UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December ~~26, 2020~~25, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36743

Apple Inc.

(Exact name of Registrant as specified in its charter)


California						94-2404110
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Apple Park Way
Cupertino, California						95014
(Address of principal executive offices)						(Zip Code)

(408) 996-1010

(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
Common Stock, $0.00001 par value per share	AAPL	The Nasdaq Stock Market LLC
1.000% Notes due 2022	—	The Nasdaq Stock Market LLC
1.375% Notes due 2024	—	The Nasdaq Stock Market LLC
0.000% Notes due 2025	—	The Nasdaq Stock Market LLC
0.875% Notes due 2025	—	The Nasdaq Stock Market LLC
1.625% Notes due 2026	—	The Nasdaq Stock Market LLC
2.000% Notes due 2027	—	The Nasdaq Stock Market LLC
1.375% Notes due 2029	—	The Nasdaq Stock Market LLC
3.050% Notes due 2029	—	The Nasdaq Stock Market LLC
0.500% Notes due 2031	—	The Nasdaq Stock Market LLC
3.600% Notes due 2042	—	The 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.

Yes ☒ 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).

Yes ☒ 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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☐ No ☒

~~16,788,096,000~~16,319,441,000 shares of common stock were issued and outstanding as of January ~~15, 2021~~14, 2022.

Apple Inc.

Form 10-Q

For the Fiscal Quarter Ended December ~~26, 2020~~25, 2021

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except number of shares which are reflected in thousands and per share amounts)


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Net sales:	Net sales:						Net sales:
Products	Products	$	95,678	$	79,104		Products	$	104,429	$	95,678
Services	Services	15,761		12,715			Services	19,516		15,761
Total net sales	Total net sales	111,439		91,819			Total net sales	123,945		111,439

Cost of sales:	Cost of sales:						Cost of sales:
Products	Products	62,130		52,075			Products	64,309		62,130
Services	Services	4,981		4,527			Services	5,393		4,981
Total cost of sales	Total cost of sales	67,111		56,602			Total cost of sales	69,702		67,111
Gross margin	Gross margin	44,328		35,217			Gross margin	54,243		44,328

Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	5,163		4,451			Research and development	6,306		5,163
Selling, general and administrative	Selling, general and administrative	5,631		5,197			Selling, general and administrative	6,449		5,631
Total operating expenses	Total operating expenses	10,794		9,648			Total operating expenses	12,755		10,794

Operating income	Operating income	33,534		25,569			Operating income	41,488		33,534
Other income/(expense), net	Other income/(expense), net	45		349			Other income/(expense), net	(247)		45
Income before provision for income taxes	Income before provision for income taxes	33,579		25,918			Income before provision for income taxes	41,241		33,579
Provision for income taxes	Provision for income taxes	4,824		3,682			Provision for income taxes	6,611		4,824
Net income	Net income	$	28,755	$	22,236		Net income	$	34,630	$	28,755

Earnings per share:	Earnings per share:						Earnings per share:
Basic	Basic	$	1.70	$	1.26		Basic	$	2.11	$	1.70
Diluted	Diluted	$	1.68	$	1.25		Diluted	$	2.10	$	1.68

Shares used in computing earnings per share:	Shares used in computing earnings per share:						Shares used in computing earnings per share:
Basic	Basic	16,935,119		17,660,160			Basic	16,391,724		16,935,119
Diluted	Diluted	17,113,688		17,818,417			Diluted	16,519,291		17,113,688

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 1

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In millions)


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Net income	Net income	$	28,755	$	22,236		Net income	$	34,630	$	28,755
Other comprehensive income/(loss):	Other comprehensive income/(loss):						Other comprehensive income/(loss):
Change in foreign currency translation, net of tax	Change in foreign currency translation, net of tax	549		202			Change in foreign currency translation, net of tax	(360)		549

Change in unrealized gains/losses on derivative instruments, net of tax:	Change in unrealized gains/losses on derivative instruments, net of tax:						Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivatives		(304)		111
Change in fair value of derivative instruments							Change in fair value of derivative instruments	362		(304)
Adjustment for net (gains)/losses realized and included in net income	Adjustment for net (gains)/losses realized and included in net income	(183)		(398)			Adjustment for net (gains)/losses realized and included in net income	93		(183)
Total change in unrealized gains/losses on derivative instruments	Total change in unrealized gains/losses on derivative instruments	(487)		(287)			Total change in unrealized gains/losses on derivative instruments	455		(487)

Change in unrealized gains/losses on marketable debt securities, net of tax:	Change in unrealized gains/losses on marketable debt securities, net of tax:						Change in unrealized gains/losses on marketable debt securities, net of tax:
Change in fair value of marketable debt securities	Change in fair value of marketable debt securities	628		125			Change in fair value of marketable debt securities	(1,176)		628
Adjustment for net (gains)/losses realized and included in net income	Adjustment for net (gains)/losses realized and included in net income	(105)		(10)			Adjustment for net (gains)/losses realized and included in net income	(9)		(105)
Total change in unrealized gains/losses on marketable debt securities	Total change in unrealized gains/losses on marketable debt securities	523		115			Total change in unrealized gains/losses on marketable debt securities	(1,185)		523

Total other comprehensive income/(loss)	Total other comprehensive income/(loss)	585		30			Total other comprehensive income/(loss)	(1,090)		585
Total comprehensive income	Total comprehensive income	$	29,340	$	22,266		Total comprehensive income	$	33,540	$	29,340

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2

Apple Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except number of shares which are reflected in thousands and par value)


		December 26, 2020		September 26, 2020			December 25, 2021		September 25, 2021
ASSETS:	ASSETS:					ASSETS:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	36,010	$	38,016	Cash and cash equivalents	$	37,119	$	34,940
Marketable securities	Marketable securities	40,816		52,927		Marketable securities	26,794		27,699
Accounts receivable, net	Accounts receivable, net	27,101		16,120		Accounts receivable, net	30,213		26,278
Inventories	Inventories	4,973		4,061		Inventories	5,876		6,580
Vendor non-trade receivables	Vendor non-trade receivables	31,519		21,325		Vendor non-trade receivables	35,040		25,228
Other current assets	Other current assets	13,687		11,264		Other current assets	18,112		14,111
Total current assets	Total current assets	154,106		143,713		Total current assets	153,154		134,836

Non-current assets:	Non-current assets:					Non-current assets:
Marketable securities	Marketable securities	118,745		100,887		Marketable securities	138,683		127,877
Property, plant and equipment, net	Property, plant and equipment, net	37,933		36,766		Property, plant and equipment, net	39,245		39,440
Other non-current assets	Other non-current assets	43,270		42,522		Other non-current assets	50,109		48,849
Total non-current assets	Total non-current assets	199,948		180,175		Total non-current assets	228,037		216,166
Total assets	Total assets	$	354,054	$	323,888	Total assets	$	381,191	$	351,002

LIABILITIES AND SHAREHOLDERS’ EQUITY:	LIABILITIES AND SHAREHOLDERS’ EQUITY:					LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	63,846	$	42,296	Accounts payable	$	74,362	$	54,763
Other current liabilities	Other current liabilities	48,504		42,684		Other current liabilities	49,167		47,493
Deferred revenue	Deferred revenue	7,395		6,643		Deferred revenue	7,876		7,612
Commercial paper	Commercial paper	5,000		4,996		Commercial paper	5,000		6,000
Term debt	Term debt	7,762		8,773		Term debt	11,169		9,613
Total current liabilities	Total current liabilities	132,507		105,392		Total current liabilities	147,574		125,481

Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Term debt	Term debt	99,281		98,667		Term debt	106,629		109,106
Other non-current liabilities	Other non-current liabilities	56,042		54,490		Other non-current liabilities	55,056		53,325
Total non-current liabilities	Total non-current liabilities	155,323		153,157		Total non-current liabilities	161,685		162,431
Total liabilities	Total liabilities	287,830		258,549		Total liabilities	309,259		287,912

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,823,263 and 16,976,763 shares issued and outstanding, respectively		51,744		50,779
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,340,851 and 16,426,786 shares issued and outstanding, respectively						Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,340,851 and 16,426,786 shares issued and outstanding, respectively	58,424		57,365
Retained earnings	Retained earnings	14,301		14,966		Retained earnings	14,435		5,562
Accumulated other comprehensive income/(loss)	Accumulated other comprehensive income/(loss)	179		(406)		Accumulated other comprehensive income/(loss)	(927)		163
Total shareholders’ equity	Total shareholders’ equity	66,224		65,339		Total shareholders’ equity	71,932		63,090
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	354,054	$	323,888	Total liabilities and shareholders’ equity	$	381,191	$	351,002

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 3

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions, except per share amounts)


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Total shareholders’ equity, beginning balances	Total shareholders’ equity, beginning balances	$	65,339	$	90,488		Total shareholders’ equity, beginning balances	$	63,090	$	65,339

Common stock and additional paid-in capital:	Common stock and additional paid-in capital:						Common stock and additional paid-in capital:
Beginning balances	Beginning balances	50,779		45,174			Beginning balances	57,365		50,779
Common stock issued		0		2

Common stock withheld related to net share settlement of equity awards	Common stock withheld related to net share settlement of equity awards	(1,101)		(951)			Common stock withheld related to net share settlement of equity awards	(1,263)		(1,101)
Share-based compensation	Share-based compensation	2,066		1,747			Share-based compensation	2,322		2,066
Ending balances	Ending balances	51,744		45,972			Ending balances	58,424		51,744

Retained earnings:	Retained earnings:						Retained earnings:
Beginning balances	Beginning balances	14,966		45,898			Beginning balances	5,562		14,966
Net income	Net income	28,755		22,236			Net income	34,630		28,755
Dividends and dividend equivalents declared	Dividends and dividend equivalents declared	(3,547)		(3,485)			Dividends and dividend equivalents declared	(3,665)		(3,547)
Common stock withheld related to net share settlement of equity awards	Common stock withheld related to net share settlement of equity awards	(1,873)		(536)			Common stock withheld related to net share settlement of equity awards	(1,730)		(1,873)
Common stock repurchased	Common stock repurchased	(24,000)		(20,000)			Common stock repurchased	(20,362)		(24,000)
Cumulative effect of change in accounting principle		0		(136)
Ending balances	Ending balances	14,301		43,977			Ending balances	14,435		14,301

