AAPL — filing

Company Background

The Company designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services. The Company's fiscal year is the 52- or 53-week period that ends on the last Saturday of September.

Products

iPhone

iPhone ® is the Company's line of smartphones based on its iOS operating system. The iPhone line includes iPhone 15 Pro, iPhone 15, iPhone 14, iPhone 13 and iPhone SE ® .

Mac

Mac ® is the Company's line of personal computers based on its macOS ® operating system. The Mac line includes laptops MacBook Air ® and MacBook Pro ® , as well as desktops iMac ® , Mac mini ® , Mac Studio ® and Mac Pro ® .

iPad

iPad ® is the Company's line of multipurpose tablets based on its iPadOS ® operating system. The iPad line includes iPad Pro ® , iPad Air ® , iPad and iPad mini ® .

Wearables, Home and Accessories

Wearables includes smartwatches and wireless headphones. The Company's line of smartwatches, based on its watchOS ® operating system, includes Apple Watch Ultra™ 2, Apple Watch ® Series 9 and Apple Watch SE ® . The Company's line of wireless headphones includes AirPods ® , AirPods Pro ® , AirPods Max™ and Beats ® products.

Home includes Apple TV ® , the Company's media streaming and gaming device based on its tvOS ® operating system, and HomePod ® and HomePod mini ® , high-fidelity wireless smart speakers.

Accessories includes Apple-branded and third-party accessories.

Apple Inc. | 2023 Form 10-K | 1

Services

Advertising

The Company's advertising services include third-party licensing arrangements and the Company's own advertising platforms.

AppleCare

The Company offers a portfolio of fee-based service and support products under the AppleCare ® brand. The offerings provide priority access to Apple technical support, access to the global Apple authorized service network for repair and replacement services, and in many cases additional coverage for instances of accidental damage or theft and loss, depending on the country and type of product.

Cloud Services

The Company's cloud services store and keep customers' content up-to-date and available across multiple Apple devices and Windows personal computers.

Digital Content

The Company operates various platforms, including the App Store ® , that allow customers to discover and download applications and digital content, such as books, music, video, games and podcasts.

The Company also offers digital content through subscription-based services, including Apple Arcade ® , a game subscription service; Apple Fitness+ SM , a personalized fitness service; Apple Music ® , which offers users a curated listening experience with on-demand radio stations; Apple News+ ® , a subscription news and magazine service; and Apple TV+ ® , which offers exclusive original content and live sports.

The Company's business, reputation, results of operations, financial condition and stock price can be affected by a number of factors, whether currently known or unknown, including those described below. When any one or more of these risks materialize from time to time, the Company's business, reputation, results of operations, financial condition and stock price can be materially and adversely affected.

Because of the following factors, as well as other factors affecting the Company's results of operations and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. This discussion of risk factors contains forward-looking statements.

This section should be read in conjunction with Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Macroeconomic and Industry Risks

The Company's operations and performance depend significantly on global and regional economic conditions and adverse economic conditions can materially adversely affect the Company's business, results of operations and financial condition.

The Company has international operations with sales outside the U.S. representing a majority of the Company's total net sales. In addition, the Company's global supply chain is large and complex and a majority of the Company's supplier facilities, including manufacturing and assembly sites, are located outside the U.S. As a result, the Company's operations and performance depend significantly on global and regional economic conditions.

Adverse macroeconomic conditions, including slow growth or recession, high unemployment, inflation, tighter credit, higher interest rates, and currency fluctuations, can adversely impact consumer confidence and spending and materially adversely affect demand for the Company's products and services. In addition, consumer confidence and spending can be materially adversely affected in response to changes in fiscal and monetary policy, financial market volatility, declines in income or asset values, and other economic factors.

In addition to an adverse impact on demand for the Company's products and services, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on the Company's suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners, and developers. Potential outcomes include financial instability; inability to obtain credit to finance business operations; and insolvency.

Epic Games

Epic Games, Inc. ("Epic") filed a lawsuit in the U.S. District Court for the Northern District of California (the "District Court") against the Company alleging violations of federal and state antitrust laws and California's unfair competition law based upon the Company's operation of its App Store. On September 10, 2021, the District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epic's claim. The District Court found that certain provisions of the Company's App Store Review Guidelines violate California's unfair competition law and issued an injunction enjoining the Company from prohibiting developers from including in their apps external links that direct customers to purchasing mechanisms other than Apple in-app purchasing. The injunction applies to apps on the U.S. storefront of the iOS and iPadOS App Store. On April 24, 2023, the U.S. Court of Appeals for the Ninth Circuit (the "Circuit Court") affirmed the District Court's ruling. On June 7, 2023, the Company and Epic filed petitions with the Circuit Court requesting further review of the decision. On June 30, 2023, the Circuit Court denied both petitions. On July 17, 2023, the Circuit Court granted Apple's motion to stay enforcement of the injunction pending appeal to the U.S. Supreme Court. If the U.S. Supreme Court denies Apple's petition, the stay of the injunction will expire.

