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0000320193
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20220429
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10-Q
| 64
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As of March 26, 2022 and September 25, 2021, the Company had $7.0 billion and $6.0 billion of Commercial Paper outstanding, respectively.
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10-Q
| 65
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The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended March 26, 2022 and March 27, 2021 (in millions):
Term Debt
As of March 26, 2022 and September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate carrying amount of $113.0 billion and $118.7 billion, respectively (collectively the “Notes”).
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As of March 26, 2022 and September 25, 2021, the fair value of the Company’s Notes, based on Level 2 inputs, was $110.5 billion and $125.3 billion, respectively.
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Note 6 - Shareholders’ Equity
Share Repurchase Program
During the six months ended March 26, 2022, the Company repurchased 266 million shares of its common stock for $43.3 billion under a share repurchase program authorized by the Board of Directors (the “Program”), including 35 million shares delivered under accelerated share repurchase agreements totaling $6.0 billion that were entered into in November 2021.
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The Program does not obligate the Company to acquire a minimum amount of shares.
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Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
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Apple Inc. | Q2 2022 Form 10-Q | 11
Note 7 - Benefit Plans
Restricted Stock Units
A summary of the Company’s restricted stock unit (“RSU”) activity and related information for the six months ended March 26, 2022 is as follows:
The fair value as of the respective vesting dates of RSUs was $1.0 billion and $9.5 billion for the three- and six-month periods ended March 26, 2022, respectively, and was $867 million and $9.4 billion for the three- and six-month periods ended March 27, 2021, respectively.
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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 six-month periods ended March 26, 2022 and March 27, 2021 (in millions):
As of March 26, 2022, the total unrecognized compensation cost related to outstanding RSUs and stock options was $19.3 billion, which the Company expects to recognize over a weighted-average period of 2.8 years.
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Note 8 - Commitments and Contingencies
Accrued Warranty
The following table shows changes in the Company’s accrued warranties and related costs for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (in millions):
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.
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The outcome of litigation is inherently uncertain.
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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.
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Apple Inc. | Q2 2022 Form 10-Q | 12
Note 9 - Segment Information and Geographic Data
The following table shows information by reportable segment for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (in millions):
A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three- and six-month periods ended March 26, 2022 and March 27, 2021 is as follows (in millions):
Apple Inc. | Q2 2022 Form 10-Q | 13
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.
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| 77
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Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.
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For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements.
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Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.
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Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.
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Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2021 (the “2021 Form 10-K”) under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
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10-Q
| 82
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Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
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| 83
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Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly owned subsidiaries, unless otherwise stated.
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10-Q
| 84
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The following discussion should be read in conjunction with the 2021 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.
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Available Information
The Company periodically provides certain information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com.
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| 86
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This includes press releases and other information about financial performance, information on environmental, social and corporate governance matters, and details related to the Company’s annual meeting of shareholders.
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10-Q
| 87
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The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing.
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| 88
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Further, the Company’s references to website URLs are intended to be inactive textual references only.
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| 89
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Business Seasonality and Product Introductions
The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.
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Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses.
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| 91
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The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches.
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| 92
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Net sales can also be affected when consumers and distributors anticipate a product introduction.
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Quarterly Highlights
Total net sales increased 9% or $7.7 billion during the second quarter of 2022 compared to the same quarter in 2021, driven primarily by growth in Services, iPhone and Mac.
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| 94
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During the second quarter of 2022, the Company released the following products:
•iPhone SE® with 5G technology;
•iPad Air®, powered by the Apple M1 chip;
•All-new Mac Studio™, powered by the Apple M1 Max or the new Apple M1 Ultra chip; and
•All-new Apple Studio Display™.
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| 95
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The Company repurchased $22.9 billion of its common stock and paid dividends and dividend equivalents of $3.6 billion during the second quarter of 2022.
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| 96
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Apple Inc. | Q2 2022 Form 10-Q | 14
COVID-19 Update
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.
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| 97
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The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.
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| 98
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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, as well as the price of the Company’s stock.
