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Income (Unaudited)
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(Exact name of Registrant as specified in its charter)
iCalifornia
i94-2404110
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iOne Apple Park Way
iCupertino,
iCalifornia
i95014
(Address of principal executive offices)
(Zip Code)
(i408)
i996-1010
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each
exchange on which registered
iCommon Stock, $0.00001 par value per share
iAAPL
iThe Nasdaq Stock
Market LLC
i0.000% Notes due 2025
i—
iThe Nasdaq Stock Market
LLC
i0.875% Notes due 2025
i—
iThe Nasdaq Stock Market LLC
i1.625%
Notes due 2026
i—
iThe Nasdaq Stock Market LLC
i2.000% Notes due
2027
i—
iThe Nasdaq Stock Market LLC
i1.375% Notes due 2029
i—
iThe
Nasdaq Stock Market LLC
i3.050% Notes due 2029
i—
iThe Nasdaq
Stock Market LLC
i0.500% Notes due 2031
i—
iThe Nasdaq Stock Market
LLC
i3.600% Notes due 2042
i—
iThe Nasdaq Stock Market LLC
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes☒ No ☐
Indicate by check mark
whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
iYes☒ No ☐
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐ No ☒
i15,441,881,000 shares of common stock were
issued and outstanding as of January 19, 2024.
Common
stock and additional paid-in capital, $ii0.00001/ par value: ii50,400,000/
shares authorized; ii15,460,223/ and ii15,550,061/
shares issued and outstanding, respectively
i75,236
i73,812
Retained
earnings/(Accumulated deficit)
i8,242
(i214)
Accumulated
other comprehensive loss
(i9,378)
(i11,452)
Total
shareholders’ equity
i74,100
i62,146
Total liabilities and shareholders’
equity
$
i353,514
$
i352,583
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)
Cash, cash equivalents and restricted cash, beginning balances
$
i30,737
$
i24,977
Operating
activities:
Net income
i33,916
i29,998
Adjustments
to reconcile net income to cash generated by operating activities:
Depreciation and amortization
i2,848
i2,916
Share-based
compensation expense
i2,997
i2,905
Other
(i989)
(i317)
Changes
in operating assets and liabilities:
Accounts receivable, net
i6,555
i4,275
Vendor
non-trade receivables
i4,569
i2,320
Inventories
(i137)
(i1,807)
Other
current and non-current assets
(i1,457)
(i4,099)
Accounts
payable
(i4,542)
(i6,075)
Other
current and non-current liabilities
(i3,865)
i3,889
Cash
generated by operating activities
i39,895
i34,005
Investing
activities:
Purchases of marketable securities
(i9,780)
(i5,153)
Proceeds
from maturities of marketable securities
i13,046
i7,127
Proceeds
from sales of marketable securities
i1,337
i509
Payments
for acquisition of property, plant and equipment
(i2,392)
(i3,787)
Other
(i284)
(i141)
Cash
generated by/(used in) investing activities
i1,927
(i1,445)
Financing
activities:
Payments for taxes related to net share settlement of equity awards
(i2,591)
(i2,316)
Payments
for dividends and dividend equivalents
(i3,825)
(i3,768)
Repurchases
of common stock
(i20,139)
(i19,475)
Repayments
of term debt
i—
(i1,401)
Repayments of
commercial paper, net
(i3,984)
(i8,214)
Other
(i46)
(i389)
Cash
used in financing activities
(i30,585)
(i35,563)
Increase/(Decrease)
in cash, cash equivalents and restricted cash
i11,237
(i3,003)
Cash,
cash equivalents and restricted cash, ending balances
$
i41,974
$
i21,974
Supplemental
cash flow disclosure:
Cash paid for income taxes, net
$
i7,255
$
i828
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 – iSummary
of Significant Accounting Policies
i
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”).
i
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 – iRevenue
i
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):
Total
net sales include $i3.5 billion of revenue recognized in the three months ended December 30, 2023 that was included in deferred revenue as of September 30, 2023 and $i3.4
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 $i12.5 billion and $i12.1 billion, respectively. As of December 30,
2023, the Company expects i66% of total deferred revenue to be realized in less than a year, i26% within one-to-two years, i7%
within two-to-three years and i1% in greater than three years.
Apple Inc. | Q1 2024 Form 10-Q | 6
Note 3 – iEarnings
Per Share
i
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):
Approximately
i89 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 – iFinancial
Instruments
Cash, Cash Equivalents and Marketable Securities
i
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):
(1)iThe
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 $i13.9 billion
and $i13.8 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.
i
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
$
i72,994
Due
after 5 years through 10 years
i9,368
Due after 10 years
i17,113
Total
fair value
$
i99,475
/
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 i12 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 i19 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 Company’s third-party cellular network carriers accounted for i34% and i41% 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 itwo vendors that individually represented
10% or more of total vendor non-trade receivables, which accounted for i50% and i20%. As of September 30, 2023, the Company had itwo
vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for i48% and i23%.
