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0000320193
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10-Q
285
(3) Includes sales of Apple TV, Apple Watch, Beats Electronics, iPod and Apple-branded and third-party accessories.
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Product Performance iPhone The following table presents iPhone net sales and unit sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions and units in thousands): The year-over-year growth in iPhone net sales and unit sales in the third quarter and first nine m...
0001193125-15-259935/full-submission.txt
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Overall average selling prices (“ASPs”) for iPhone increased by 18% and 11% in the third quarter and first nine months of 2015, respectively, compared to the same periods in 2014, due primarily to a shift in mix to iPhone 6 and 6 Plus, partially offset by the effect of weakness in most foreign currencies relative to th...
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iPad The following table presents iPad net sales and unit sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions and units in thousands): Net sales and unit sales for iPad declined in the third quarter and first nine months of 2015 compared to the same periods...
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The Company believes the decline in sales is due in part to a longer repurchase cycle for iPads and some level of cannibalization from the Company’s other products.
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iPad ASPs declined by 6% during the third quarter and first nine months of 2015, compared to the same periods in 2014, primarily as a result of a shift in mix to lower-priced iPads and the effect of weakness in most foreign currencies relative to the U.S. dollar.
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Mac The following table presents Mac net sales and unit sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions and units in thousands): The year-over-year growth in Mac net sales and unit sales for the third quarter and first nine months of 2015 was driven by ...
0001193125-15-259935/full-submission.txt
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10-Q
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Mac ASPs were relatively flat during the third quarter compared to the same period in 2014, with a shift in mix to more richly configured Macs and higher pricing of certain models offset by the effect of weakness in most foreign currencies relative to the U.S. dollar.
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Mac ASPs declined 4% during the first nine months of 2015 compared to the same period in 2014 largely due to foreign currency weakness relative to the U.S. dollar.
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Services The following table presents Services net sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions): The increase in net sales of Services in the third quarter and first nine months of 2015 compared to the same periods in 2014 was primarily due to growt...
0001193125-15-259935/full-submission.txt
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10-Q
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iTunes generated a total of $2.7 billion and $8.1 billion in net sales during the third quarter and first nine months of 2015, respectively, compared to $2.6 billion and $7.6 billion during the third quarter and first nine months of 2014, respectively.
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Segment Operating Performance The Company manages its business primarily on a geographic basis.
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Accordingly, the Company determined its reportable operating segments, which are generally based on the location of its customers, to be the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
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The Americas segment includes both North and South America.
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The Europe segment includes European countries, as well as India, the Middle East and Africa.
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The Greater China segment includes China, Hong Kong and Taiwan.
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The Rest of Asia Pacific segment includes Australia and Asian countries, other than those countries included in the Company’s other operating segments.
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Each operating segment provides similar hardware and software products and similar services.
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Further information regarding the Company’s operating segments may be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements, in Note 11, “Segment Information and Geographic Data.” Americas The following table presents Americas net sales information for the three- and nine...
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The launch of Apple Watch in the third quarter of 2015 also contributed to the growth of Americas net sales.
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Europe The following table presents Europe net sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions): The year-over-year increase in Europe net sales for the third quarter and first nine months of 2015 was driven primarily by growth in net sales and unit sal...
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The launch of Apple Watch in the third quarter of 2015 also contributed to the growth of Europe net sales.
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Greater China The following table presents Greater China net sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions): Greater China experienced year-over-year increases in net sales during the third quarter and first nine months of 2015 that were significantly...
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iPhone net sales and unit sales grew strongly following the launch of iPhone 6 and 6 Plus in Greater China.
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The launch of Apple Watch in the third quarter of 2015 also contributed to the growth of Greater China net sales.
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Japan The following table presents Japan net sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions): The year-over-year increase in Japan net sales in the third quarter of 2015 was driven primarily by growth in net sales and unit sales of iPhone, whereas Japa...
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Japan net sales in the third quarter and first nine months of 2015 were negatively impacted by weakness in the Japanese yen relative to the U.S. dollar.
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Rest of Asia Pacific The following table presents Rest of Asia Pacific net sales information for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 (dollars in millions): The year-over-year increase in Rest of Asia Pacific net sales for the third quarter and first nine months of 2015 primarily refl...
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Gross Margin Gross margin for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 was as follows (dollars in millions): The increase in the gross margin percentage during the third quarter and first nine months of 2015 compared to the same periods in 2014 was driven primarily by a favorable shift in...
