,895 34,005 Investing activities: Purchases of marketable securities ( 9,780 ) ( 5,153 ) Proceeds from maturities of marketable securities 13,046 7,127 Proceeds from sales of marketable securities 1,337 509 Payments for acquisition of property, plant and equipment ( 2,392 ) ( 3,787 ) Other ( 284 ) ( 141 ) Cash generated by/(used in) investing activities 1,927 ( 1,445 ) Financing activities: Payments for taxes related to net share settlement of equity awards ( 2,591 ) ( 2,316 ) Payments for dividends and dividend equivalents ( 3,825 ) ( 3,768 ) Repurchases of common stock ( 20,139 ) ( 19,475 ) Repayments of term debt — ( 1,401 ) Repayments of commercial paper, net ( 3,984 ) ( 8,214 ) Other ( 46 ) ( 389 ) Cash used in financing activities ( 30,585 ) ( 35,563 ) Increase/(Decrease) in cash, cash equivalents and restricted cash 11,237 ( 3,003 ) Cash, cash equivalents and restricted cash, ending balances $ 41,974 $ 21,974 Supplemental cash flow disclosure: Cash paid for income taxes, net $ 7,255 $ 828 See accompanying Notes to Condensed Consolidated Financial Statements. Apple Inc. | Q1 2024 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”). 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 (“GAAP”) requires the use of management 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 30, 2023 (the “2023 Form 10-K”). 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 2024 and 2023 span 52 and 53 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. Note 2 – Revenue Net sales disaggregated by significant products and services for the three months ended December 30, 2023 and December 31, 2022 were as follows (in millions): Three Months Ended December 30, 2023 December 31, 2022 iPhone ® $ 69,702 $ 65,775 Mac ® 7,780 7,735 iPad ® 7,023 9,396 Wearables, Home and Accessories 11,953 13,482 Services 23,117 20,766 Total net sales $ 119,575 $ 117,154 Total net sales include $ 3.5 billion of revenue recognized in the three months ended December 30, 2023 that was included in deferred revenue as of September 30, 2023 and $ 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. 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 months ended December 30, 2023 and December 31, 2022, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales. As of December 30, 2023 and September 30, 2023, the Company had total deferred revenue of $ 12.5 billion and $ 12.1 billion, respectively. As of December 30, 2023, the Company expects 66 % of total deferred revenue to be realized in less than a year, 26 % within one-to-two years, 7 % within two-to-three years and 1 % in greater than three years. Apple Inc. | Q1 2024 Form 10-Q | 6 Note 3 – Earnings Per Share The following table shows the computation of basic and diluted earnings per share for the three months ended December 30, 2023 and December 31, 2022 (net income in millions and shares in thousands): Three Months Ended December 30, 2023 December 31, 2022 Numerator: Net income $ 33,916 $ 29,998 Denominator: Weighted-average basic shares outstanding 15,509,763 15,892,723 Effect of dilutive share-based awards 66,878 62,995 Weighted-average diluted shares 15,576,641 15,955,718 Basic earnings per share $ 2.19 $ 1.89 Diluted earnings per share $ 2.18 $ 1.88 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. Note 4 – 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 30, 2023 and September 30, 2023 (in millions): December 30, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 29,542 $ — $ — $ 29,542 $ 29,542 $ — $ — Level 1: Money market funds 2,000 — — 2,000 2,000 — — Mutual funds 448 35 ( 11 ) 472 — 472 — Subtotal 2,448 35 ( 11 ) 2,472 2,000 472 — Level 2 (1) : U.S. Treasury securities 24,041 12 ( 920 ) 23,133 7,303 4,858 10,972 U.S. agency securities 5,791 — ( 448 ) 5,343 243 98 5,002 Non-U.S. government securities 17,326 54 ( 675 ) 16,705 — 11,175 5,530 Certificates of deposit and time deposits 1,448 — — 1,448 1,119 329 — Commercial paper 1,361 — — 1,361 472 889 — Corporate debt securities 75,360 112 ( 3,964 ) 71,508 81 13,909 57,518 Municipal securities 562 — ( 14 ) 548 — 185 363 