What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-11-01 compared with 2023-11-03 · 59 added, 65 removed, 105 unchanged (54% of the section changed)

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Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 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 30, 2023.

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

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 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.

Product, Service and Software Announcements

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

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First Quarter 2024:

• iPad and iPad Pro;

• Next-generation Apple TV 4K;

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

• MacBook Pro 14-in.;

• MacBook Pro 16-in.;

Second Quarter 2024:

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

• Second-generation HomePod.

• MacBook Air 13-in.;

• MacBook Air 15-in.

Third Quarter 2024:

• 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.

• iOS 18, macOS Sequoia, iPadOS 18, watchOS 11, visionOS 2 and tvOS 18, updates to the Company’s operating systems;

• Apple Intelligence™, a personal intelligence system that uses generative models.

Fourth Quarter 2024:

• iPhone 16, iPhone 16 Plus, iPhone 16 Pro and iPhone 16 Pro Max;

• 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.

• Apple Watch Series 10;

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 years 2024 and 2022 spanned 52 weeks each, whereas fiscal year 2023 spanned 53 weeks.

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.

| 2024 Form 10-K | 21

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2024 Change 2023 Change 2022

Net sales by reportable segment:

Americas $ 167,045 3 % $ 162,560 (4) % $ 169,658

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Total net sales $ 391,035 2 % $ 383,285 (3) % $ 394,328

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.

Americas net sales increased during 2024 compared to 2023 due primarily to higher net sales of Services.

Europe net sales increased during 2024 compared to 2023 due primarily to higher net sales of Services and iPhone.

Greater China

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

Greater China net sales decreased during 2024 compared to 2023 due primarily to lower net sales of iPhone and iPad.

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.

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

Japan net sales increased during 2024 compared to 2023 due primarily to higher net sales of iPhone.

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.

dollar had an unfavorable year-over-year impact on Japan net sales during 2024.

Rest of Asia Pacific

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

Rest of Asia Pacific net sales increased during 2024 compared to 2023 due primarily to higher net sales of Services.

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.

dollar had a net unfavorable year-over-year impact on Rest of Asia Pacific net sales during 2024.

| 2024 Form 10-K | 22

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2024 Change 2023 Change 2022

Net sales by category:

$ 200,583 (2) % $ 205,489 7 % $ 191,973

29,357 (27) % 40,177 14 % 35,190

28,300 (3) % 29,292 (8) % 31,862

iPhone $ 201,183 — % $ 200,583 (2) % $ 205,489

Mac 29,984 2 % 29,357 (27) % 40,177

iPad 26,694 (6) % 28,300 (3) % 29,292

Wearables, Home and Accessories 37,005 (7) % 39,845 (3) % 41,241

96,169 13 % 85,200 9 % 78,129

85,200 9 % 78,129 14 % 68,425

Total net sales $ 391,035 2 % $ 383,285 (3) % $ 394,328

(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.

(1) 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.

iPhone net sales were relatively flat during 2024 compared to 2023.

Mac net sales increased during 2024 compared to 2023 due primarily to higher net sales of laptops.

iPad net sales decreased during 2024 compared to 2023 due primarily to lower net sales of iPad Pro and the entry-level iPad models, partially offset by higher net sales of iPad Air.

Wearables, Home and Accessories

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.

Wearables, Home and Accessories net sales decreased during 2024 compared to 2023 due primarily to lower net sales of Wearables and Accessories.

Services net sales increased during 2024 compared to 2023 due primarily to higher net sales from advertising, the App Store ® and cloud services.

| 2024 Form 10-K | 23

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Products Gross Margin

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.

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

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.

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.

Services gross margin increased during 2024 compared to 2023 due primarily to higher Services net sales.

Services gross margin percentage increased during 2024 compared to 2023 due 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 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.

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Research and Development

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

The growth in R&D expense during 2024 compared to 2023 was driven primarily by increases in headcount-related expenses.

Selling, General and Administrative

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

Selling, general and administrative expense increased $1.2 billion during 2024 compared to 2023.

| 2024 Form 10-K | 24

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Statutory federal income tax rate 21 % 21 % 21 %

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.

The Company’s effective tax rate for 2024 was higher than the statutory federal income tax rate due primarily to a one-time income tax charge of $10.2 billion, net, related to the State Aid Decision (refer to Note 7, “Income Taxes” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K) and state income taxes, partially offset by 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.

The Company’s effective tax rate for 2024 was higher compared to 2023 due primarily to a one-time income tax charge of $10.2 billion, net, related to the State Aid Decision, a higher effective tax rate on foreign earnings and lower tax benefits from share-based compensation.

Liquidity and Capital Resources

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, which totaled $148.3 billion as of September 30, 2023, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.

The Company believes its balances of unrestricted cash, cash equivalents and marketable securities, which totaled $140.8 billion as of September 28, 2024, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.

The Company’s material cash requirements include the following contractual obligations:

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As of September 28, 2024, the Company had manufacturing purchase obligations of $53.0 billion, with $52.9 billion payable within 12 months.

The Company’s manufacturing purchase obligations are primarily noncancelable.

Other Purchase Obligations

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As of September 28, 2024, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act of 2017 (the “Act”) was $22.0 billion, with $6.5 billion expected to be paid within 12 months.

Tax Cuts and Jobs Act of 2017 (the “TCJA”) was $16.5 billion, with $7.2 billion expected to be paid within 12 months.

| 2024 Form 10-K | 25

State Aid Decision Tax Payable

As of September 28, 2024, the Company had an obligation to pay €14.2 billion or $15.8 billion to Ireland in connection with the State Aid Decision, all of which was expected to be paid within 12 months.

The funds necessary to settle the obligation were held in escrow as of September 28, 2024, and restricted from general use.

Capital Return Program

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As of September 28, 2024, the Company’s quarterly cash dividend was $0.25 per share.

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

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

In May 2024, the Company announced a new share repurchase program of up to $110 billion and raised its quarterly dividend from $0.24 to $0.25 per share beginning in May 2024.

During 2024, the Company repurchased $95.0 billion of its common stock and paid dividends and dividend equivalents of $15.2 billion.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions.

The Company will adopt ASU 2023-09 in its fourth quarter of 2026 using a prospective transition method.

Segment Reporting

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”).

In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources.

The Company will adopt ASU 2023-07 in its fourth quarter of 2025 using a retrospective transition method.

Critical Accounting Estimates

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and numerous foreign jurisdictions.

The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws, including the Act and matters related to the allocation of international taxation rights between countries.

Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves.

The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws, including the TCJA and the allocation of international taxation rights between countries.

Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that reflected in the Company’s reserves.

Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination.

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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