Accumulated other comprehensive income/(loss):	Accumulated other comprehensive income/(loss):						Accumulated other comprehensive income/(loss):
Beginning balances	Beginning balances	(406)		(584)			Beginning balances	163		(406)
Other comprehensive income/(loss)	Other comprehensive income/(loss)	585		30			Other comprehensive income/(loss)	(1,090)		585
Cumulative effect of change in accounting principle		0		136
Ending balances	Ending balances	179		(418)			Ending balances	(927)		179

Total shareholders’ equity, ending balances	Total shareholders’ equity, ending balances	$	66,224	$	89,531		Total shareholders’ equity, ending balances	$	71,932	$	66,224

Dividends and dividend equivalents declared per share or RSU	Dividends and dividend equivalents declared per share or RSU	$	0.205	$	0.1925		Dividends and dividend equivalents declared per share or RSU	$	0.22	$	0.205

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 4

Apple Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

Three Months Ended
December 26,
2020 December 28,
2019
Cash, cash equivalents and restricted cash, beginning balances $ 39,789 $ 50,224
Operating activities:
Net income 28,755 22,236
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization 2,666 2,816
Share-based compensation expense 2,020 1,710
Deferred income tax benefit (58) (349)
Other 25 (142)
Changes in operating assets and liabilities:
Accounts receivable, net (10,945) 2,015
Inventories (950) (28)
Vendor non-trade receivables (10,194) 3,902
Other current and non-current assets (3,526) (7,054)
Accounts payable 21,670 (1,089)
Deferred revenue 1,341 985
Other current and non-current liabilities 7,959 5,514
Cash generated by operating activities 38,763 30,516
Investing activities:
Purchases of marketable securities (39,800) (37,416)
Proceeds from maturities of marketable securities 25,177 19,740
Proceeds from sales of marketable securities 9,344 7,280
Payments for acquisition of property, plant and equipment (3,500) (2,107)
Payments made in connection with business acquisitions, net (9) (958)
Other 204 (207)
Cash used in investing activities (8,584) (13,668)
Financing activities:
Proceeds from issuance of common stock 0 2
Payments for taxes related to net share settlement of equity awards (2,861) (1,379)
Payments for dividends and dividend equivalents (3,613) (3,539)
Repurchases of common stock (24,775) (20,706)
Proceeds from issuance of term debt, net 0 2,210
Repayments of term debt (1,000) (1,000)
Proceeds from/(Repayments of) commercial paper, net 22 (979)
Other (22) (16)
Cash used in financing activities (32,249) (25,407)
Decrease in cash, cash equivalents and restricted cash (2,070) (8,559)
Cash, cash equivalents and restricted cash, ending balances $ 37,719 $ 41,665
Supplemental cash flow disclosure:
Cash paid for income taxes, net $ 1,787 $ 4,393
Cash paid for interest $ 619 $ 771


	Three Months Ended
	December 25, 2021		December 26, 2020
Cash, cash equivalents and restricted cash, beginning balances	$	35,929	$	39,789
Operating activities:
Net income	34,630		28,755
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization	2,697		2,666
Share-based compensation expense	2,265		2,020
Deferred income tax expense/(benefit)	682		(58)
Other	167		25
Changes in operating assets and liabilities:
Accounts receivable, net	(3,934)		(10,945)
Inventories	681		(950)
Vendor non-trade receivables	(9,812)		(10,194)
Other current and non-current assets	(4,921)		(3,526)
Accounts payable	19,813		21,670
Deferred revenue	462		1,341
Other current and non-current liabilities	4,236		7,959
Cash generated by operating activities	46,966		38,763
Investing activities:
Purchases of marketable securities	(34,913)		(39,800)
Proceeds from maturities of marketable securities	11,309		25,177
Proceeds from sales of marketable securities	10,675		9,344
Payments for acquisition of property, plant and equipment	(2,803)		(3,500)
Other	(374)		195
Cash used in investing activities	(16,106)		(8,584)
Financing activities:

Payments for taxes related to net share settlement of equity awards	(2,888)		(2,861)
Payments for dividends and dividend equivalents	(3,732)		(3,613)
Repurchases of common stock	(20,478)		(24,775)

Repayments of term debt	—		(1,000)
Proceeds from/(Repayments of) commercial paper, net	(1,000)		22
Other	(61)		(22)
Cash used in financing activities	(28,159)		(32,249)
Increase/(Decrease) in cash, cash equivalents and restricted cash	2,701		(2,070)
Cash, cash equivalents and restricted cash, ending balances	$	38,630	$	37,719
Supplemental cash flow disclosure:
Cash paid for income taxes, net	$	5,235	$	1,787
Cash paid for interest	$	531	$	619

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 5

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

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”). Intercompany accounts and transactions have been eliminated. 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 requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those 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 ~~26, 2020~~25, 2021 (the ~~“2020~~“2021 Form 10-K”).

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. The Company’s fiscal years ~~2021~~2022 and ~~2020~~2021 span 52 weeks each. 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.

~~Common Stock Split~~

On August 28, 2020, the Company effected a 4-for-one stock split to shareholders of record as of August 24, 2020. All share, restricted stock unit (“RSU”) and per share or per RSU information has been retroactively adjusted to reflect the stock split.

~~Recently Adopted Accounting Pronouncements~~

~~Financial Instruments – Credit Losses~~

~~At the beginning of the first quarter of 2021, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Update No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.

Earnings Per Share

The following table shows the computation of basic and diluted earnings per share for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (net income in millions and shares in thousands):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Numerator:	Numerator:						Numerator:
Net income	Net income	$	28,755	$	22,236		Net income	$	34,630	$	28,755

Denominator:	Denominator:						Denominator:
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	16,935,119		17,660,160			Weighted-average basic shares outstanding	16,391,724		16,935,119
Effect of dilutive securities	Effect of dilutive securities	178,569		158,257			Effect of dilutive securities	127,567		178,569
Weighted-average diluted shares	Weighted-average diluted shares	17,113,688		17,818,417			Weighted-average diluted shares	16,519,291		17,113,688

Basic earnings per share	Basic earnings per share	$	1.70	$	1.26		Basic earnings per share	$	2.11	$	1.70
Diluted earnings per share	Diluted earnings per share	$	1.68	$	1.25		Diluted earnings per share	$	2.10	$	1.68

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 6

Note 2 – ~~Revenue Recognition~~

~~Net sales consist of revenue from the sale of iPhone~~®~~, Mac~~®~~, iPad~~®, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.

The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.

For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.

The Company has identified up to 3 performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud®~~, Siri~~® and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.

For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store® and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.

The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.

~~Deferred Revenue~~

As of December 26, 2020 and September 26, 2020, the Company had total deferred revenue of $11.6 billion and $10.2 billion, respectively. As of December 26, 2020, the Company expects 64% of total deferred revenue to be realized in less than a year, 26% within one-to-two years, 8% within two-to-three years and 2% in greater than three years.

~~Apple Inc. | Q1 2021 Form 10-Q | 7~~

~~Disaggregated~~ Revenue

Net sales disaggregated by significant products and services for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 were as follows (in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
iPhone (1)		$	65,597	$	55,957
Mac (1)		8,675		7,160
iPad (1)		8,435		5,977
iPhone® (1)							iPhone® (1)	$	71,628	$	65,597
Mac® (1)							Mac® (1)	10,852		8,675
iPad® (1)							iPad® (1)	7,248		8,435
Wearables, Home and Accessories (1)(2)	Wearables, Home and Accessories (1)(2)	12,971		10,010			Wearables, Home and Accessories (1)(2)	14,701		12,971
Services (3)	Services (3)	15,761		12,715			Services (3)	19,516		15,761
Total net sales (4)	Total net sales (4)	$	111,439	$	91,819		Total net sales (4)	$	123,945	$	111,439

(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.

(2)Wearables, Home and Accessories net sales include sales of AirPods®, Apple TV®, Apple Watch®, Beats® products, HomePod mini®, iPod touch® and ~~Apple-branded and third-party~~ accessories.

(3)Services net sales include sales from the Company’s advertising, AppleCare®, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of ~~Maps, Siri, and free iCloud storage and Apple TV+~~SMservices ~~which are~~ bundled in the sales price of certain products.

(4)Includes $3.0 billion of revenue recognized in the three months ended December 25, 2021 that was included in deferred revenue as of September 25, 2021 and $2.5 billion of revenue recognized in the three months ended December 26, 2020 that was included in deferred revenue as of September 26, ~~2020 and $1.9 billion of revenue recognized in the three months ended December 28, 2019 that was included in deferred revenue as of September 28, 2019.~~2020.

The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note ~~11,~~9, “Segment Information and Geographic Data” for the three months ended December 25, 2021 and December 26, 2020, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales.

As of December 25, 2021 and September 25, 2021, the Company had total deferred revenue of $12.4 billion and $11.9 billion, respectively. As of December ~~28, 2019.~~25, 2021, the Company expects 64% of total deferred revenue to be realized in less than a year, 27% within one-to-two years, 8% within two-to-three years and 1% in greater than three years.