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10-Q
| 99
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During the second quarter of 2022, aspects of the Company’s business continued to be affected by the COVID-19 pandemic, with a significant number of the Company’s employees working remotely and many of the Company’s retail stores operating at limited capacity or temporarily closing at various times.
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| 100
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Substantially all of the Company’s other facilities are open, subject to operating restrictions to protect public health and the health and safety of employees.
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10-Q
| 101
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The Company continues to work on safely reopening the remainder of its facilities, subject to local rules and regulations.
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10-Q
| 102
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At times, certain of the Company’s outsourcing partners, component suppliers and logistical service providers have experienced disruptions, resulting in supply shortages that could affect sales worldwide.
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10-Q
| 103
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Similar disruptions could occur in the future.
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10-Q
| 104
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The extent of the continuing impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.
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10-Q
| 105
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Refer to Part I, Item 1A of the 2021 Form 10-K under the heading “Risk Factors” for more information.
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10-Q
| 106
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Products and Services Performance
The following table shows net sales by category for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (dollars in millions):
(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.
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| 107
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(2)Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod mini, iPod touch and accessories.
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| 108
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(3)Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services.
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Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.
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iPhone
iPhone net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales from the Company’s new iPhone models.
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| 111
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Mac
Mac net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of MacBook Pro®, partially offset by lower net sales of MacBook Air®.
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| 112
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Apple Inc. | Q2 2022 Form 10-Q | 15
iPad
iPad net sales decreased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to lower net sales of the 10-inch version of iPad, offset by higher net sales of iPad Pro® and iPad mini®.
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10-Q
| 113
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Year-over-year iPad net sales decreased during the first six months of 2022 due primarily to lower net sales of the 10-inch version of iPad, partially offset by higher net sales of iPad mini.
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| 114
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Wearables, Home and Accessories
Wearables, Home and Accessories net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of Apple Watch, AirPods and accessories.
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| 115
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Services
Services net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales from advertising, the App Store® and cloud services.
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| 116
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Segment Operating Performance
The Company manages its business primarily on a geographic basis.
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| 117
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The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
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| 118
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Americas includes both North and South America.
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| 119
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Europe includes European countries, as well as India, the Middle East and Africa.
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| 120
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Greater China includes China mainland, Hong Kong and Taiwan.
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Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.
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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.
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10-Q
| 123
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Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 9, “Segment Information and Geographic Data.”
The following table shows net sales by reportable segment for the three- and six-month periods ended March 26, 2022 and March 27, 2021 (dollars in millions):
Americas
Americas net sales increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to higher net sales of iPhone, Services and Mac.
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Year-over-year Americas net sales increased during the first six months of 2022 due primarily to higher net sales of iPhone, Services and Wearables, Home and Accessories.
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Europe
Europe net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of Services and Mac.
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| 126
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The movement of foreign currencies in Europe relative to the U.S. dollar had a net unfavorable impact on Europe net sales during the second quarter and first six months of 2022.
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Greater China
Greater China net sales increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher net sales of iPhone and Services.
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| 128
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The strength of the Chinese renminbi relative to the U.S. dollar had a favorable impact on Greater China net sales during the second quarter and first six months of 2022.
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Apple Inc. | Q2 2022 Form 10-Q | 16
Japan
Japan net sales were flat during the second quarter of 2022 compared to the second quarter of 2021 due primarily to the weakness of the Japanese yen relative to the U.S. dollar, offset by higher net sales of iPhone and Services.
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| 130
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Year-over-year Japan net sales decreased during the first six months of 2022 due primarily to the weakness of the Japanese yen relative to the U.S. dollar.
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Rest of Asia Pacific
Rest of Asia Pacific net sales decreased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Mac.
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Year-over-year Rest of Asia Pacific net sales increased during the first six months of 2022 due primarily to higher net sales of Services, Mac and Wearables, Home and Accessories.
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The movement of foreign currencies in Rest of Asia Pacific relative to the U.S. dollar had a net unfavorable impact on Rest of Asia Pacific net sales during the second quarter and first six months of 2022.
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Gross Margin
Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):
Products Gross Margin
Products gross margin increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to higher Products volume.
