What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2024-02-02 · 68 added, 53 removed, 101 unchanged (55% of the section changed)

19 unchanged sentences

Net sales can also be affected when consumers and distributors anticipate a product introduction.

During the second quarter of 2024, the Company announced an updated MacBook Air ® 13-in.

and MacBook Air 15-in.

Fiscal Period

2 unchanged sentences

The Company’s fiscal years 2024 and 2023 span 52 and 53 weeks, respectively.

Quarterly Highlights

The Company’s first quarter of 2024 included 13 weeks, compared to 14 weeks during the first quarter of 2023.

The Company’s total net sales increased 2% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023, driven primarily by higher net sales of iPhone and Services, partially offset by lower net sales of iPad and Wearables, Home and Accessories.

During the first quarter of 2024, the Company announced an updated MacBook Pro ® 14-in., MacBook Pro 16-in.

The Company repurchased $20.5 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the first quarter of 2024.

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.

Macroeconomic conditions, including inflation, 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.

| Q2 2024 Form 10-Q | 13

Segment Operating Performance

The following table shows net sales by reportable segment for the three months ended December 30, 2023 and December 31, 2022 (dollars in millions):

Three Months Ended

2023 December 31,

The following table shows net sales by reportable segment for the three- and six-month periods ended March 30, 2024 and April 1, 2023 (dollars in millions):

Three Months Ended Six Months Ended

2024 April 1,

2023 Change March 30,

2024 April 1,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 90,753 $ 94,836 (4) % $ 210,328 $ 211,990 (1) %

Americas net sales increased 2% or $1.2 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Services and iPhone, partially offset by lower net sales of iPad.

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

dollar had a net favorable year-over-year impact on Americas net sales during the first quarter of 2024.

Europe net sales increased 10% or $2.7 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone.

Americas net sales were relatively flat during the second quarter of 2024 compared to the second quarter of 2023, with lower net sales of iPhone and iPad offset by higher net sales of Services.

Year-over-year Americas net sales were relatively flat during the first six months of 2024, with higher net sales of Services offset by lower net sales of iPhone and iPad.

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

dollar had a net favorable year-over-year impact on Europe net sales during the first quarter of 2024.

dollar had a net favorable year-over-year impact on Americas net sales during the second quarter and first six months of 2024.

Europe net sales were relatively flat during the second quarter of 2024 compared to the second quarter of 2023, with higher net sales of Services offset by lower net sales of iPhone.

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

dollar had a net unfavorable year-over-year impact on Europe net sales during the second quarter of 2024.

Year-over-year Europe net sales increased during the first six months of 2024 due primarily to higher net sales of iPhone and Services, partially offset by lower net sales of iPad.

Greater China

Greater China net sales decreased 13% or $3.1 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPhone, iPad and Wearables, Home and Accessories.

Greater China net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of iPhone and iPad.

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

dollar had an unfavorable year-over-year impact on Greater China net sales during the first quarter of 2024.

Japan net sales increased 15% or $1.0 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone.

dollar had an unfavorable year-over-year impact on Greater China net sales during the second quarter and first six months of 2024.

Japan net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower net sales of iPhone.

Year-over-year Japan net sales during the first six months of 2024 were relatively flat.

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

dollar had an unfavorable year-over-year impact on Japan net sales during the first quarter of 2024.

dollar had an unfavorable year-over-year impact on Japan net sales during the second quarter and first six months of 2024.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased 7% or $627 million during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone, partially offset by lower net sales of Wearables, Home and Accessories.

Rest of Asia Pacific net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower net sales of iPhone.

Year-over-year Rest of Asia Pacific net sales decreased during the first six months of 2024 due primarily to lower net sales of Wearables, Home and Accessories and iPad.

| Q2 2024 Form 10-Q | 14

Products and Services Performance

The following table shows net sales by category for the three months ended December 30, 2023 and December 31, 2022 (dollars in millions):

Three Months Ended

2023 December 31,

The following table shows net sales by category for the three- and six-month periods ended March 30, 2024 and April 1, 2023 (dollars in millions):

Three Months Ended Six Months Ended

2024 April 1,

2023 Change March 30,

2024 April 1,

Net sales by category:

5 unchanged sentences

Total net sales $ 90,753 $ 94,836 (4) % $ 210,328 $ 211,990 (1) %

iPhone net sales increased 6% or $3.9 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Pro models, partially offset by lower net sales of other models.

Mac net sales were relatively flat during the first quarter of 2024 compared to the same quarter in 2023.

iPad net sales decreased 25% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPad Pro, iPad 9th generation and iPad Air.

iPhone net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due to lower net sales of Pro models.