Apple Inc. | Q1 2022 Form 10-Q | 7

Note 3 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of December ~~26, 2020~~25, 2021 and September ~~26, 2020~~25, 2021 (in millions):


		December 26, 2020															December 25, 2021
		Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities			Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	Cash	$	18,729	$	0	$	0	$	18,729	$	18,729	$	0	$	0	Cash	$	17,992	$	—	$	—	$	17,992	$	17,992	$	—	$	—

Level 1 (1): Money market funds		6,312		0		0		6,312		6,312		0		0

Level 1 (1):																Level 1 (1):
Money market funds																Money market funds	11,356		—		—		11,356		11,356		—		—
Mutual funds																Mutual funds	215		16		(2)		229		—		229		—
Subtotal																Subtotal	11,571		16		(2)		11,585		11,356		229		—
Level 2 (2):	Level 2 (2):															Level 2 (2):
Equity securities																Equity securities	1,527		—		(850)		677		—		677		—
U.S. Treasury securities	U.S. Treasury securities	21,939		270		(6)		22,203		3,227		8,527		10,449		U.S. Treasury securities	29,221		64		(171)		29,114		3,247		5,775		20,092
U.S. agency securities	U.S. agency securities	8,698		9		(1)		8,706		1,000		3,319		4,387		U.S. agency securities	7,934		1		(116)		7,819		1,066		1,581		5,172
Non-U.S. government securities	Non-U.S. government securities	20,185		395		(67)		20,513		100		2,874		17,539		Non-U.S. government securities	18,983		160		(177)		18,966		200		3,279		15,487
Certificates of deposit and time deposits	Certificates of deposit and time deposits	8,002		0		0		8,002		5,009		2,623		370		Certificates of deposit and time deposits	3,648		—		—		3,648		2,527		1,121		—
Commercial paper	Commercial paper	8,620		0		0		8,620		1,632		6,988		0		Commercial paper	2,261		—		—		2,261		702		1,559		—
Corporate debt securities	Corporate debt securities	83,042		2,155		(44)		85,153		1		16,117		69,035		Corporate debt securities	88,617		718		(754)		88,581		29		11,665		76,887
Municipal securities	Municipal securities	1,004		20		0		1,024		0		94		930		Municipal securities	993		10		(1)		1,002		—		150		852
Mortgage- and asset-backed securities	Mortgage- and asset-backed securities	16,051		281		(23)		16,309		0		274		16,035		Mortgage- and asset-backed securities	21,072		102		(223)		20,951		—		758		20,193
Subtotal	Subtotal	167,541		3,130		(141)		170,530		10,969		40,816		118,745		Subtotal	174,256		1,055		(2,292)		173,019		7,771		26,565		138,683
Total (3)																Total (3)	$	203,819	$	1,071	$	(2,294)	$	202,596	$	37,119	$	26,794	$	138,683

Total (3)		$	192,582	$	3,130	$	(141)	$	195,571	$	36,010	$	40,816	$	118,745

~~Apple Inc. | Q1 2021 Form 10-Q | 8~~


		September 26, 2020															September 25, 2021
		Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities			Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	Cash	$	17,773	$	0	$	0	$	17,773	$	17,773	$	0	$	0	Cash	$	17,305	$	—	$	—	$	17,305	$	17,305	$	—	$	—

Level 1 (1): Money market funds		2,171		0		0		2,171		2,171		0		0

Level 1 (1):																Level 1 (1):
Money market funds																Money market funds	9,608		—		—		9,608		9,608		—		—
Mutual funds																Mutual funds	175		11		(1)		185		—		185		—
Subtotal																Subtotal	9,783		11		(1)		9,793		9,608		185		—
Level 2 (2):	Level 2 (2):															Level 2 (2):
Equity securities																Equity securities	1,527		—		(564)		963		—		963		—
U.S. Treasury securities	U.S. Treasury securities	28,439		331		0		28,770		8,580		11,972		8,218		U.S. Treasury securities	22,878		102		(77)		22,903		3,596		6,625		12,682
U.S. agency securities	U.S. agency securities	8,604		8		0		8,612		2,009		3,078		3,525		U.S. agency securities	8,949		2		(64)		8,887		1,775		1,930		5,182
Non-U.S. government securities	Non-U.S. government securities	19,361		275		(186)		19,450		255		3,329		15,866		Non-U.S. government securities	20,201		211		(101)		20,311		390		3,091		16,830
Certificates of deposit and time deposits	Certificates of deposit and time deposits	10,399		0		0		10,399		4,043		6,246		110		Certificates of deposit and time deposits	1,300		—		—		1,300		490		810		—
Commercial paper	Commercial paper	11,226		0		0		11,226		3,185		8,041		0		Commercial paper	2,639		—		—		2,639		1,776		863		—
Corporate debt securities	Corporate debt securities	76,937		1,834		(175)		78,596		0		19,687		58,909		Corporate debt securities	83,883		1,242		(267)		84,858		—		12,327		72,531
Municipal securities	Municipal securities	1,001		22		0		1,023		0		139		884		Municipal securities	967		14		—		981		—		130		851
Mortgage- and asset-backed securities	Mortgage- and asset-backed securities	13,520		314		(24)		13,810		0		435		13,375		Mortgage- and asset-backed securities	20,529		171		(124)		20,576		—		775		19,801
Subtotal	Subtotal	169,487		2,784		(385)		171,886		18,072		52,927		100,887		Subtotal	162,873		1,742		(1,197)		163,418		8,027		27,514		127,877

Total (3)	Total (3)	$	189,431	$	2,784	$	(385)	$	191,830	$	38,016	$	52,927	$	100,887	Total (3)	$	189,961	$	1,753	$	(1,198)	$	190,516	$	34,940	$	27,699	$	127,877

(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.

(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

(3)As of December ~~26, 2020~~25, 2021 and September ~~26, 2020,~~25, 2021, total marketable securities included ~~$19.5~~$16.8 billion and ~~$18.6~~$17.9 billion, respectively, that was restricted from general use, related to the ~~State Aid Decision (refer~~European Commission decision finding that Ireland granted state aid to ~~Note 5, “Income Taxes”)~~the Company, and other agreements.

Apple Inc. | Q1 2022 Form 10-Q | 8

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturitiesfollowing table shows the fair value of the Company’s non-current marketable debt securities, ~~generally range from~~ ~~one~~ ~~to five years.~~

The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio.

~~Non-Marketable Securities~~

The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values. As of December 26, 2020 and September 26, 2020, the Company’s non-marketable equity securities had a carrying value of $2.5 billion and $2.8 billion, respectively.

~~Restricted Cash~~

A reconciliation of the Company’s cash and cash equivalents in the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flowsby contractual maturity, as of December ~~26, 2020 and September 26, 2020 is as follows~~25, 2021 (in millions):

December 26,
2020 September 26,
2020
Cash and cash equivalents $ 36,010 $ 38,016
Restricted cash 1,709 1,773
Cash, cash equivalents and restricted cash $ 37,719 $ 39,789

The Company’s restricted cash primarily consisted of cash to support the Company’s iPhone Upgrade Program. Substantially all of the Company’s restricted cash was included in other non-current assets in the Condensed Consolidated Balance Sheets.

~~Apple Inc. | Q1 2021 Form 10-Q | 9~~


Due after 1 year through 5 years	$	93,206
Due after 5 years through 10 years	25,183
Due after 10 years	20,294
Total fair value	$	138,683

Derivative ~~Financial~~ Instruments and Hedging

The Company may use ~~derivatives~~derivative instruments to partially offset its business exposure to foreign ~~currency~~exchange and interest rate ~~risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities.~~risk. However, the Company may choose not to hedge certain exposures for a variety of reasons, including ~~but not limited to,~~ 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 ~~currency~~ exchange or interest rates.

Foreign Exchange Risk

To protect gross margins from fluctuations in foreign currency exchange rates, ~~certain of~~ the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments, ~~to manage this risk~~ 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 12 months.

To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.

~~To protect the~~ Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. ~~These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value.~~ The Company ~~may designate~~designates these instruments as either cash flow or fair value hedges. As of December ~~26, 2020,~~25, 2021, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 2221 years.

The Company may also enter into ~~non-designated~~derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency ~~contracts~~exchange rates, as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.

0Interest Rate Risk

To protect the Company’s ~~foreign currency–denominated~~ term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. ~~These instruments may offset a portion of the changes in interest income or expense, or changes in fair value.~~ The Company designates these instruments as either cash flow or fair value hedges. As

The notional amounts of the Company’s outstanding derivative instruments as of December ~~26, 2020,~~25, 2021 and September 25, 2021 were as follows (in millions):


	December 25, 2021		September 25, 2021
Derivative instruments designated as accounting hedges:
Foreign exchange contracts	$	77,009	$	76,475
Interest rate contracts	$	16,875	$	16,875

Derivative instruments not designated as accounting hedges:
Foreign exchange contracts	$	176,268	$	126,918

The gross fair values of the Company’s ~~hedged interest rate transactions are expected to be recognized within seven years.~~derivative assets and liabilities were not material as of December 25, 2021 and September 25, 2021.

~~Cash Flow Hedges~~

Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. DeferredThe gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net (“OI&E”) in the same period as the related income or expense is recognized. For options designated as cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge relates on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in other comprehensive ~~income/(loss) (“OCI”).~~

~~Derivative~~income and amounts reclassified from accumulated other comprehensive income to net income for the Company’s derivative instruments designated as cash flow hedges ~~must be de-designated as hedges when it is probable the forecasted hedged transaction will~~were not ~~occur~~material in the ~~initially identified time period or within a subsequent two-month time period. Deferred gains~~three months ended December 25, 2021 and losses in AOCI associated with such derivative instruments are reclassified into OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions.

~~Net Investment Hedges~~

Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation adjustment. For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.December 26, 2020.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 10

~~Fair Value Hedges~~

Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a corresponding loss or gain related to the change in value of the hedged item in the same line in the Condensed Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OI&E on a straight-line basis over the life of the hedge. Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $82 million and $128 million for the three months ended December 26, 2020 and December 28, 2019, respectively. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.

