APPLE INC

INTRODUCTION

Background in Brief
Apple is an American corporation that develops and sells computer electronics, software, personal
computers and portable devices internationally. Founders Steve Jobs, Steve Wozniak and Ronald Wayne
established Apple in 1976, with its incorporation in 1977. Apple has a history that spans over 30 years, and
during that time the company has experienced its ups and downs in financial performance. It was after
2007 when Apple finally achieved widespread success with the launch of the iPhone, the iPod touch and
the iPad.
The Company designs, manufactures and markets smartphones, personal computers, tablets, wearables and
accessories, and sells a variety of related services. The Company’s fiscal year is the 52- or 53-week period
that ends on the September.

Mission Statement
Apple Incorporation’s mission statement is “to bring the best personal computing products and
support to students, educators, designers, scientists, engineers, businesspersons and consumers in
over 140 countries around the world.”

Vision Statement
Apple Incorporation’s vision statement is “to make the best products on earth, and to leave the world
better than we found it.”

Markets and Distribution

The Company’s customers are primarily in the consumer, small and mid-sized business, education,
enterprise and government markets. The Company sells its products and resells third-party products in
most of its major markets directly to consumers, small and mid-sized businesses, and education, enterprise
and government customers through its retail and online stores and its direct sales force. The Company also
employs a variety of indirect distribution channels, such as third-party cellular network carriers,
wholesalers, retailers and resellers. During 2022, the Company’s net sales through its direct and indirect
distribution channels accounted for 38% and 62%, respectively, of total net sales.
Gross Margin

Products and Services gross margin and gross margin percentage for 2022, 2021 and 2020 were as follows
(dollars in millions):
2022 2021 2020

Gross margin:
Products $ 114,728 $ 105,126 $ 69,461
Services 56,054 47,710 35,495
Total gross margin $ 170,782 $ 152,836 $ 104,956
Gross margin percentage:
Products 36.3 35.3 31.5
% % %
Services 71.7 69.7 66.0
% % %
Total gross margin percentage 43.3 41.8 38.2
% % %

Products Gross Margin

Products gross margin increased during 2022 compared to 2021 due primarily to a different Products mix
and higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S.
dollar.
Products gross margin percentage increased during 2022 compared to 2021 due primarily to 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 2022 compared to 2021 due primarily to higher Services net sales,
partially offset by the weakness in foreign currencies relative to the U.S. dollar.
Services gross margin percentage increased during 2022 compared to 2021 due primarily to improved
leverage and a different Services mix, partially offset by the weakness in foreign currencies relative to the
U.S. dollar.

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.

Operating Expenses

Operating expenses for 2022, 2021 and 2020 were as follows (dollars in millions):
2022 Change 2021 Change 2020

Research and development $ 26,251 20 % $ 21,914 17 % $ 18,752

 Percentage of total net sales 7% 6% 7%

14 10
Selling, general and administrative $ 25,094 % $ 21,973 % $ 19,916
Percentage of total net sales 6% 6% 7%

17 13
Total operating expenses $ 51,345 % $ 43,887 % $ 38,668
Percentage of total net sales 13% 12% 14%

Research and Development

The year-over-year growth in R&D expense in 2022 was driven primarily by increases in headcount-
related expenses and engineering program costs.

Selling, General and Administrative

The year-over-year growth in selling, general and administrative expense in 2022 was driven primarily by
increases in headcount-related expenses, advertising and professional services.

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for 2022, 2021 and 2020 was as follows (dollars in millions):
2022 Change 2021 Change 2020

Interest and dividend income $ 2,825 $ 2,843 $ 3,763

Interest expense (2,931) (2,645) (2,873)

Other income/(expense), net (228) 60 (87)

Total other income/(expense), net $ (334) (229) %$ 258 (68) %$ 803

The decrease in OI&E during 2022 compared to 2021 was due primarily to higher realized losses on debt
securities, unfavorable fair value adjustments on equity securities and higher interest expense, partially
offset by higher foreign exchange gains.