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These positive factors were partially offset primarily by higher product cost structures and, to a lesser extent, by the effect of weakness in most foreign currencies relative to the U.S. dollar.
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The Company anticipates gross margin during the fourth quarter of 2015 to be between 38.5% and 39.5%.
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The foregoing statement regarding the Company’s expected gross margin percentage in the fourth quarter of 2015 is forward-looking and could differ from actual results.
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The Company’s future gross margins can be impacted by multiple factors including, but not limited to, those set forth in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors” and those described in this paragraph.
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In general, the Company believes gross margins will remain under downward pressure due to a variety of factors, including continued industry wide global product pricing pressures, increased competition, compressed product life cycles, product transitions, potential increases in the cost of components, and potential str...
0001193125-15-259935/full-submission.txt
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In response to competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins.
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Gross margins could also be affected by the Company’s ability to manage product quality and warranty costs effectively and to stimulate demand for certain of its products.
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Due to the Company’s significant international operations, its financial condition and operating results, including gross margins, could be significantly affected by fluctuations in exchange rates.
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Operating Expenses Operating expenses for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 were as follows (dollars in millions): Research and Development The growth in R&D expense during the third quarter and first nine months of 2015 compared to the same periods in 2014 was driven primarily by ...
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The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related to timely development of new and enhanced products that are central to the Company’s core business strategy.
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Selling, General and Administrative The growth in selling, general and administrative expense during the third quarter and first nine months of 2015 compared to the same periods in 2014 was primarily due to increased headcount and related expenses, including share-based compensation costs, and higher spending on market...
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Other Income/(Expense), Net Other income/(expense), net for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 was as follows (dollars in millions): The increase in other income/(expense), net during the third quarter of 2015 compared to the same period in 2014 was due primarily to higher interest ...
0001193125-15-259935/full-submission.txt
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The increase in other income/(expense), net during the first nine months of 2015 compared to the same period in 2014 was due primarily to higher interest income and a gain on strategic investments, partially offset by higher premium expense on foreign exchange contracts, higher interest expense on debt and higher expen...
0001193125-15-259935/full-submission.txt
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10-Q
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The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.51% and 1.09% in the third quarter of 2015 and 2014, respectively, and 1.45% and 1.05% in the first nine months of 2015 and 2014, respectively.
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10-Q
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Provision for Income Taxes Provision for income taxes and effective tax rates for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 were as follows (dollars in millions): The Company’s effective tax rates for the third quarter and first nine months of 2015 and 2014 differ from the statutory federa...
0001193125-15-259935/full-submission.txt
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The higher effective tax rates during the third quarter and first nine months of 2015 as compared to the same periods in 2014 are due primarily to higher foreign taxes.
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The U.S. Internal Revenue Service is currently examining the years 2010 through 2012.
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In addition, the Company is subject to audits by state, local and foreign tax authorities.
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Management believes that adequate provisions have been made for any adjustments that may result from tax examinations.
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However, the outcome of tax audits cannot be predicted with certainty.
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If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
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On June 11, 2014, the European Commission issued an opening decision initiating a formal investigation against Ireland for alleged state aid to the Company.
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The opening decision concerns the allocation of profits for taxation purposes of the Irish branches of two subsidiaries of the Company.
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The Company believes the European Commission’s assertions are without merit.
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If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid.
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While such amount could be material, as of June 27, 2015 the Company is unable to estimate the impact.
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Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.
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2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition.
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ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers.
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The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2018.
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In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date.
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Accordingly, the Company may adopt the standard in either its first quarter of 2018 or 2019.
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The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.
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The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its consolidated financial statements.
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Liquidity and Capital Resources The following tables present selected financial information and statistics as of June 27, 2015 and September 27, 2014 and during the first nine months of 2015 and 2014 (in millions): The Company believes its existing balances of cash, cash equivalents and marketable securities will be su...
0001193125-15-259935/full-submission.txt
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The Company currently anticipates the cash used for future dividends, the share repurchase program and debt repayments will come from its current domestic cash, cash generated from on-going U.S. operating activities and from borrowings.
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As of June 27, 2015 and September 27, 2014, the Company’s cash, cash equivalents and marketable securities held by foreign subsidiaries were $181.1 billion and $137.1 billion, respectively, and are generally based in U.S. dollar-denominated holdings.
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Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
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The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer.
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The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.
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During the nine months ended June 27, 2015, cash generated from operating activities of $67.8 billion was a result of $42.3 billion of net income, non-cash adjustments to net income of $13.6 billion and an increase in the net change in operating assets and liabilities of $11.9 billion.