~~Non-Designated Derivatives~~

~~Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.~~

The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of December 26, 2020 and September 26, 2020 (in millions):

December 26, 2020
Fair Value of
Derivatives Designated
as Hedge Instruments Fair Value of
Derivatives Not Designated
as Hedge Instruments Total
Fair Value
Derivative assets (1):
Foreign exchange contracts $ 524 $ 780 $ 1,304
Interest rate contracts $ 1,443 $ 0 $ 1,443
Derivative liabilities (2):
Foreign exchange contracts $ 2,332 $ 1,314 $ 3,646

September 26, 2020
Fair Value of
Derivatives Designated
as Hedge Instruments Fair Value of
Derivatives Not Designated
as Hedge Instruments Total
Fair Value
Derivative assets (1):
Foreign exchange contracts $ 749 $ 303 $ 1,052
Interest rate contracts $ 1,557 $ 0 $ 1,557
Derivative liabilities (2):
Foreign exchange contracts $ 1,561 $ 485 $ 2,046

~~(1)The fair value of derivative assets is measured using Level 2 fair value inputs and is included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheets.~~

~~(2)~~The fair value of derivative liabilities is measured using Level 2 fair value inputs and is included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheets.

~~The Company classifies cash flows related to derivative financial instruments as operating activities in its Condensed Consolidated Statements of Cash Flows.~~

~~Apple Inc. | Q1 2021 Form 10-Q | 11~~9

The ~~following table shows~~carrying amounts of the ~~pre-tax~~Company’s hedged items in fair value hedges as of December 25, 2021 and September 25, 2021 were as follows (in millions):


	December 25, 2021		September 25, 2021
Hedged assets/(liabilities):
Current and non-current marketable securities	$	15,322	$	15,954
Current and non-current term debt	$	(17,444)	$	(17,857)

The gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedges in OCI and the Condensed Consolidated Statements of Operations for the three months ended December 26, 2020 and December 28, 2019 (in millions):

Three Months Ended
December 26,
2020 December 28,
2019
Gains/(Losses) recognized in OCI – included in effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts $ (191) $ 271
Interest rate contracts 54 0
Total $ (137) $ 271
Net investment hedges:
Foreign currency debt $ 0 $ 24
Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts $ 314 $ 491
Interest rate contracts (3) (2)
Total $ 311 $ 489

Amounts excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI were losses of $138 million and $89 million for the three months ended December 26, 2020 and December 28, 2019, respectively.

~~The following tables show information about~~on the Company’s derivative instruments designated as fair value hedges and the related hedged ~~items for~~item adjustments were not material in the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019 and as of December~~ 26, ~~2020 and September 26, 2020 (in millions):~~

Three Months Ended
December 26,
2020 December 28,
2019
Gains/(Losses) on derivative instruments (1):
Foreign exchange contracts $ (753) $ (183)
Interest rate contracts (167) (162)
Total $ (920) $ (345)
Gains/(Losses) related to hedged items (1):
Marketable securities $ 752 $ 183
Fixed-rate debt 167 162
Total $ 919 $ 345

~~Apple Inc. | Q1 2021 Form 10-Q | 12~~

December 26,
2020 September 26,
2020
Carrying amounts of hedged assets/(liabilities):
Marketable securities (2)
$ 17,009 $ 16,270
Fixed-rate debt (3)
$ (20,866) $ (21,033)
Cumulative hedging adjustments included in the carrying amounts of hedged items:
Marketable securities carrying amount increases/(decreases) $ 956 $ 493
Fixed-rate debt carrying amount (increases)/decreases $ (1,374) $ (1,541)

~~(1)Gains and losses related to fair value hedges are included in OI&E in the Condensed Consolidated Statements of Operations.~~

~~(2)~~The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-current marketable securities in the Condensed Consolidated Balance Sheets

~~(3)~~The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term debt in the Condensed Consolidated Balance Sheets.

The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of December 26, 2020 and September 26, 2020 (in millions):

December 26, 2020 September 26, 2020
Notional
Amount Credit Risk
Amount Notional
Amount Credit Risk
Amount
Instruments designated as accounting hedges:
Foreign exchange contracts $ 71,191 $ 524 $ 57,410 $ 749
Interest rate contracts $ 20,900 $ 1,443 $ 20,700 $ 1,557
Instruments not designated as accounting hedges:
Foreign exchange contracts $ 123,267 $ 780 $ 88,636 $ 303

The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Condensed Consolidated Balance Sheets. As of December 26, 2020, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $215 million. As of September 26, 2020, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $875 million. The Company includes gross collateral posted and received in other current assets and other current liabilities in the Condensed Consolidated Balance Sheets, respectively.

Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of December 26, 2020 and September 26, 2020, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $3.5 billion and $2.8 billion, respectively, resulting in net derivative liabilities of $684 million and $312 million, respectively.

~~Apple Inc. | Q1 2021 Form 10-Q | 13~~

2020.

Accounts Receivable

Trade Receivables

The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.

~~As of both December 26, 2020 and September 26, 2020, the Company had 0 customers that individually represented 10% or more of total trade receivables.~~ The Company’s cellular network carriers accounted for ~~41%~~45% and 42% of total trade receivables as of December ~~26, 2020.~~25, 2021 and September 25, 2021, respectively.

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 ~~sub-assemblies~~subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of December ~~26, 2020,~~25, 2021, the Company had 23 vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for ~~61%~~54%, 13% and ~~14%~~12%. As of September ~~26, 2020,~~25, 2021, the Company had 23 vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for ~~57%~~52%, 11% and 11%.

Note 4 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s condensed consolidated financial statement details as of December ~~26, 2020~~25, 2021 and September ~~26, 2020~~25, 2021 (in millions):

Property, Plant and Equipment, Net


		December 26, 2020		September 26, 2020			December 25, 2021		September 25, 2021
Land and buildings		$	18,885	$	17,952
Machinery, equipment and internal-use software		76,224		75,291
Leasehold improvements		10,384		10,283
Gross property, plant and equipment	Gross property, plant and equipment	105,493		103,526		Gross property, plant and equipment	$	107,699	$	109,723
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(67,560)		(66,760)		Accumulated depreciation and amortization	(68,454)		(70,283)
Total property, plant and equipment, net	Total property, plant and equipment, net	$	37,933	$	36,766	Total property, plant and equipment, net	$	39,245	$	39,440

Other Non-Current Liabilities


		December 26, 2020		September 26, 2020			December 25, 2021		September 25, 2021
Long-term taxes payable	Long-term taxes payable	$	28,170	$	28,170	Long-term taxes payable	$	24,689	$	24,689
Other non-current liabilities	Other non-current liabilities	27,872		26,320		Other non-current liabilities	30,367		28,636
Total other non-current liabilities	Total other non-current liabilities	$	56,042	$	54,490	Total other non-current liabilities	$	55,056	$	53,325

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 1410

Other Income/(Expense), Net

The following table shows the detail of ~~OI&E~~other income/(expense), net for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Interest and dividend income	Interest and dividend income	$	747	$	1,045		Interest and dividend income	$	650	$	747
Interest expense	Interest expense	(638)		(785)			Interest expense	(694)		(638)
Other income/(expense), net		(64)		89
Other expense, net							Other expense, net	(203)		(64)
Total other income/(expense), net	Total other income/(expense), net	$	45	$	349		Total other income/(expense), net	$	(247)	$	45

Note 5 ~~– Income Taxes~~

~~Uncertain Tax Positions~~

As of December 26, 2020, the total amount of gross unrecognized tax benefits was $17.1 billion, of which $9.0 billion, if recognized, would impact the Company’s effective tax rate. The Company had accrued $1.6 billion of gross interest and penalties related to income tax matters as of December 26, 2020.

~~The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The U.S. Internal Revenue Service concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 rem~~ain open in certain major foreign jurisdictions and are subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as mu~~ch as $4.1 billion.~~

~~European Commission State Aid Decision~~

On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of 2 subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the U.S. Tax Cuts and Jobs Act of 2017.

On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries. As of December 26, 2020, the adjusted recovery amount was €12.9 billion, excluding interest. The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.

~~Apple Inc. | Q1 2021 Form 10-Q | 15~~

~~Note 6~~ – Debt

Commercial Paper

The Company issues unsecured short-term promissory notes (“Commercial Paper”) 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 ~~both~~ December ~~26, 2020~~25, 2021 and September ~~26, 2020,~~25, 2021, the Company had $5.0 billion and $6.0 billion of Commercial Paper outstanding, ~~with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 0.10% and 0.62% as of December 26, 2020 and September 26, 2020,~~ respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (in millions):


		Three Months Ended					Three Months Ended
		December 26, 2020		December 28, 2019			December 25, 2021		December 26, 2020
Maturities 90 days or less:	Maturities 90 days or less:					Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net		$	1,439	$	(175)
Proceeds from commercial paper, net						Proceeds from commercial paper, net	$	1,339	$	1,439

Maturities greater than 90 days:	Maturities greater than 90 days:					Maturities greater than 90 days:
Proceeds from commercial paper	Proceeds from commercial paper	780		1,317		Proceeds from commercial paper	1,191		780
Repayments of commercial paper	Repayments of commercial paper	(2,197)		(2,121)		Repayments of commercial paper	(3,530)		(2,197)
Repayments of commercial paper, net	Repayments of commercial paper, net	(1,417)		(804)		Repayments of commercial paper, net	(2,339)		(1,417)

Total proceeds from/(repayments of) commercial paper, net	Total proceeds from/(repayments of) commercial paper, net	$	22	$	(979)	Total proceeds from/(repayments of) commercial paper, net	$	(1,000)	$	22

Term Debt

As of December ~~26, 2020,~~25, 2021 and September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate ~~principal~~carrying amount of ~~$105.9~~$117.8 billion and $118.7 billion, respectively (collectively the “Notes”). ~~The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of December 26, 2020 and September 26, 2020:~~

Maturities
(calendar year)
December 26, 2020 September 26, 2020
Amount
(in millions)
Effective
Interest Rate
Amount
(in millions)
Effective
Interest Rate
2013 – 2020 debt issuances:
Floating-rate notes 2021 – 2022 $ 2,250 0.56% – 1.34% $ 2,250 0.60% – 1.39%
Fixed-rate 0.000% – 4.650% notes 2021 – 2060 103,613 0.03% – 4.78% 103,828 0.03% – 4.78%
Total term debt 105,863 106,078
Unamortized premium/(discount) and issuance costs, net (305) (314)
Hedge accounting fair value adjustments 1,485 1,676
Less: Current portion of term debt (7,762) (8,773)
Total non-current portion of term debt $ 99,281 $ 98,667

To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.