Mortgage- and asset-backed securities 22,369 53 ( 1,907 ) 20,515 — 425 20,090 Subtotal 148,258 231 ( 7,928 ) 140,561 9,218 31,868 99,475 Total (2) $ 180,248 $ 266 $ ( 7,939 ) $ 172,575 $ 40,760 $ 32,340 $ 99,475 Apple Inc. | Q1 2024 Form 10-Q | 7 September 30, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Current Marketable Securities Non-Current Marketable Securities Cash $ 28,359 $ — $ — $ 28,359 $ 28,359 $ — $ — Level 1: Money market funds 481 — — 481 481 — — Mutual funds and equity securities 442 12 ( 26 ) 428 — 428 — Subtotal 923 12 ( 26 ) 909 481 428 — Level 2 (1) : U.S. Treasury securities 19,406 — ( 1,292 ) 18,114 35 5,468 12,611 U.S. agency securities 5,736 — ( 600 ) 5,136 36 271 4,829 Non-U.S. government securities 17,533 6 ( 1,048 ) 16,491 — 11,332 5,159 Certificates of deposit and time deposits 1,354 — — 1,354 1,034 320 — Commercial paper 608 — — 608 — 608 — Corporate debt securities 76,840 6 ( 5,956 ) 70,890 20 12,627 58,243 Municipal securities 628 — ( 26 ) 602 — 192 410 Mortgage- and asset-backed securities 22,365 6 ( 2,735 ) 19,636 — 344 19,292 Subtotal 144,470 18 ( 11,657 ) 132,831 1,125 31,162 100,544 Total (2) $ 173,752 $ 30 $ ( 11,683 ) $ 162,099 $ 29,965 $ 31,590 $ 100,544 (1) The valuation techniques used to measure the fair values of the Company’s Level 2 financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. (2) As of December 30, 2023 and September 30, 2023, total marketable securities included $ 13.9 billion and $ 13.8 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. The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of December 30, 2023 (in millions): Due after 1 year through 5 years $ 72,994 Due after 5 years through 10 years 9,368 Due after 10 years 17,113 Total fair value $ 99,475 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 Rate Risk To protect gross margins from fluctuations in foreign exchange rates, the Company may use forwards, options 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 exchange rates, the Company may use forwards, cross-currency swaps or other instruments. The Company designates these instruments as either cash flow or fair value hedges. As of December 30, 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. The Company may also use derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign exchange rates, as well as to offset a portion of the foreign currency gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies. Apple Inc. | Q1 2024 Form 10-Q | 8 Interest Rate Risk To protect the Company’s term debt or marketable securities from fluctuations in interest rates, the Company may use 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 30, 2023 and September 30, 2023 were as follows (in millions): December 30, 2023 September 30, 2023 Derivative instruments designated as accounting hedges: Foreign exchange contracts $ 66,735 $ 74,730 Interest rate contracts $ 19,375 $ 19,375 Derivative instruments not designated as accounting hedges: Foreign exchange contracts $ 102,108 $ 104,777 The carrying amounts of the Company’s hedged items in fair value hedges as of December 30, 2023 and September 30, 2023 were as follows (in millions): December 30, 2023 September 30, 2023 Hedged assets/(liabilities): Current and non-current marketable securities $ 15,102 $ 14,433 Current and non-current term debt $ ( 18,661 ) $ ( 18,247 ) Accounts Receivable Trade Receivables The Company’s third-party cellular network carriers accounted for 34 % and 41 % of total trade receivables as of December 30, 2023 and September 30, 2023, respectively. The Company requires third-party credit support or collateral from certain customers to limit credit risk. 