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Cash used in investing activities of $54.9 billion during the nine months ended June 27, 2015 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $47.0 billion and cash used to acquire property, plant and equipment of $7.6 billion.
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Cash used in financing activities of $11.4 billion during the nine months ended June 27, 2015 consisted primarily of cash used to repurchase common stock of $22.0 billion, cash used to pay dividends and dividend equivalents of $8.6 billion and cash used for repayments of commercial paper, net of $1.8 billion, partially...
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During the nine months ended June 28, 2014, cash generated from operating activities of $46.5 billion was a result of $31.0 billion of net income, non-cash adjustments to net income of $11.2 billion and an increase in net change in operating assets and liabilities of $4.2 billion.
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Cash used in investing activities of $25.6 billion during the nine months ended June 28, 2014 consisted primarily of cash used for purchases of marketable securities, net of sales and maturities, of $18.7 billion and cash used to acquire property, plant and equipment of $5.7 billion.
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Cash used in financing activities of $22.2 billion during the nine months ended June 28, 2014 consisted primarily of cash used to repurchase common stock of $28.0 billion and cash used to pay dividends and dividend equivalents of $8.3 billion, partially offset by proceeds from the issuance of long-term debt and commerc...
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Capital Assets The Company’s capital expenditures were $7.3 billion during the first nine months of 2015.
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The Company anticipates utilizing approximately $12.0 billion for capital expenditures during 2015, which includes product tooling and manufacturing process equipment; data centers; corporate facilities and infrastructure, including information systems hardware, software and enhancements; and retail store facilities.
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Debt In 2014, the Board of Directors authorized the Company to issue unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program.
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The Company intends to use the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases.
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As of June 27, 2015, the Company had $4.5 billion of Commercial Paper outstanding, with a weighted-average interest rate of 0.10% and maturities generally less than nine months.
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As of June 27, 2015, the Company has outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $50.0 billion (collectively the “Notes”).
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The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on the Notes.
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Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments.
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In addition, the Company has entered, and in the future may enter, into currency swaps to manage foreign currency risk on the Notes.
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The Company issued €2.8 billion of euro-denominated notes in the first quarter of 2015, $6.5 billion of U.S. dollar-denominated notes and SFr1.3 billion of Swiss franc-denominated notes in the second quarter of 2015 and $8.0 billion of U.S. dollar-denominated notes and ¥250.0 billion of yen-denominated notes in the thi...
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To manage foreign currency risk associated with the euro-denominated notes issued in the first quarter of 2015, the Company entered into currency swaps with an aggregate notional amount of $3.5 billion, which effectively converted the euro-denominated notes to U.S. dollar-denominated notes.
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To manage interest rate risk on the U.S. dollar-denominated fixed-rate notes issued in the second quarter of 2015 and maturing in 2020 and 2022, the Company entered into interest rate swaps with an aggregate notional amount of $2.5 billion.
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To manage interest rate risk on the U.S. dollar-denominated fixed-rate notes issued in the third quarter of 2015 and maturing in 2017, 2020, 2022 and 2025, the Company entered into interest rate swaps with an aggregate notional amount of $4.3 billion.
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These interest rate swaps effectively converted the fixed interest rates on the U.S. dollar-denominated notes to a floating interest rate.
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Capital Return Program In April 2015, the Company’s Board of Directors increased the share repurchase program authorization from $90 billion to $140 billion of the Company’s common stock, increasing the size of the total capital return program to $200 billion.
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The Company expects to execute the capital return program by the end of March 2017 by paying dividends and dividend equivalents, repurchasing shares and remitting withheld taxes related to net share settlement of restricted stock units.
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To assist in funding its capital return program, the Company expects to continue to access the debt markets, both domestically and internationally.
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As of June 27, 2015, $90.0 billion of the share repurchase program has been utilized.
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The Company’s share repurchase program does not obligate it to acquire any specific number of shares.
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Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
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In April 2015, the Company’s Board of Directors raised the quarterly cash dividend by 11%.
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The Company paid cash dividends of $0.52 per share, totaling $3.0 billion, in May 2015.
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The Company plans to increase its dividend on an annual basis subject to declaration by the Board of Directors.
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The following table presents the Company’s dividends, dividend equivalents, share repurchases and net share settlement activity from the start of the capital return program in August 2012 through June 27, 2015 (in millions): Off-Balance Sheet Arrangements and Contractual Obligations The Company has not entered into any...
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Operating Leases The Company’s major facility leases are typically for terms not exceeding 10 years and generally contain multi-year renewal options.
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