The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $628 million and $757 million of interest cost on its term debt for the three months ended December 26, 2020 and December 28, 2019, respectively.

As of December ~~26, 2020~~25, 2021 and September ~~26, 2020,~~25, 2021, the fair value of the Company’s Notes, based on Level 2 inputs, was ~~$117.2~~$123.5 billion and ~~$117.1~~$125.3 billion, respectively.

~~Apple Inc. | Q1 2021 Form 10-Q | 16~~

Note 76 – Shareholders’ Equity

Share Repurchase Program

As of December ~~26, 2020,~~25, 2021, the Company was authorized to purchase up to ~~$225~~$315 billion of the Company’s common stock under a share repurchase program ~~of which $192.6 billion had been utilized.~~(the “Program”). During the three months ended December ~~26, 2020,~~25, 2021, the Company repurchased ~~200~~124 million shares of its common stock for ~~$24.0 billion. The Company’s~~$20.4 billion, including 30 million shares initially delivered under accelerated share repurchase ~~program~~agreements (“ASRs”) entered into in November 2021, bringing the total utilization under the Program to $274.5 billion as of December 25, 2021. The Program does not obligate itthe Company to acquire any specific number of shares. Under ~~this program,~~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 (the “Exchange Act”).~~amended.

Apple Inc. | Q1 2022 Form 10-Q | 11

~~Note 8 – Comprehensive Income~~

~~The Company’s OCI consists~~Under the terms of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as hedges, and unrealized gains and losses on marketable debt securities classified as available-for-sale.

The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line items, for the three months ended December 26, 2020 and December 28, 2019 (in millions):

Three Months Ended
Comprehensive Income Components Financial Statement Line Items December 26,
2020 December 28,
2019
Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts Total net sales $ 104 $ (97)
Total cost of sales 245 (171)
Other income/(expense), net (628) (223)
Interest rate contracts Other income/(expense), net 3 2
(276) (489)
Unrealized (gains)/losses on marketable debt securities Other income/(expense), net (118) (13)
Total amounts reclassified from AOCI $ (394) $ (502)

~~The following table shows the changes in AOCI by component for the three months ended December 26, 2020 (in millions):~~

Cumulative Foreign
Currency Translation Unrealized Gains/Losses
on Derivative Instruments Unrealized Gains/Losses
on Marketable Debt Securities Total
Balances as of September 26, 2020 $ (1,375) $ (877) $ 1,846 $ (406)
Other comprehensive income/(loss) before reclassifications 549 (294) 708 963
Amounts reclassified from AOCI 0 (276) (118) (394)
Tax effect 0 83 (67) 16
Other comprehensive income/(loss) 549 (487) 523 585
Balances as of December 26, 2020 $ (826) $ (1,364) $ 2,369 $ 179

~~Note 9 – Benefit Plans~~

~~Stock Plans~~

~~The Company had 713 million shares reserved for future issuance under its stock plans as of December 26, 2020. RSUs granted under~~ the Company’s ~~stock plans generally vest over four years, based on continued employment, and are settled upon vesting in~~ASRs, two financial institutions committed to deliver shares of the Company’s common stock ~~on a 1-for-one basis. RSUs granted under~~during the ~~Company’s stock plans reduce the~~purchase periods in exchange for up-front payments totaling $6.0 billion. The total number of shares ~~available for grant~~ultimately delivered under the ~~plans by a factor of 2 times~~ASRs, and therefore the ~~number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase~~average repurchase price paid per share, is determined based on the ~~number of shares available for grant under the plans utilizing a factor of 2 times the number of RSUs canceled or shares withheld.~~

~~Apple Inc. | Q1 2021 Form 10-Q | 17~~

~~Rule 10b5-1 Trading Plans~~

During the three months ended December 26, 2020, Section 16 officers Katherine L. Adams, Timothy D. Cook, Chris Kondo, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or salesvolume-weighted average price of the Company’s common stock ~~including~~during the ASRs’ purchase periods, which end in the second quarter of 2022. The shares ~~acquired under~~received are retired in the periods they are delivered, and the up-front payments are accounted for as a reduction to retained earnings in the Company’s ~~employee and director equity plans.~~Condensed Consolidated Statement of Shareholders’ Equity in the period the payments are made.

Note 7 – Benefit Plans

Restricted Stock Units

A summary of the Company’s ~~RSU~~restricted stock unit (“RSU”) activity and related information for the three months ended December ~~26, 2020~~25, 2021 is as follows:


		Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value Per RSU		Aggregate Fair Value (in millions)			Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value Per RSU		Aggregate Fair Value (in millions)
Balance as of September 26, 2020		310,778	$	51.58
Balance as of September 25, 2021							Balance as of September 25, 2021	240,427	$	75.16
RSUs granted	RSUs granted	75,959	$	112.75			RSUs granted	67,645	$	147.33
RSUs vested	RSUs vested	(68,565)	$	44.91			RSUs vested	(56,649)	$	61.75
RSUs canceled	RSUs canceled	(2,819)	$	61.05			RSUs canceled	(4,886)	$	93.21
Balance as of December 26, 2020		315,353	$	67.68	$	41,617
Balance as of December 25, 2021							Balance as of December 25, 2021	246,537	$	97.69	$	43,460

The fair value as of the respective vesting dates of RSUs was $8.5 billion ~~and $4.2 billion~~ for the three months ended both December 25, 2021 and December 26, ~~2020 and December 28, 2019, respectively.~~2020.

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 months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Share-based compensation expense	Share-based compensation expense	$	2,020	$	1,710		Share-based compensation expense	$	2,265	$	2,020
Income tax benefit related to share-based compensation expense	Income tax benefit related to share-based compensation expense	$	(1,624)	$	(758)		Income tax benefit related to share-based compensation expense	$	(1,536)	$	(1,624)

As of December ~~26, 2020,~~25, 2021, the total unrecognized compensation cost related to outstanding RSUs and stock options was ~~$18.2~~$20.6 billion, which the Company expects to recognize over a weighted-average period of ~~2.9~~3.0 years.

Note 108 – Commitments and Contingencies

Accrued Warranty ~~and Guarantees~~

The following table shows changes in the Company’s accrued warranties and related costs for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (in millions):

Three Months Ended
December 26,
2020 December 28,
2019
Beginning accrued warranty and related costs $ 3,354 $ 3,570
Cost of warranty claims (723) (915)
Accruals for product warranty 1,493 1,218
Ending accrued warranty and related costs $ 4,124 $ 3,873

~~The Company offers an iPhone Upgrade Program,which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and China mainland.~~ ~~The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new~~ iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within net sales.


	Three Months Ended
	December 25, 2021		December 26, 2020
Beginning accrued warranty and related costs	$	3,364	$	3,354
Cost of warranty claims	(672)		(723)
Accruals for product warranty	838		1,493
Ending accrued warranty and related costs	$	3,530	$	4,124

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 1812

~~Concentrations in the Available Sources of Supply of Materials and Product~~

Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets and other electronic devices. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.

The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.

~~Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.~~

~~Unconditional Purchase Obligations~~

The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for content creation, Internet and telecommunications services and supplier arrangements. As of December 26, 2020, the Company’s total future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year were $8.1 billion.

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. The outcome of litigation is inherently uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. 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. 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, except for the following matters:~~

~~VirnetX~~

VirnetX, Inc. (“VirnetX”) filed a lawsuit against the Company alleging that certain of the Company’s products infringe on patents owned by VirnetX. On April 11, 2018, a jury returned a verdict against the Company in the U.S. District Court for the Eastern District of Texas (the “Eastern Texas District Court”). The Company appealed the verdict to the U.S. Court of Appeals for the Federal Circuit, which remanded the case back to the Eastern Texas District Court, where a re-trial was held in October 2020. The jury returned a verdict against the Company and awarded damages of $503 million, which the Company intends to appeal. The Company has challenged the validity of the patents at issue in the re-trial at the U.S. Patent and Trademark Office (the “PTO”), and the PTO has declared the patents invalid, subject to further appeal by VirnetX.

~~Apple Inc. | Q1 2021 Form 10-Q | 19~~

~~iOS Performance Management Cases~~

Various civil litigation matters have been filed in state and federal courts in the U.S. and in various international jurisdictions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2. The claims seek monetary damages and other non-monetary relief. On April 5, 2018, several U.S. federal actions were consolidated through a Multidistrict Litigation process into a single action in the U.S. District Court for the Northern District of California (the “Northern California District Court”). On February 28, 2020, the parties in the Multidistrict Litigation reached a settlement to resolve the U.S. federal and California state class actions. Under the terms of the settlement, which the Northern California District Court preliminarily approved in May 2020, the Company has agreed to pay up to $500 million in the aggregate to certain U.S. owners of iPhones if certain conditions are met. The final amount of the settlement will be determined based on the number of consumers who file valid claims and the attorneys’ fee award. However, the Company has agreed to pay at least $310 million to settle the claims. In addition to civil litigation, the Company is also responding to governmental investigations and requests for information relating to the performance management feature. On November 18, 2020, the Company reached a settlement with a multi-state group of attorneys general. Under the terms of the settlement, the Company has agreed to pay an aggregate amount of $113 million to resolve civil, statutory claims. The Company continues to believe that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information.

~~French Competition Authority~~

On March 16, 2020, the French Competition Authority (“FCA”) announced its decision that aspects of the Company’s sales and distribution practices in France violate French competition law and issued a fine of €1.1 billion. The Company strongly disagrees with the FCA’s decision and has appealed.