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Year-over-year Products gross margin increased during the first six months of 2022 due primarily to a different Products mix and higher Products volume.
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Products gross margin percentage increased during the second quarter of 2022 compared to the second quarter of 2021 due primarily to improved leverage.
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Year-over-year Products gross margin percentage increased during the first six months of 2022 due primarily to a different Products mix.
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| 138
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Services Gross Margin
Services gross margin increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to higher Services net sales and a different Services mix, partially offset by the weakness in foreign currencies relative to the U.S. dollar.
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| 139
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Services gross margin percentage increased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to a different Services mix and improved leverage, partially offset by the weakness in foreign currencies relative to the U.S. dollar.
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The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2021 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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Apple Inc. | Q2 2022 Form 10-Q | 17
Operating Expenses
Operating expenses for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):
Research and Development
The growth in research and development (“R&D”) expense during the second quarter and first six months of 2022 compared to the same periods in 2021 was driven primarily by increases in headcount-related expenses, engineering program costs and professional services.
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The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to the Company’s core business strategy.
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20220429
|
10-Q
| 143
|
Selling, General and Administrative
The growth in selling, general and administrative expense during the second quarter of 2022 compared to the second quarter of 2021 was driven primarily by increases in advertising, headcount-related expenses and professional services.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 144
|
Year-over-year selling, general and administrative expense increased during the first six months of 2022 due primarily to increases in headcount-related expenses, advertising and variable selling expenses.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 145
|
Other Income/(Expense), Net
Other income/(expense), net (“OI&E”) for the three- and six-month periods ended March 26, 2022 and March 27, 2021 was as follows (dollars in millions):
OI&E decreased during the second quarter and first six months of 2022 compared to the same periods in 2021 due primarily to fair value adjustments on marketable securities, partially offset by foreign exchange gains.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 146
|
Apple Inc. | Q2 2022 Form 10-Q | 18
Provision for Income Taxes
Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended March 26, 2022 and March 27, 2021 were as follows (dollars in millions):
The Company’s effective tax rate for the second quarter of 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits, partially offset by the impact to U.S. foreign tax credits as a result of regulations issued by the U.S. Department of the Treasury in January 2022 (the “Regulations”).
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 147
|
The Company’s effective tax rate for the first six months of 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 148
|
The Company’s effective tax rate for the second quarter of 2022 was higher compared to the second quarter of 2021 due primarily to the impact to U.S. foreign tax credits as a result of the Regulations, partially offset by a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 149
|
The Company’s effective tax rate for the first six months of 2022 was higher compared to the same period in 2021 due primarily to the impact to U.S. foreign tax credits as a result of the Regulations and lower tax benefits from share-based compensation.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 150
|
Liquidity and Capital Resources
The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, 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.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 151
|
The Company’s contractual cash requirements have not changed materially since the 2021 Form 10-K, except for manufacturing purchase obligations.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 152
|
Manufacturing Purchase Obligations
The Company utilizes several outsourcing partners to manufacture subassemblies for the Company’s products and to perform final assembly and testing of finished products.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 153
|
The Company also obtains individual components for its products from a wide variety of individual suppliers.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 154
|
Outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 155
|
As of March 26, 2022, the Company had manufacturing purchase obligations of $40.6 billion, with $40.5 billion payable within 12 months.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 156
|
The Company’s manufacturing purchase obligations are primarily noncancelable.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 157
|
In addition to its contractual cash requirements, the Company has a share repurchase program authorized by the Board of Directors (the “Program”).
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 158
|
As of March 26, 2022, the remaining availability under the Program was $17.6 billion.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 159
|
On April 28, 2022, the Company announced the Board of Directors increased the Program authorization by $90 billion.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 160
|
The Program does not obligate the Company to acquire a minimum amount of shares.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 161
|
On April 28, 2022, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.22 to $0.23 per share, beginning with the dividend to be paid during the third quarter of 2022.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 162
|
The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.
|
0000320193-22-000059/full-submission.txt
|
0000320193
|
20220429
|
10-Q
| 163
|
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.
|
0000320193-22-000059/full-submission.txt
|
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