Masimo

Masimo Corporation and Cercacor Laboratories, Inc. (together, "Masimo") filed a complaint before the U.S. International Trade Commission (the "ITC") alleging infringement by the Company of five patents relating to the functionality of the blood oxygen feature in Apple Watch Series 6 and 7. In its complaint, Masimo sought a permanent exclusion order prohibiting importation to the United States of certain Apple Watch models that include blood oxygen sensing functionality. On October 26, 2023, the ITC entered a limited exclusion order (the "Order") prohibiting importation and sales in the United States of Apple Watch models with blood oxygen sensing functionality, which includes Apple Watch Series 9 and Ultra 2. The Order will not go into effect until the end of the administrative review period, which is currently expected to end on December 25, 2023. The Company intends to appeal the Order and seek 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 settled certain matters during the fourth quarter of 2023 that did not individually or in the aggregate have a material impact on the Company's financial condition or operating results. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management's expectations, the Company's financial condition and operating results for that reporting period could be materially adversely affected.

The Company's common stock is traded on The Nasdaq Stock Market LLC under the symbol AAPL.

Holders

As of October 20, 2023, there were 23,763 shareholders of record.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity during the three months ended September 30, 2023 was as follows (in millions, except number of shares, which are reflected in thousands, and per-share amounts):

Periods Total Number

of Shares Purchased Average Price

Paid Per Share Total Number of Shares

Purchased as Part of Publicly

Announced Plans or Programs Approximate Dollar Value of

Shares That May Yet Be Purchased

Under the Plans or Programs (1)

July 2, 2023 to August 5, 2023:

Open market and privately negotiated purchases 33,864 $ 191.62 33,864

August 6, 2023 to September 2, 2023:

August 2023 ASRs 22,085 (2)

(2)

22,085 (2)

Open market and privately negotiated purchases 30,299 $ 178.99 30,299

September 3, 2023 to September 30, 2023:

Open market and privately negotiated purchases 20,347 $ 176.31 20,347

Total 106,595 $ 74,069

(1) As of September 30, 2023, the Company was authorized by the Board of Directors to purchase up to $90 billion of the Company's common stock under a share repurchase program announced on May 4, 2023, of which $15.9 billion had been utilized. During the fourth quarter of 2023, the Company also utilized the final $4.6 billion under its previous repurchase program, which was most recently authorized in April 2022. The programs do not obligate the Company to acquire a minimum amount of shares. Under the programs, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

(2) In August 2023, the Company entered into new accelerated share repurchase agreements ("ASRs"). Under the terms of the ASRs, two financial institutions committed to deliver shares of the Company's common stock during the purchase periods in exchange for up-front payments totaling $5.0 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 first quarter of 2024.

Apple Inc. | 2023 Form 10-K | 18

Company Stock Performance

The following graph shows a comparison of five-year cumulative total shareholder return, calculated on a dividend-reinvested basis, for the Company, the S&P 500 Index and the Dow Jones U.S. Technology Supersector Index. The graph assumes $100 was invested in each of the Company's common stock, the S&P 500 Index and the Dow Jones U.S. Technology Supersector Index as of the market close on September 28, 2018. Past stock price performance is not necessarily indicative of future stock price performance.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K. This Item generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 2022.

Fiscal Period

The Company's fiscal year is the 52- or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to realign the Company's fiscal quarters with calendar quarters, which occurred in the first quarter of 2023. The Company's fiscal year 2023 spanned 53 weeks, whereas fiscal years 2022 and 2021 spanned 52 weeks each.

Fiscal Year Highlights

The Company's total net sales were $383.3 billion and net income was $97.0 billion during 2023.

The Company's total net sales decreased 3% or $11.0 billion during 2023 compared to 2022. The weakness in foreign currencies relative to the U.S. dollar accounted for more than the entire year-over-year decrease in total net sales, which consisted primarily of lower net sales of Mac and iPhone, partially offset by higher net sales of Services.

The Company announces new product, service and software offerings at various times during the year. Significant announcements during fiscal year 2023 included the following:

First Quarter 2023:

• iPad and iPad Pro;

• Next-generation Apple TV 4K; and

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

Second Quarter 2023:

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

• Second-generation HomePod.

Third Quarter 2023:

• MacBook Air 15", Mac Studio and Mac Pro;

• Apple Vision Pro™, the Company's first spatial computer featuring its new visionOS™, expected to be available in early calendar year 2024; and

• iOS 17, macOS Sonoma, iPadOS 17, tvOS 17 and watchOS 10, updates to the Company's operating systems.

Fourth Quarter 2023:

• iPhone 15, iPhone 15 Plus, iPhone 15 Pro and iPhone 15 Pro Max; and

• Apple Watch Series 9 and Apple Watch Ultra 2.