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for 2022, 2021 and
2020 were as follows (dollars in millions):
2022 2021 2020

Provision for income taxes $ 19,300 $ 14,527 $ 9,680

Effective tax rate 16.2% 13.3%
14.4%
Statutory federal income tax rate 21% 21% 21%
The Company’s effective tax rate for 2022 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 2021 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 foreign-derived intangible
income deductions.
The Company’s effective tax rate for 2022 was higher compared to 2021 due primarily to a higher
effective tax rate on foreign earnings, including the impact to U.S. foreign tax credits as a result of
regulatory guidance issued by the U.S. Department of the Treasury in 2022, and lower tax benefits from
foreign-derived intangible income deductions and share-based compensation.

Liquidity and Capital Resources

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, which
totaled $156.4 billion as of September 24, 2022, 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.

Debt
As of September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an
aggregate principal amount of $111.8 billion (collectively the “Notes”), with $11.1 billion payable within
12 months. Future interest payments associated with the Notes total $41.3 billion, with $2.9 billion
payable within 12 months.
The Company also issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a
commercial paper program. As of September 24, 2022, the Company had $10.0 billion of Commercial
Paper outstanding, all of which was payable within 12 months.

Leases
The Company has lease arrangements for certain equipment and facilities, including corporate, data center,
manufacturing and retail space. As of September 24, 2022, the Company had fixed lease payment
obligations of $15.3 billion, with $2.0 billion payable within 12 months.
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. Outsourcing partners
acquire components and build product based on demand information supplied by the Company, which
typically covers periods up to 150 days. As of September 24, 2022, the Company had manufacturing
purchase obligations of $71.1 billion, with $68.4 billion payable within 12 months. The Company’s
manufacturing purchase obligations are primarily noncancelable.

Other Purchase Obligations

The Company’s other purchase obligations primarily consist of noncancelable obligations to acquire
capital assets, including assets related to product manufacturing, and noncancelable obligations related to
internet services and content creation. As of September 24, 2022, the Company had other purchase
obligations of $17.8 billion, with $6.8 billion payable within 12 months.

Deemed Repatriation Tax Payable

As of September 24, 2022, 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 $5.3 billion expected to be paid within 12
months.
In addition to its contractual cash requirements, the Company has a capital return program authorized by
the Board of Directors. The Program does not obligate the Company to acquire a minimum amount of
shares. As of September 24, 2022, the Company’s quarterly cash dividend was $0.23 per share. The
Company intends to increase its dividend on an annual basis, subject to declaration by the Board of
Directors.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles (“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
Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting
policies and methods used in the preparation of the Company’s consolidated financial statements.
Management bases its estimates on historical experience and on various other assumptions it believes to be
reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities.

Uncertain Tax Positions

The Company is subject to income taxes in the U.S. 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. Reserves are adjusted
considering changing facts and circumstances, such as the closing of a tax examination. Resolution of
these uncertainties in a manner inconsistent with management’s expectations could have a material impact
on the Company’s financial condition and operating results.

Legal and Other Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business, the outcomes of which are inherently uncertain. The Company records a liability when it is
probable that a loss has been incurred and the amount is reasonably estimable, the determination of which
requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s
expectations could have a material impact on the Company’s financial condition and operating results.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

Years ended
September 24, September 25, September 26,
2022 2021 2020

Net sales:
Products $ 316,199 $ 297,392 $ 220,747
Services 78,129 68,425 53,768
Total net sales 394,328 365,817 274,515

Cost of sales:

Products 201,471 192,266 151,286

Services 22,075 20,715 18,273
Total cost of sales 223,546 212,981 169,559
Gross margin 170,782 152,836 104,956

Operating expenses:

Research and development 26,251 21,914 18,752

Selling, general and administrative 25,094 21,973 19,916
Total operating expenses 51,345 43,887 38,668

Operating income 119,437 108,949 66,288

Other income/(expense), net (334) 258 803
Income before provision for income taxes 119,103 109,207 67,091
Provision for income taxes 19,300 14,527 9,680
Net income $ 99,803 $ 94,680 $ 57,411

Earnings per share:

Basic $ 6.15 $ 5.67 $ 3.31
Diluted $ 6.11 $ 5.61 $ 3.28

Shares used in computing earnings per share:

Basic 16,215,963 16,701,272 17,352,119

 Diluted 16,325,819 16,864,919 17,528,214

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Years ended
September 24, September 25, September 26,
2022 2021 2020

Net income $ 99,803 $ 94,680 $ 57,411

Other comprehensive income/(loss):

Change in foreign currency translation, net of tax (1,511) 501 88

Change in unrealized gains/losses on derivative instruments, net

of tax:
Change in fair value of derivative instruments 3,212 32 79
Adjustment for net (gains)/losses realized and included in net
income (1,074) 1,003 (1,264)
Total change in unrealized gains/losses on derivative
instruments 2,138 1,035 (1,185)

Change in unrealized gains/losses on marketable debt

securities, net of tax:
Change in fair value of marketable debt securities (12,104) (694) 1,202
Adjustment for net (gains)/losses realized and included in net
income 205 (273) (63)
Total change in unrealized gains/losses on marketable
debt
securities (11,899) (967) 1,139

Total other comprehensive income/(loss) (11,272) 569 42

Total comprehensive income $ 88,531 $ 95,249 $ 57,453
 CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

September 24, September 25,

2022 2021

ASSETS:
Current assets:

Cash and cash equivalents $ 23,646 $ 34,940

Marketable securities 24,658 27,699
Accounts receivable, net 28,184 26,278
Inventories 4,946 6,580
Vendor non-trade receivables 32,748 25,228
Other current assets 21,223 14,111
Total current assets 135,405 134,836

Non-current assets:

Marketable securities 120,805 127,877

Property, plant and equipment, net 42,117 39,440
Other non-current assets 54,428 48,849
Total non-current assets 217,350 216,166
Total assets $ 352,755 $ 351,002

LIABILITIES AND SHAREHOLDERS’ EQUITY:

Current liabilities:
Accounts payable $ 64,115 $ 54,763
Other current liabilities 60,845 47,493
Deferred revenue 7,912 7,612
Commercial paper 9,982 6,000
Term debt 11,128 9,613
Total current liabilities 153,982 125,481
Non-current liabilities:

Term debt 98,959 109,106

Other non-current liabilities 49,142 53,325
 Total non-current liabilities 148,101 162,431
Total liabilities 302,083 287,912

Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value:
50,400,000 shares authorized; 15,943,425 and 16,426,786 shares
issued and outstanding, respectively 64,849 57,365
Retained earnings/(Accumulated deficit) (3,068) 5,562
Accumulated other comprehensive income/(loss) (11,109) 163
Total shareholders’ equity 50,672 63,090
Total liabilities and shareholders’ equity $ 352,755 $ 351,002
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)

Years ended
September 24, September 25, September 26,
2022 2021 2020

Total shareholders’ equity, beginning balances $ 63,090 $ 65,339 $ 90,488

Common stock and additional paid-in capital:

Beginning balances 57,365 50,779 45,174

Common stock issued 1,175 1,105 880
Common stock withheld related to net share settlement
of equity awards (2,971) (2,627) (2,250)
Share-based compensation 9,280 8,108 6,975
Ending balances 64,849 57,365 50,779

Retained earnings/(Accumulated deficit):

Beginning balances 5,562 14,966 45,898

Net income 99,803 94,680 57,411
Dividends and dividend equivalents declared (14,793) (14,431) (14,087)
Common stock withheld related to net share settlement
of equity awards (3,454) (4,151) (1,604)
Common stock repurchased (90,186) (85,502) (72,516)
Cumulative effect of change in accounting principle — — (136)
Ending balances (3,068) 5,562 14,966

Accumulated other comprehensive income/(loss):

Beginning balances 163 (406) (584)

Other comprehensive income/(loss) (11,272) 569 42
Cumulative effect of change in accounting principle — — 136
Ending balances (11,109) 163 (406)

Total shareholders’ equity, ending balances $ 50,672 $ 63,090 $ 65,339

Dividends and dividend equivalents declared per share or RSU $ 0.90 $ 0.85 $ 0.795

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Years ended
September 24, September 25, September 26,
2022 2021 2020
Cash, cash equivalents and restricted cash, beginning balances $ 35,929 $ 39,789 $ 50,224