~~Optis~~

Optis Wireless Technology, LLC and related entities (“Optis”) filed a lawsuit in the U.S. District Court for the Eastern District of Texas against the Company alleging that certain of the Company’s products infringe on patents owned by Optis. On August 11, 2020, a jury returned a verdict against the Company and awarded damages of $506 million. The Company has asked the court to set aside the verdict, where the case remains pending.

Note 119 – Segment Information and Geographic Data

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China mainland, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. 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. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2020 Form 10-K.

The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.

~~Apple Inc. | Q1 2021 Form 10-Q | 20~~

The following table shows information by reportable segment for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Americas:	Americas:						Americas:
Net sales	Net sales	$	46,310	$	41,367		Net sales	$	51,496	$	46,310
Operating income	Operating income	$	15,785	$	13,092		Operating income	$	19,585	$	15,785

Europe:	Europe:						Europe:
Net sales	Net sales	$	27,306	$	23,273		Net sales	$	29,749	$	27,306
Operating income	Operating income	$	9,589	$	7,719		Operating income	$	11,545	$	9,589

Greater China:	Greater China:						Greater China:
Net sales	Net sales	$	21,313	$	13,578		Net sales	$	25,783	$	21,313
Operating income	Operating income	$	8,530	$	5,363		Operating income	$	11,183	$	8,530

Japan:	Japan:						Japan:
Net sales	Net sales	$	8,285	$	6,223		Net sales	$	7,107	$	8,285
Operating income	Operating income	$	3,503	$	2,778		Operating income	$	3,349	$	3,503

Rest of Asia Pacific:	Rest of Asia Pacific:						Rest of Asia Pacific:
Net sales	Net sales	$	8,225	$	7,378		Net sales	$	9,810	$	8,225
Operating income	Operating income	$	2,953	$	2,731		Operating income	$	3,995	$	2,953

A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 is as follows (in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Segment operating income	Segment operating income	$	40,360	$	31,683		Segment operating income	$	49,657	$	40,360
Research and development expense	Research and development expense	(5,163)		(4,451)			Research and development expense	(6,306)		(5,163)
Other corporate expenses, net	Other corporate expenses, net	(1,663)		(1,663)			Other corporate expenses, net	(1,863)		(1,663)
Total operating income	Total operating income	$	33,534	$	25,569		Total operating income	$	41,488	$	33,534

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2113

Item 2. 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. 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 the COVID-19 pandemic 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 Company’s Annual Report on Form 10-K for the fiscal year ended September ~~26, 2020~~25, 2021 (the ~~“2020~~“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.

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. Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly owned subsidiaries, unless otherwise stated.

The following discussion should be read in conjunction with the ~~2020~~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.

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 corporate 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.

Quarterly Highlights

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.

COVID-19 Update

The COVID-19 pandemic has ~~prompted~~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 ~~quarantines~~quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. 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, ~~and stock price.~~as well as the price of the Company’s stock.

During the first quarter of ~~2021,~~2022, aspects of the Company’s business continued to be affected by the COVID-19 pandemic, with ~~many~~a significant number of the Company’s employees working remotely and certain of the Company’s retail stores ~~as well as channel partner points of sale,~~operating at limited capacity or temporarily ~~closed~~closing at various ~~times, and the vast majority of the Company’s employees working remotely.~~times. The Company has reopened ~~some~~substantially all of its ~~offices and retail stores,~~other facilities, subject to operating restrictions to protect public health and the health and safety of employees, and ~~customers, and~~ it continues to work on safely reopening the remainder of its ~~offices and retail stores,~~facilities, subject to local rules and regulations. At times, certain of the Company’s component suppliers and logistical service providers have experienced disruptions, resulting in supply shortages that affected sales worldwide. Similar impacts or other disruptions could occur in the future.

Apple Inc. | Q1 2022 Form 10-Q | 14

The ~~full~~ extent of the ~~future~~continuing impact of the COVID-19 pandemic on the Company’s operational and financial performance is ~~currently~~ uncertain and will depend on many factors outside the Company’s control, including ~~without limitation,~~ the timing, extent, trajectory and duration of the ~~pandemic;~~pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of ~~vaccines;~~vaccines and treatments, the imposition of protective public safety ~~measures;~~measures, and the impact of the pandemic on the global economy and demand for consumer products. Refer to Part I, Item 1A of the ~~2020~~2021 Form 10-K under the heading “Risk ~~Factors,”~~Factors” for more information.

~~Apple Inc. | Q1 2021 Form 10-Q | 22~~

The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity requirements associated with its existing operations.

First Quarter Fiscal ~~2021~~2022 Highlights

Total net sales increased ~~21%~~11% or ~~$19.6~~$12.5 billion during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020,~~2021, driven primarily by ~~higher net sales~~growth in ~~all Products~~iPhone, Services and ~~Services categories. Additionally, net sales in all of the Company’s geographic reportable segments grew during the first quarter of 2021.~~Mac.

During the first quarter of ~~2021,~~2022, the Company released the following ~~products and services:~~

•~~iPhone 12, iPhone 12 mini, iPhone 12 Pro and iPhone 12 Pro Max, all with 5G technology;~~new products:

•MacBook ~~Air~~Pro®, ~~13-inch MacBook Pro~~®available in 14- and ~~Mac mini~~®~~, all~~16-inch models and powered by an Apple M1 ~~the Company’s first~~Pro chip ~~designed specifically for the Mac;~~or an Apple M1 Max chip;

•~~An all-new iPad Air~~®;

•~~AirPods Max™, new over-ear wireless headphones, and HomePod mini™;~~Third generation of AirPods; and

•Apple ~~Fitness+~~SM~~, a fitness subscription service.~~Watch Series 7.

The Company repurchased ~~$24.0~~$20.4 billion of its common stock and paid dividends and dividend equivalents of ~~$3.6~~$3.7 billion during the first quarter of ~~2021.~~2022.

Products and Services Performance

The following table shows net sales by category for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (dollars in millions):


		Three Months Ended						Three Months Ended
		December 26, 2020		December 28, 2019		Change				December 25, 2021		December 26, 2020		Change
Net sales by category:	Net sales by category:								Net sales by category:
iPhone (1)	iPhone (1)	$	65,597	$	55,957	17	%		iPhone (1)	$	71,628	$	65,597	9	%
Mac (1)	Mac (1)	8,675		7,160		21	%		Mac (1)	10,852		8,675		25	%
iPad (1)	iPad (1)	8,435		5,977		41	%		iPad (1)	7,248		8,435		(14)	%
Wearables, Home and Accessories (1)(2)	Wearables, Home and Accessories (1)(2)	12,971		10,010		30	%		Wearables, Home and Accessories (1)(2)	14,701		12,971		13	%
Services (3)	Services (3)	15,761		12,715		24	%		Services (3)	19,516		15,761		24	%
Total net sales	Total net sales	$	111,439	$	91,819	21	%		Total net sales	$	123,945	$	111,439	11	%

(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.

(2)Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod mini, iPod touch and ~~Apple-branded and third-party~~ accessories.

(3)Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of ~~Maps, Siri, and free iCloud storage and Apple TV+~~ services ~~which are~~ bundled in the sales price of certain products.

iPhone

iPhone net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales from the ~~successful launch of the~~ Company’s ~~four~~ new iPhone models launched in the fourth quarter of 2021 and a ~~favorable~~different mix of iPhone sales.

Mac

Mac net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of MacBook ~~Air~~Pro and MacBook ~~Pro.~~Air®.

iPad

iPad net sales ~~increased~~decreased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to ~~higher~~lower net sales of ~~iPad Air and iPad Pro~~®.the 10-inch version of iPad.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2315

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of AirPods, Apple Watch ~~accessories~~ and ~~AirPods.~~accessories.

Services

Services net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales from advertising, the App Store ~~advertising~~® and cloud services.

Segment Operating Performance

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China mainland, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. 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. 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 ~~11,~~9, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 (dollars in millions):


		Three Months Ended						Three Months Ended
		December 26, 2020		December 28, 2019		Change				December 25, 2021		December 26, 2020		Change
Net sales by reportable segment:	Net sales by reportable segment:								Net sales by reportable segment:
Americas	Americas	$	46,310	$	41,367	12	%		Americas	$	51,496	$	46,310	11	%
Europe	Europe	27,306		23,273		17	%		Europe	29,749		27,306		9	%
Greater China	Greater China	21,313		13,578		57	%		Greater China	25,783		21,313		21	%
Japan	Japan	8,285		6,223		33	%		Japan	7,107		8,285		(14)	%
Rest of Asia Pacific	Rest of Asia Pacific	8,225		7,378		11	%		Rest of Asia Pacific	9,810		8,225		19	%
Total net sales	Total net sales	$	111,439	$	91,819	21	%		Total net sales	$	123,945	$	111,439	11	%

Americas

Americas net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of Services, iPhone, and Wearables, Home and Accessories.

Europe

Europe net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of ~~Wearables, Home~~Services, Mac and ~~Accessories, iPhone and iPad.~~iPhone. The movement of foreign currencies in Europe relative to the U.S. dollar had a net favorable impact on Europe net sales during the first quarter of 2022.

Greater China

Greater China net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of iPhone ~~iPad~~ and ~~Wearables, Home and Accessories.~~Services. The strength of the Chinese renminbi relative to the U.S. dollar had a favorable impact on Greater China net sales during the first quarter of ~~2021.~~2022.

Japan

Japan net sales ~~increased~~decreased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to lower net sales of iPhone and iPad, partially offset by higher net sales of ~~iPhone, Services and iPad.~~Services. The ~~strength~~weakness of the Japanese yen relative to the U.S. dollar had ~~a favorable~~an unfavorable impact on Japan net sales during the first quarter of ~~2021.~~2022.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2416

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net sales of ~~Services, iPad and~~iPhone, Wearables, Home and ~~Accessories. The movement of foreign currencies in the Rest of Asia Pacific relative to the U.S. dollar had a net favorable impact on net sales during the first quarter of 2021.~~Accessories and Mac.