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. The Company does not reflect the sale of these components in products net sales. Rather, the Company recognizes any gain on these sales as a reduction of products cost of sales when the related final products are sold by the Company. As of December 30, 2023, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 50 % and 20 % . As of September 30, 2023, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 48 % and 23 %. Note 5 – Condensed Consolidated Financial Statement Details The following table shows the Company’s condensed consolidated financial statement details as of December 30, 2023 and September 30, 2023 (in millions): Property, Plant and Equipment, Net December 30, 2023 September 30, 2023 Gross property, plant and equipment $ 116,176 $ 114,599 Accumulated depreciation ( 72,510 ) ( 70,884 ) Total property, plant and equipment, net $ 43,666 $ 43,715 Apple Inc. | Q1 2024 Form 10-Q | 9 Note 6 – Debt Commercial Paper The Company issues unsecured short-term promissory notes 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 30, 2023 and September 30, 2023, the Company had $ 2.0 billion and $ 6.0 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 30, 2023 and December 31, 2022 (in millions): Three Months Ended December 30, 2023 December 31, 2022 Maturities 90 days or less: Repayments of commercial paper, net $ ( 3,984 ) $ ( 5,569 ) Maturities greater than 90 days: Repayments of commercial paper — ( 2,645 ) Total repayments of commercial paper, net $ ( 3,984 ) $ ( 8,214 ) Term Debt As of December 30, 2023 and September 30, 2023, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $ 106.0 billion and $ 105.1 billion, respectively (collectively the “Notes”). As of December 30, 2023 and September 30, 2023, the fair value of the Company’s Notes, based on Level 2 inputs, was $ 96.7 billion and $ 90.8 billion, respectively. Note 7 – Shareholders’ Equity Share Repurchase Program During the three months ended December 30, 2023, the Company repurchased 118 million shares of its common stock for $ 20.5 billion. The Company’s share repurchase program does not obligate the Company to acquire a minimum amount of shares. Under the program, 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 (the “Exchange Act”). Note 8 – Share-Based Compensation Restricted Stock Units A summary of the Company’s RSU activity and related information for the three months ended December 30, 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 30, 2023 180,247 $ 135.91 RSUs granted 74,241 $ 171.58 RSUs vested ( 42,490 ) $ 110.75 RSUs canceled ( 3,026 ) $ 109.05 Balance as of December 30, 2023 208,972 $ 154.09 $ 40,233 The fair value as of the respective vesting dates of RSUs was $ 7.7 billion and $ 6.8 billion for the three months ended December 30, 2023 and December 31, 2022, respectively. Apple Inc. | Q1 2024 Form 10-Q | 10 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 30, 2023 and December 31, 2022 (in millions): Three Months Ended December 30, 2023 December 31, 2022 Share-based compensation expense $ 2,997 $ 2,905 Income tax benefit related to share-based compensation expense $ ( 1,235 ) $ ( 1,178 ) As of December 30, 2023, the total unrecognized compensation cost related to outstanding RSUs was $ 27.4 billion, which the Company expects to recognize over a weighted-average period of 2.9 years. Note 9 – 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 10 – Segment Information and Geographic Data The following table shows information by reportable segment for the three months ended December 30, 2023 and December 31, 2022 (in millions): Three Months Ended December 30, 2023 December 31, 2022 Americas: Net sales $ 50,430 $ 49,278 Operating income $ 20,357 $ 17,864 Europe: Net sales $ 30,397 $ 27,681 Operating income $ 12,711 $ 10,017 Greater China: Net sales $ 20,819 $ 23,905 Operating income $ 8,622 $ 10,437 Japan: Net sales $ 7,767 $ 6,755 Operating income $ 3,819 $ 3,236 Rest of Asia Pacific: Net sales $ 10,162 $ 9,535 Operating income $ 4,579 $ 3,851 Apple Inc. | Q1 2024 Form 10-Q | 11 A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December 30, 2023 and December 31, 2022 is as follows (in millions): Three Months Ended December 30, 2023 December 31, 2022 Segment operating income $ 50,088 $ 45,405 Research and development expense ( 7,696 ) ( 7,709 ) Other corporate expenses, net ( 2,019 ) ( 1,680 ) Total operating income $ 40,373 $ 36,016 Apple Inc. | Q1 2024 Form 10-Q | 12