Year-over-year iPhone net sales were relatively flat during the first six months of 2024.

Mac net sales increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due to higher net sales of laptops.

iPad net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of iPad Pro ® and iPad 9th generation.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales decreased 11% or $1.5 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of Wearables and Accessories.

Services net sales increased 11% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales from advertising, video and cloud services.

Wearables, Home and Accessories net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of Wearables and Accessories.

Services net sales increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to higher net sales from advertising, the App Store ® and cloud services.

| Q2 2024 Form 10-Q | 15

Products and Services gross margin and gross margin percentage for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 30, 2024 and April 1, 2023 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2024 April 1,

2023 March 30,

2024 April 1,

Gross margin:

7 unchanged sentences

Products Gross Margin

Products gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to cost savings and a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

dollar and lower Products volume.

Products gross margin percentage increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to cost savings and a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

Products gross margin decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower Products volume and the weakness in foreign currencies relative to the U.S.

Year-over-year Products gross margin was relatively flat during the first six months of 2024.

Products gross margin percentage was relatively flat during the second quarter of 2024 compared to the second quarter of 2023.

Year-over-year Products gross margin percentage increased during the first six months of 2024 due primarily to cost savings, partially offset by the weakness in foreign currencies relative to the U.S.

Services Gross Margin

Services gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher Services net sales and a different Services mix.

Services gross margin percentage increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to a different Services mix.

Services gross margin and Services gross margin percentage increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to 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 the 2023 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.

| Q1 2024 Form 10-Q | 16

Operating Expenses

Operating expenses for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Operating expenses for the three- and six-month periods ended March 30, 2024 and April 1, 2023 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2024 April 1,

2023 March 30,

2024 April 1,

Research and development $ 7,903 $ 7,457 $ 15,599 $ 15,166

5 unchanged sentences

Research and Development

Research and development (“R&D”) expense was relatively flat during the first quarter of 2024 compared to the same quarter in 2023.

The growth in research and development (“R&D”) expense during the second quarter and first six months of 2024 compared to the same periods in 2023 was driven primarily by increases in headcount-related expenses.

| Q2 2024 Form 10-Q | 16

Selling, General and Administrative

Selling, general and administrative expense increased 3% or $179 million during the first quarter of 2024 compared to the same quarter in 2023.

The growth in selling, general and administrative expense during the second quarter and first six months of 2024 compared to the same periods in 2023 was driven in part by higher infrastructure-related costs.

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended March 30, 2024 and April 1, 2023 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2024 April 1,

2023 March 30,

2024 April 1,

Provision for income taxes $ 4,422 $ 4,222 $ 10,829 $ 9,847

1 unchanged sentence

Statutory federal income tax rate 21 % 21 % 21 % 21 %

The Company’s effective tax rate for the first quarter of 2024 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 the first quarter of 2024 was relatively flat compared to the same quarter in 2023.

The Company’s effective tax rate for the second quarter and first six months of 2024 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 the second quarter and first six months of 2024 was higher compared to the same periods in 2023 due primarily to a higher effective tax rate on foreign earnings and a lower tax benefit from the U.S.

federal R&D credit.

Liquidity and Capital Resources

4 unchanged sentences

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

As of December 30, 2023, the Company had manufacturing purchase obligations of $38.0 billion, with $37.9 billion payable within 12 months.

| Q1 2024 Form 10-Q | 17

As of March 30, 2024, the Company had manufacturing purchase obligations of $34.2 billion, with $34.1 billion payable within 12 months.

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.

As of December 30, 2023, the Company’s quarterly cash dividend was $0.24 per share.

In addition to its contractual cash requirements, the Company has an authorized share repurchase program, under which the remaining availability was $30.1 billion as of March 30, 2024.

On May 2, 2024, the Company announced the Board of Directors had authorized an additional program to repurchase up to $110 billion of the Company’s common stock.

The programs do not obligate the Company to acquire a minimum amount of shares.

On May 2, 2024, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.24 to $0.25 per share, beginning with the dividend to be paid during the third quarter of 2024.

The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

During the second quarter of 2024, the Company repurchased $23.5 billion of its common stock and paid dividends and dividend equivalents of $3.7 billion.

| Q2 2024 Form 10-Q | 17

Recent Accounting Pronouncements

16 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the first three months of 2024.

There have been no material changes to the Company’s market risk during the first six months of 2024.

For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Form 10-K.

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-Q

Item 2. Management’s Discussion and Analysis