Gross Margin

Products and Services gross margin and gross margin percentage for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 were as follows (dollars in millions):


		Three Months Ended				Three Months Ended
		December 26, 2020		December 28, 2019				December 25, 2021		December 26, 2020
Gross margin:	Gross margin:						Gross margin:
Products	Products	$	33,548	$	27,029		Products	$	40,120	$	33,548
Services	Services	10,780		8,188			Services	14,123		10,780
Total gross margin	Total gross margin	$	44,328	$	35,217		Total gross margin	$	54,243	$	44,328


Gross margin percentage:	Gross margin percentage:					Gross margin percentage:
Products	Products	35.1	%	34.2	%	Products	38.4	%	35.1	%
Services	Services	68.4	%	64.4	%	Services	72.4	%	68.4	%
Total gross margin percentage	Total gross margin percentage	39.8	%	38.4	%	Total gross margin percentage	43.8	%	39.8	%

Products Gross Margin

Products gross margin ~~increased during the first quarter of 2021 compared to the same quarter in 2020 due primarily to higher Products volume~~ and ~~a different Products mix.~~ Products gross margin percentage increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to ~~higher leverage.~~a different Products mix and the strength in foreign currencies relative to the U.S. dollar.

Services Gross Margin

Services gross margin increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher Services net sales and a different Services mix. Services gross margin percentage increased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to a different Services mix and ~~higher~~ leverage, partially offset by higher Services costs.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the ~~2020~~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 ~~remain under~~ downward pressure.

Operating Expenses

Operating expenses for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 were as follows (dollars in millions):


		Three Months Ended						Three Months Ended
		December 26, 2020			December 28, 2019					December 25, 2021			December 26, 2020
Research and development	Research and development	$	5,163		$	4,451			Research and development	$	6,306		$	5,163
Percentage of total net sales	Percentage of total net sales	5		%	5		%		Percentage of total net sales	5		%	5		%
Selling, general and administrative	Selling, general and administrative	$	5,631		$	5,197			Selling, general and administrative	$	6,449		$	5,631
Percentage of total net sales	Percentage of total net sales	5		%	6		%		Percentage of total net sales	5		%	5		%
Total operating expenses	Total operating expenses	$	10,794		$	9,648			Total operating expenses	$	12,755		$	10,794
Percentage of total net sales	Percentage of total net sales	10		%	11		%		Percentage of total net sales	10		%	10		%

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2517

Research and Development

The growth in research and development (“R&D”) expense during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 was driven primarily by increases in headcount-related ~~expenses.~~expenses, engineering program costs and infrastructure-related costs. 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.

Selling, General and Administrative

The growth in selling, general and administrative expense during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 was driven primarily by increases in headcount-related expenses, ~~and higher~~ variable selling ~~expenses.~~expenses and professional services.

Other Income/(Expense), Net

Other income/(expense), net (“OI&E”) for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 was as follows (dollars in millions):


		Three Months Ended						Three Months Ended
		December 26, 2020		December 28, 2019		Change				December 25, 2021		December 26, 2020		Change
Interest and dividend income	Interest and dividend income	$	747	$	1,045				Interest and dividend income	$	650	$	747
Interest expense	Interest expense	(638)		(785)					Interest expense	(694)		(638)
Other income/(expense), net		(64)		89
Other expense, net									Other expense, net	(203)		(64)
Total other income/(expense), net	Total other income/(expense), net	$	45	$	349	(87)	%		Total other income/(expense), net	$	(247)	$	45	(649)	%

OI&E decreased during the first quarter of ~~2021~~2022 compared to the same quarter in ~~2020~~2021 due primarily to higher net losses on marketable and non-marketable securities and lower interest income and an adjustment to the carrying value of a non-marketable security, partially offset by lower interest expense. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.49% and 2.08% in the first quarter of 2021 and 2020, respectively.income.

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three months ended December ~~26, 2020~~25, 2021 and December ~~28, 2019~~26, 2020 were as follows (dollars in millions):


		Three Months Ended						Three Months Ended
		December 26, 2020			December 28, 2019					December 25, 2021			December 26, 2020
Provision for income taxes	Provision for income taxes	$	4,824		$	3,682			Provision for income taxes	$	6,611		$	4,824
Effective tax rate	Effective tax rate	14.4		%	14.2		%		Effective tax rate	16.0		%	14.4		%
Statutory federal income tax rate	Statutory federal income tax rate	21		%	21		%		Statutory federal income tax rate	21		%	21		%

The Company’s effective tax rate for the first quarter of ~~2021~~2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax ~~rates~~rate on foreign earnings and tax benefits from share-based compensation.

The Company’s effective tax rate for the first quarter of ~~2021~~2022 was ~~relatively flat~~higher compared to the same quarter in ~~2020.~~2021 due primarily to lower tax benefits from share-based compensation and a change in geographic mix of earnings.

~~Apple Inc. | Q1 2021 Form 10-Q | 26~~

Liquidity and Capital Resources

The ~~following tables present selected financial information and statistics as of December 26, 2020 and September 26, 2020 and for the first three months of 2021 and 2020 (in millions):~~

December 26,
2020 September 26,
2020
Cash, cash equivalents and marketable securities (1)
$ 195,571 $ 191,830
Property, plant and equipment, net $ 37,933 $ 36,766
Commercial paper $ 5,000 $ 4,996
Total term debt $ 107,043 $ 107,440
Working capital $ 21,599 $ 38,321

Three Months Ended
December 26,
2020 December 28,
2019
Cash generated by operating activities $ 38,763 $ 30,516
Cash used in investing activities $ (8,584) $ (13,668)
Cash used in financing activities $ (32,249) $ (25,407)

~~(1)~~As of December 26, 2020 and September 26, 2020, total marketable securities included $19.5 billion and $18.6 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) and other agreements.

~~The~~ Company believes its ~~existing~~ balances of cash, cash equivalents and unrestricted marketable securities, along with ~~commercial paper~~cash generated by ongoing operations and ~~other short-term liquidity arrangements,~~continued access to debt markets, will be sufficient to satisfy its ~~working~~cash requirements and capital ~~needs, capital asset purchases, dividends, share repurchases, debt repayments and other liquidity requirements associated with its existing operations~~return program over the next 12 ~~months.~~

In connection with the State Aid Decision, as of December 26, 2020, the adjusted recovery amount of €12.9 billion plus interest of €1.2 billion was funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Further information regarding the State Aid Decision can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 5, “Income Taxes.”months and beyond.

The Company’s ~~marketable securities investment portfolio is primarily invested in highly rated securities, with~~cash requirements have not changed materially since the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

During the three months ended December 26, 2020, cash generated by operating activities of $38.8 billion was a result of $28.8 billion of net income, non-cash adjustments to net income of $4.7 billion and an increase in the net change in operating assets and liabilities of $5.4 billion. Cash used in investing activities of $8.6 billion during the three months ended December 26, 2020 consisted primarily of cash used2021 Form 10-K, except for purchases of marketable securities, net of maturities and sales, of $5.3 billion and cash used to acquire property, plant and equipment of $3.5 billion. Cash used in financing activities of $32.2 billion during the three months ended December 26, 2020 consisted primarily of cash used to repurchase common stock of $24.8 billion, cash used to pay dividends and dividend equivalents of $3.6 billion, cash used for taxes related to net share settlement of equity awards of $2.9 billion, and cash used to repay term debt of $1.0 billion.

During the three months ended December 28, 2019, cash generated by operating activities of $30.5 billion was a result of $22.2 billion of net income, non-cash adjustments to net income of $4.0 billion and an increase in the net change in operating assets and liabilities of $4.2 billion. Cash used in investing activities of $13.7 billion during the three months ended December 28, 2019 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $10.4 billion and cash used to acquire property, plant and equipment of $2.1 billion. Cash used in financing activities of $25.4 billion during the three months ended December 28, 2019 consisted primarily of cash used to repurchase common stock of $20.7 billion, cash used to pay dividends and dividend equivalents of $3.5 billion and cash used to repay term debt of $1.0 billion, partially offset by net proceeds from the issuance of term debt of $2.2 billion.

~~Debt~~

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of December 26, 2020, the Company had $5.0 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.10% and maturities generally less than nine months.manufacturing purchase obligations.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2718

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 December ~~26, 2020,~~25, 2021, the Company had ~~outstanding floating- and fixed-rate notes~~manufacturing purchase obligations of $47.6 billion, with ~~varying maturities for an aggregate principal amount of $105.9~~$47.5 billion ~~(collectively the “Notes”). During the first three months of 2021, the Company repaid $1.0 billion of Notes.~~payable within 12 months. The ~~Company has entered, and in the future may enter, into interest rate swaps~~Company’s manufacturing purchase obligations are primarily noncancelable.

In addition to ~~manage interest rate risk on the Notes. In addition,~~its cash requirements, the Company has ~~entered, and in~~a capital return program authorized by the ~~future may enter, into foreign currency swaps to manage foreign currency risk on the Notes.~~

~~Further information regarding the Company’s debt issuances and related hedging activity can be found in Part I, Item 1~~Board of ~~this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 3, “Financial Instruments” and Note 6, “Debt.”~~

~~Capital Return Program~~

~~As of December 26, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a~~Directors. The share repurchase program of which $192.6 billion had been utilized. During the three months ended December 26, 2020, the Company repurchased 200 million shares of its common stock for $24.0 billion. The Company’s share repurchase program(the “Program”) does not obligate itthe Company to acquire any specific number of shares. Under this 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 (the “Exchange Act”).

As of December ~~26, 2020,~~25, 2021, the Company’s quarterly cash dividend was ~~$0.205~~$0.22 per share. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

~~Contractual Obligations~~

~~Leases~~

The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space. The Company’s retail store and other facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options. The Company’s total fixed lease payment obligation of $13.0 billion as of December 26, 2020 included future payments under leases that had commenced as of December 26, 2020, and were therefore recorded on the Company’s Condensed Consolidated Balance Sheet, as well as leases that had been signed but not yet commenced as of December 26, 2020.