In May 2023, the Company announced a new share repurchase program of up to $90 billion and raised its quarterly dividend from $0.23 to $0.24 per share beginning in May 2023. During 2023, the Company repurchased $76.6 billion of its common stock and paid dividends and dividend equivalents of $15.0 billion.

The Company is exposed to economic risk from interest rates and foreign exchange rates. The Company uses various strategies to manage these risks; however, they may still impact the Company's consolidated financial statements.

Interest Rate Risk

The Company is primarily exposed to fluctuations in U.S. interest rates and their impact on the Company's investment portfolio and term debt. Increases in interest rates will negatively affect the fair value of the Company's investment portfolio and increase the interest expense on the Company's term debt. To protect against interest rate risk, the Company may use derivative instruments, offset interest rate-sensitive assets and liabilities, or control duration of the investment and term debt portfolios.

The following table sets forth potential impacts on the Company's investment portfolio and term debt, including the effects of any associated derivatives, that would result from a hypothetical increase in relevant interest rates as of September 30, 2023 and September 24, 2022 (dollars in millions):

Interest Rate

Sensitive Instrument

Hypothetical Interest

Rate Increase

Potential Impact

2023 2022

Investment portfolio

100 basis points, all tenors

Decline in fair value

$ 3,089 $ 4,022

Term debt

100 basis points, all tenors

Increase in annual interest expense

$ 194 $ 201

Foreign Exchange Rate Risk

The Company's exposure to foreign exchange rate risk relates primarily to the Company being a net receiver of currencies other than the U.S. dollar. Changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company's net sales and gross margins as expressed in U.S. dollars. Fluctuations in exchange rates may also affect the fair values of certain of the Company's assets and liabilities. To protect against foreign exchange rate risk, the Company may use derivative instruments, offset exposures, or adjust local currency pricing of its products and services. However, the Company may choose to not hedge certain foreign currency exposures for a variety of reasons, including accounting considerations or prohibitive cost.

The Company applied a value-at-risk ("VAR") model to its foreign currency derivative positions to assess the potential impact of fluctuations in exchange rates. The VAR model used a Monte Carlo simulation. The VAR is the maximum expected loss in fair value, for a given confidence interval, to the Company's foreign currency derivative positions due to adverse movements in rates. Based on the results of the model, the Company estimates, with 95% confidence, a maximum one-day loss in fair value of $669 million and $1.0 billion as of September 30, 2023 and September 24, 2022, respectively. Changes in the Company's underlying foreign currency exposures, which were excluded from the assessment, generally offset changes in the fair values of the Company's foreign currency derivatives.

Index to Consolidated Financial Statements Page

Consolidated Statements of Operations for the years ended September 30, 2023, September 24, 2022 and September 25, 2021

28

Consolidated Statements of Comprehensive Income for the years ended September 30, 2023, September 24, 2022 and September 25, 2021

29

Consolidated Balance Sheets as of September 30, 2023 and September 24, 2022

30

Consolidated Statements of Shareholders' Equity for the years ended September 30, 2023, September 24, 2022 and September 25, 2021

31

Consolidated Statements of Cash Flows for the years ended September 30, 2023, September 24, 2022 and September 25, 2021

32

Notes to Consolidated Financial Statements

33

Reports of Independent Registered Public Accounting Firm

49

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.

Apple Inc. | 2023 Form 10-K | 27

Apple Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

Years ended

September 30,

2023 September 24,

2022 September 25,

2021

Net sales:

Products $ 298,085 $ 316,199 $ 297,392

Services 85,200 78,129 68,425

Total net sales 383,285 394,328 365,817

Cost of sales:

Products 189,282 201,471 192,266

Services 24,855 22,075 20,715

Total cost of sales 214,137 223,546 212,981

Gross margin 169,148 170,782 152,836

Operating expenses:

Research and development 29,915 26,251 21,914

Selling, general and administrative 24,932 25,094 21,973

Total operating expenses 54,847 51,345 43,887

Operating income 114,301 119,437 108,949

Other income/(expense), net ( 565 ) ( 334 ) 258

Income before provision for income taxes 113,736 119,103 109,207

Provision for income taxes 16,741 19,300 14,527

Net income $ 96,995 $ 99,803 $ 94,680

Earnings per share:

Basic $ 6.16 $ 6.15 $ 5.67

Diluted $ 6.13 $ 6.11 $ 5.61

Shares used in computing earnings per share:

Basic 15,744,231 16,215,963 16,701,272

Diluted 15,812,547 16,325,819 16,864,919

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2023 Form 10-K | 28

Apple Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Years ended

September 30,

2023 September 24,

2022 September 25,

2021

Net income $ 96,995 $ 99,803 $ 94,680

Other comprehensive income/(loss):

Change in foreign currency translation, net of tax ( 765 ) ( 1,511 ) 501

Change in unrealized gains/losses on derivative instruments, net of tax:

Change in fair value of derivative instruments 323 3,212 32