Operating activities:
Net income 99,803 94,680 57,411
Adjustments to reconcile net income to cash generated by
operating activities:
Depreciation and amortization 11,104 11,284 11,056
Share-based compensation expense 9,038 7,906 6,829
Deferred income tax expense/(benefit) 895 (4,774) (215)
Other 111 (147) (97)
Changes in operating assets and liabilities:

Accounts receivable, net (1,823) (10,125) 6,917

Inventories 1,484 (2,642) (127)
Vendor non-trade receivables (7,520) (3,903) 1,553
Other current and non-current assets (6,499) (8,042) (9,588)
Accounts payable 9,448 12,326 (4,062)
Deferred revenue 478 1,676 2,081
Other current and non-current liabilities 5,632 5,799 8,916
Cash generated by operating activities 122,151 104,038 80,674

Investing activities:
Purchases of marketable securities (76,923) (109,558) (114,938)
Proceeds from maturities of marketable securities 29,917 59,023 69,918
Proceeds from sales of marketable securities 37,446 47,460 50,473
Payments for acquisition of property, plant and equipment (10,708) (11,085) (7,309)
 Payments made in connection with business acquisitions, (306) (33) (1,524)
net
Other (1,780) (352) (909)
Cash used in investing activities (22,354) (14,545) (4,289)

Financing activities:
Payments for taxes related to net share settlement of equity (6,223) (6,556) (3,634)
awards
Payments for dividends and dividend equivalents (14,841) (14,467) (14,081)
Repurchases of common stock (89,402) (85,971) (72,358)
Proceeds from issuance of term debt, net 5,465 20,393 16,091
Repayments of term debt (9,543) (8,750) (12,629)
Proceeds from/(Repayments of) commercial paper, net 3,955 1,022 (963)
Other (160) 976 754
Cash used in financing activities (110,749 (93,353) (86,820)
)
Decrease in cash, cash equivalents and restricted cash (10,952) (3,860) (10,435)
Cash, cash equivalents and restricted cash, ending balances $ 24,977 $ 35,929 $ 39,789

Supplemental cash flow disclosure:

Cash paid for income taxes, net $ 19,573 $ 25,385 $ 9,501
Cash paid for interest $ 2,865 $ 2,687 $ 3,002
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2022,
2021 and 2020 (net income in millions and shares in thousands):
2022 2021

Numerator:
Net income $ 99,803 $ 94,680 $ 57,411

Denominator:

Weighted-average basic shares outstanding 16,215,963 16,701,272 17,352,119

Effect of dilutive securities 109,856 163,647 176,095
Weighted-average diluted shares 16,325,819 16,864,919 17,528,214

Basic earnings per share $ 6.15 $ 5.67 $ 3.31

Diluted earnings per share $ 6.11 $ 5.61 $ 3.28
The Company applies the treasury stock method to determine the dilutive effect of potentially
dilutive securities.

Shares of Common Stock

The following table shows the changes in shares of common stock for 2022, 2021 and 2020 (in
thousands):
2022 2021

Common stock outstanding, beginning balances. 16,426,786 16,976,763 17,772,945

Common stock repurchased (568,589) (656,340) (917,270)
Common stock issued, net of shares withheld for employee 85,228 106,363 121,088
taxes
Common stock outstanding, ending balances 15,943,425 16,426,786 16,976,763
References
• https://www.apple.com/business/
• https://www.macrotrends.net/stocks/charts/AAPL/apple/financial-ratios
• https://mission-statement.com/apple/
• https://visionarybusinessperson.com/apple-inc-mission-statement-vision-statement/
• https://investor.apple.com/investor-relations/default.aspx
• https://www.apple.com/newsroom/2022/10/apple-reports-fourth-quarter-results/
• https://www.macrotrends.net/stocks/charts/AAPL/apple/total-share-holder-equity
• https://www.newworldencyclopedia.org/entry/Apple_Inc.
• http://www.sfu.ca/~sheppard/478/syn/1123/Synopsis5.pdf
• https://www.apple.com/newsroom/pdfs/
FY22_Q4_Consolidated_Financial_Statements.pdf
• https://www.wsj.com/market-data/quotes/AAPL/financials/annual/income-statement