~~Manufacturing Purchase Obligations~~

The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of December 26, 2020, the Company expects to pay $45.8 billion under manufacturing-related supplier arrangements, which are primarily noncancelable.

~~Other Purchase Obligations~~

The Company’s other purchase obligations primarily consist of noncancelable obligations to acquire capital assets, including product tooling and manufacturing process equipment, and noncancelable obligations related to advertising, content creation and Internet and telecommunications services. As of December 26, 2020, the Company had other purchase obligations of $7.8 billion.

~~Deemed Repatriation Tax Payable~~

As of December 26, 2020, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act (the “Act”) was $29.9 billion, of which $28.1 billion was included in other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company pays the deemed repatriation tax payable in installments in accordance with the Act.

~~Other Non-Current Liabilities~~

~~The Company’s remaining other non-current liabilities primarily consist of items for which the Company is unable to make a reasonably reliable estimate of the timing or amount of payments.~~

~~Apple Inc. | Q1 2021 Form 10-Q | 28~~

Critical Accounting ~~Policies and~~ 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. 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. Actual results may differ from these estimates, and such differences may be material.

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 ~~2020 Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2020~~2021 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 ~~policies and~~ estimates since the ~~2020~~2021 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 ~~2021.~~2022. 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 ~~2020~~2021 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of December ~~26, 2020~~25, 2021 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 ~~2021,~~2022, 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 2022 Form 10-Q | 19

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 “Northern California 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. The Company filed a counterclaim for breach of contract. On September 10, 2021, the Northern California District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epic’s claim, and in favor of the Company with respect to the Company’s claims for breach of contract. The Northern California District Court found that certain provisions of the Company’s App Store Review Guidelines violate California’s unfair competition law and issued an injunction. Epic appealed the decision. The Company filed a cross-appeal and has been granted a stay pending the appeal.

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’s material legal proceedings are described in Part I, Item 1~~Company settled certain matters during the first quarter of ~~this Form 10-Q~~2022 that did not individually or in the ~~Notes to Condensed Consolidated Financial Statements in Note 10, “Commitments and Contingencies” under~~aggregate have a material impact on the ~~heading “Contingencies.”~~

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. ~~The Company settled certain matters during the first quarter of 2021 that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.~~

Item 1A. Risk Factors

The Company’s business, reputation, results of operations and financial condition, ~~and operating results~~as well as the price of the ~~Company~~Company’s stock, can be affected by a number of factors, whether currently known or unknown, including ~~but not limited to~~ those described in Part I, Item 1A of the ~~2020~~2021 Form 10-K under the heading “Risk ~~Factors,~~Factors.” When any one or more of ~~which could, directly or indirectly, cause~~these risks materialize from time to time, the Company’s ~~actual~~business, reputation, results of operations and financial condition, ~~and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any~~as well as the price of ~~these factors, in whole or in part, could~~the Company’s stock, can be materially and adversely ~~affect the Company’s business, financial condition, operating results and stock price.~~affected. There have been no material changes to the Company’s risk factors since the ~~2020~~2021 Form 10-K.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 2920

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 ~~26, 2020~~25, 2021 was as follows (in millions, except number of shares, which are reflected in thousands, and per share amounts):


Periods	Periods	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)		Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
September 27, 2020 to October 31, 2020:
September 26, 2021 to October 30, 2021:								September 26, 2021 to October 30, 2021:
Open market and privately negotiated purchases	Open market and privately negotiated purchases	25,810	$	116.23	25,810			Open market and privately negotiated purchases	41,416		$	144.87	41,416

November 1, 2020 to November 28, 2020:
October 31, 2021 to November 27, 2021:								October 31, 2021 to November 27, 2021:
November 2021 ASRs								November 2021 ASRs	30,405	(2)			30,405	(2)
Open market and privately negotiated purchases	Open market and privately negotiated purchases	87,247	$	117.48	87,247			Open market and privately negotiated purchases	27,770		$	153.08	27,770

November 29, 2020 to December 26, 2020:
November 28, 2021 to December 25, 2021:								November 28, 2021 to December 25, 2021:
Open market and privately negotiated purchases	Open market and privately negotiated purchases	86,632	$	124.09	86,632			Open market and privately negotiated purchases	24,218		$	169.76	24,218
Total	Total	199,689				$	32,353	Total	123,809						$	40,489

(1)As of December ~~26, 2020,~~25, 2021, the Company was authorized to purchase up to ~~$225~~$315 billion of the Company’s common stock under ~~a share repurchase program~~the Program, announced on April ~~30, 2020,~~28, 2021, of which ~~$192.6~~$274.5 billion had been utilized. The remaining ~~$32.4~~$40.5 billion in the table represents the amount available to repurchase shares under the ~~authorized repurchase program~~Program as of December ~~26, 2020.~~25, 2021. The ~~Company’s share repurchase program~~Program does not obligate itthe Company to acquire any specific number of shares. Under ~~this program,~~the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

(2)In November 2021, the Company entered into new accelerated share repurchase agreements (“ASRs”). Under the terms of the agreements, two financial institutions committed to deliver shares of the Company’s common stock during the purchase periods in exchange for up-front payments totaling $6.0 billion. The total number of shares ultimately delivered under the ASRs, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of the Company’s common stock during the ASRs’ purchase periods, which end in the second quarter of 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~Rule 10b5-1 Trading Plans

During the three months ended December 25, 2021, Katherine L. Adams, Timothy D. Cook, Luca Maestri, Deirdre O’Brien and Jeffrey Williams, each an officer for purposes of Section 16 of the Exchange Act, had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including sales of shares acquired under the Company’s employee and director equity plans.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 3021

Item 6. Exhibits

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

Exhibit

Filing Date/
Period End Date

10.1*, **

~~Form of CEO Restricted Stock Unit Award Agreement under 2014 Employee~~Apple Inc. Non-Employee Director Stock Plan, ~~effective~~ as ~~of September 27, 2020.~~

10.2*

~~Form of CEO Performance Award Agreement under 2014 Employee Stock Plan effective as of September 27, 2020.~~amended November 9, 2021.

31.1**

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

31.2**

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

32.1***

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.

101**

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.

*Indicates management contract or compensatory plan or arrangement.

**Filed herewith.

***Furnished herewith.

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 3122

SIGNATURE

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.


January 27, ~~2021~~2022	Apple Inc.

	By:	/s/ Luca Maestri
		Luca Maestri
		Senior Vice President, Chief Financial Officer

Apple Inc. | Q1 ~~2021~~2022 Form 10-Q | 3223


		Page
Part I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2214
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2919
Item 4.	Controls and Procedures	2919
Part II
Item 1.	Legal Proceedings	2920
Item 1A.	Risk Factors	2920
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3021
Item 3.	Defaults Upon Senior Securities	3021
Item 4.	Mine Safety Disclosures	3021
Item 5.	Other Information	3021
Item 6.	Exhibits	3122


	December 26, 2020
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Total Fair Value
Derivative assets (1):
Foreign exchange contracts	$	524	$	780	$	1,304
Interest rate contracts	$	1,443	$	0	$	1,443

Derivative liabilities (2):
Foreign exchange contracts	$	2,332	$	1,314	$	3,646


	December 26, 2020		September 26, 2020
Carrying amounts of hedged assets/(liabilities):
Marketable securities (2)	$	17,009	$	16,270
Fixed-rate debt (3)	$	(20,866)	$	(21,033)

Cumulative hedging adjustments included in the carrying amounts of hedged items:
Marketable securities carrying amount increases/(decreases)	$	956	$	493
Fixed-rate debt carrying amount (increases)/decreases	$	(1,374)	$	(1,541)


	December 26, 2020				September 26, 2020
	Notional Amount		Credit Risk Amount		Notional Amount		Credit Risk Amount
Instruments designated as accounting hedges:
Foreign exchange contracts	$	71,191	$	524	$	57,410	$	749
Interest rate contracts	$	20,900	$	1,443	$	20,700	$	1,557

Instruments not designated as accounting hedges:
Foreign exchange contracts	$	123,267	$	780	$	88,636	$	303


	Maturities (calendar year)	December 26, 2020			September 26, 2020
		Amount (in millions)		Effective Interest Rate	Amount (in millions)		Effective Interest Rate
2013 – 2020 debt issuances:
Floating-rate notes	2021 – 2022	$	2,250	0.56% – 1.34%	$	2,250	0.60% – 1.39%
Fixed-rate 0.000% – 4.650% notes	2021 – 2060	103,613		0.03% – 4.78%	103,828		0.03% – 4.78%
Total term debt		105,863			106,078

Unamortized premium/(discount) and issuance costs, net		(305)			(314)
Hedge accounting fair value adjustments		1,485			1,676
Less: Current portion of term debt		(7,762)			(8,773)
Total non-current portion of term debt		$	99,281		$	98,667


		Three Months Ended
Comprehensive Income Components	Financial Statement Line Items	December 26, 2020		December 28, 2019
Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts	Total net sales	$	104	$	(97)
	Total cost of sales	245		(171)
	Other income/(expense), net	(628)		(223)
Interest rate contracts	Other income/(expense), net	3		2
		(276)		(489)
Unrealized (gains)/losses on marketable debt securities	Other income/(expense), net	(118)		(13)
Total amounts reclassified from AOCI		$	(394)	$	(502)


	Cumulative Foreign Currency Translation		Unrealized Gains/Losses on Derivative Instruments		Unrealized Gains/Losses on Marketable Debt Securities		Total
Balances as of September 26, 2020	$	(1,375)	$	(877)	$	1,846	$	(406)
Other comprehensive income/(loss) before reclassifications	549		(294)		708		963
Amounts reclassified from AOCI	0		(276)		(118)		(394)
Tax effect	0		83		(67)		16
Other comprehensive income/(loss)	549		(487)		523		585
Balances as of December 26, 2020	$	(826)	$	(1,364)	$	2,369	$	179