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 $i2.0 billion and $i6.0
billion of commercial paper outstanding, respectively. iThe 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):
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 $i106.0 billionand $i105.1
billion, respectively (collectively the “Notes”). As of December 30, 2023 and September 30, 2023, the fair value of the Company’s Notes, based on Level 2 inputs, was$i96.7 billion and $i90.8
billion, respectively.
Note 7 – iShareholders’ Equity
Share Repurchase Program
During the three months ended December 30, 2023, the Company repurchased i118
million shares of its common stock for $i20.5 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 – iShare-Based Compensation
Restricted Stock Units
i
A summary of the
Company’s RSU activity and related information for the three months ended December 30, 2023 is as follows:
The
fair value as of the respective vesting dates of RSUs was $i7.7 billion and $i6.8
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
i
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):
Income
tax benefit related to share-based compensation expense
$
(i1,235)
$
(i1,178)
/
As
of December 30, 2023, the total unrecognized compensation cost related to outstanding RSUs was $i27.4 billion, which the Company expects to recognize over a weighted-average period of i2.9
years.
Note 9 – iContingencies
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 – iSegment Information and Geographic Data
i
The
following table shows information by reportable segment for the three months ended December 30, 2023 and December 31, 2022 (in millions):
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):
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Item and other sections 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. 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. For example, statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions on the
Company’s business and results of operations are forward-looking statements. 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. 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. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the 2023 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.
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.
The following discussion should be read in conjunction with the 2023 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.
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. This includes press releases and other information about financial performance, information on environmental, social and governance matters, and details related to the
Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.
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. Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. 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. Net sales can also be affected when consumers and distributors anticipate a product introduction.
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 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. and iMac®.
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.
Apple Inc. | Q1 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):
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
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. 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.
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. 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
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. 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.
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.
Apple Inc. | Q1 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):
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
Mac net
sales were relatively flat during the first quarter of 2024 compared to the same quarter in 2023.
iPad
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.
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
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.
Apple Inc. | Q1 2024 Form 10-Q | 15
Gross Margin
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):
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. dollar.
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.
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.
Research and development (“R&D”) expense
was relatively flat during the first quarter of 2024 compared to the same quarter in 2023.
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.
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):
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.
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.
The Company’s contractual cash requirements have not changed materially since the 2023 Form 10-K, except for manufacturing purchase obligations.
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. 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.
Apple Inc. | Q1 2024 Form 10-Q | 17
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. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.
Recent Accounting Pronouncements
Income Taxes
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. ASU 2023-09 allows for adoption using either a prospective or retrospective 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
The preparation of financial statements and related disclosures in conformity with GAAP 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. Note 1, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item
8 of the 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.
Item 3. 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. 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded
that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of December 30, 2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the first quarter of 2024, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Apple Inc. | Q1 2024 Form 10-Q | 18
PART
II — OTHER INFORMATION
Item 1. Legal Proceedings
Epic Games
Epic Games, Inc. (“Epic”) filed a lawsuit in the U.S. District Court for the Northern District of California (the “District Court”) against the Company alleging violations of federal and state antitrust laws and California’s unfair competition law based upon the Company’s operation of its App Store®. On September 10, 2021, the District Court ruled in favor of the
Company with respect to nine out of the ten counts included in Epic’s claim. The District Court found that certain provisions of the Company’s App Store Review Guidelines violate California’s unfair competition law and issued an injunction enjoining the Company from prohibiting developers from including in their apps external links that direct customers to purchasing mechanisms other than Apple in-app purchasing. The injunction applies to apps on the U.S. storefront of the iOS and iPadOS® App Store. On April 24, 2023, the U.S. Court of Appeals for the Ninth Circuit (the “Circuit Court”) affirmed the District Court’s ruling. On June 7, 2023, the
Company and Epic filed petitions with the Circuit Court requesting further review of the decision. On June 30, 2023, the Circuit Court denied both petitions. On July 17, 2023, the Circuit Court granted Apple’s motion to stay enforcement of the injunction pending appeal to the U.S. Supreme Court (the “Supreme Court”). On January 16, 2024, the Supreme Court denied both the Company’s and Epic’s petitions and the stay terminated. The Supreme Court’s denial of Epic’s petition confirms the District Court’s ruling in favor of the Company with respect to all of the antitrust claims. Following termination of the stay, the
Company implemented a plan to comply with the injunction and filed a statement of compliance with the District Court. On January 31, 2024, Epic filed a notice with the District Court indicating its intent to dispute the Company’s compliance plan.
Masimo
Masimo Corporation and Cercacor Laboratories, Inc. (together, “Masimo”) filed a complaint before the U.S. International Trade Commission (the “ITC”) alleging infringement by the Company of five patents relating to the functionality of the blood oxygen feature in Apple Watch® Series 6 and 7. In its complaint, Masimo sought a permanent exclusion order prohibiting
importation to the U.S. of certain Apple Watch models that include blood oxygen sensing functionality. On October 26, 2023, the ITC entered a limited exclusion order (the “Order”) prohibiting importation and sales in the U.S. of Apple Watch models with blood oxygen sensing functionality, which includes Apple Watch Series 9 and Apple Watch Ultra™ 2. The Company subsequently proposed a redesign of Apple Watch Series 9 and Apple Watch Ultra 2 to the U.S. Customs and Border Protection (the “CBP”) and appealed the Order. On January 12, 2024, the CBP found that the Company’s proposed redesign of Apple Watch Series 9 and Apple Watch Ultra 2 falls outside the scope of the Order, permitting the
Company to import and sell the models in the U.S.
Other Legal Proceedings
The Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. The Company settled certain matters during the first quarter of 2024 that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting
period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors
The Company’s business, reputation, results of operations, financial condition and stock price can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the
Company’s business, reputation, results of operations, financial condition and stock price can be materially and adversely affected. Except as set forth below, there have been no material changes to the Company’s risk factors since the 2023 Form 10-K.
The technology industry, including, in some instances, the Company, is subject to intense media, political and regulatory scrutiny, which exposes the Company to increasing regulation, government investigations, legal actions and penalties.
From time to time, the Company has made changes to its App
Store, including actions taken in response to litigation, competition, market conditions and legal and regulatory requirements. The Company expects to make further business changes in the future. For example, in the U.S. the Company has implemented changes to how developers communicate with consumers within apps on the U.S. storefront of the iOS and iPadOS App Store regarding alternative purchasing mechanisms.
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In January 2024, the Company announced changes to iOS, the App Store and Safari®
in the European Union to comply with the Digital Markets Act (the “DMA”), including new business terms and alternative fee structures for iOS apps, alternative methods of distribution for iOS apps, alternative payment processing for apps across the Company’s operating systems, and additional tools and application programming interfaces (“APIs”) for developers. Although the Company’s compliance plan is intended to address the DMA’s obligations, it is still subject to potential challenge by the European Commission or private litigants. In addition, other jurisdictions may seek to require the Company to make changes to its business. While the changes introduced by the
Company in the European Union are intended to reduce new privacy and security risks the DMA poses to European Union users, many risks will remain.
The Company is also currently subject to antitrust investigations in various jurisdictions around the world, which can result in legal proceedings and claims against the Company that could, individually or in the aggregate, have a materially adverse impact on the Company’s business, results of operations and financial condition. For example, the Company is the subject of investigations in Europe and other jurisdictions relating to App Store terms
and conditions. If such investigations result in adverse findings against the Company, the Company could be exposed to significant fines and may be required to make further changes to its App Store business, all of which could materially adversely affect the Company’s business, results of operations and financial condition.
Further, the Company has commercial relationships with other companies in the technology industry that are or may become subject to investigations and litigation that, if resolved against those other companies, could materially adversely affect the
Company’s commercial relationships with those business partners and materially adversely affect the Company’s business, results of operations and financial condition. For example, the Company earns revenue from licensing arrangements with other companies to offer their search services on the Company’s platforms and applications, and certain of these arrangements are currently subject to government investigations and legal proceedings.
There can be no assurance the Company’s business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations,
litigation or changes to laws and regulations in the future. Changes to the Company’s business practices to comply with new laws and regulations or in connection with other legal proceedings can negatively impact the reputation of the Company’s products for privacy and security and otherwise adversely affect the experience for users of the Company’s products and services, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products and services, and lost sales.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended December 30, 2023 was as follows (in millions, except number of shares, which are reflected in thousands, and per-share amounts):
Periods
Total
Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)As
of December 30, 2023, the Company was authorized by the Board of Directors to purchase up to $90 billion of the Company’s common stock under a share repurchase program announced on May 4, 2023, of which $36.4 billion had been utilized. The 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 Exchange Act.
(2)In August 2023, the
Company entered into accelerated share repurchase agreements (“ASRs”) to purchase up to a total of $5.0 billion of the Company’s common stock. In October 2023, the purchase periods for these ASRs ended and an additional 6 million shares were delivered and retired. In total, 29 million shares were delivered under these ASRs at an average repurchase price of $174.93 per share.
Apple Inc. | Q1 2024 Form 10-Q | 20
Item 3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Trading Arrangements
ii
On iNovember
11, 2023 and iNovember 27, 2023, respectively, iLuca Maestri, the Company’s iSenior
Vice President and Chief Financial Officer, and iKatherine L. Adams, the Company’s iSenior Vice President and General Counsel, each iiientered//
into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. The plans provide for the sale of all shares vested during the duration of the plans pursuant to certain equity awards granted to Mr. Maestri and Ms. Adams, respectively, excluding any shares withheld by the Company to satisfy income tax withholding and remittance obligations. Mr. Maestri’s plan will iiexpire/
on December 31, 2024, and Ms. Adams’s plan will expire on November 1, 2024, subject to early termination for certain specified events set forth in the plans.
Inline XBRL Document Set for the condensed consolidated
financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104*
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.