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0000320193
20120725
10-Q
419
Other Income and Expense Total other income and expense increased $116 million or 67% to $288 million during third quarter of 2012 compared to the same period in 2011, and increased $239 million or 72% to $573 million during the first nine months of 2012 compared to the same period in 2011.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
420
The overall increase in other income and expense during the third quarter of 2012 and the first nine months of 2012 compared to the same period in 2011 was primarily attributable to higher interest and dividend income on the Company’s larger cash, cash equivalents and marketable securities balances, partially offset by...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
421
The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.06% and 0.76% in the third quarters of 2012 and 2011, respectively, and 1.03% and 0.76% in the first nine months of both 2012 and 2011, respectively.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
422
Provision for Income Taxes The Company’s effective tax rates were approximately 25.6% and 25.3% for the three- and nine-month periods ended June 30, 2012, respectively, compared to approximately 23.5% and 24.1% for the three- and nine-month periods ended June 25, 2011, respectively.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
423
The Company’s effective rates for all such periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
424
The higher effective tax rate during the first nine months of 2012 compared to the same period in 2011 is due primarily to a lower proportion of foreign earnings in the current year.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
425
The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2004 through 2006 and proposed certain adjustments.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
426
The Company has contested certain of these adjustments through the IRS Appeals Office.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
427
The IRS is currently examining the years 2007 through 2009.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
428
All IRS audit issues for years prior to 2004 have been resolved.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
429
In addition, the Company is subject to audits by state, local, and foreign tax authorities.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
430
Management believes that adequate provisions have been made for any adjustments that may result from tax examinations.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
431
However, the outcome of tax audits cannot be predicted with certainty.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
432
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
433
Liquidity and Capital Resources The following table presents selected financial information and statistics as of June 30, 2012 and September 24, 2011 (in millions): As of June 30, 2012, the Company had $117.2 billion in cash, cash equivalents and marketable securities, an increase of $35.7 billion from September 24, 20...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
434
The principal component of this net increase was the cash generated by operating activities of $41.7 billion, which was partially offset by payments made for acquisition of property, plant and equipment and intangible assets of $5.9 billion, and payments made in connection with business acquisitions, net of cash acquir...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
435
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
436
The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
437
As of June 30, 2012 and September 24, 2011, $81.4 billion and $54.3 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally invested in U.S. dollar based holdings.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
438
Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
439
The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments, common stock repurchases, dividends on its common stock and other liquidity requirements associated with its existing ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
440
Capital Assets The Company’s capital expenditures were $4.5 billion during the first nine months of 2012 consisting of $547 million for retail store facilities and $4.0 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructur...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
441
The Company’s actual cash payments for capital expenditures during the first nine months of 2012 were $4.8 billion, of which $507 million related to retail store facilities.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
442
The Company anticipates utilizing approximately $8.0 billion for capital expenditures during 2012, including approximately $850 million for retail store facilities and approximately $7.2 billion for other capital expenditures, including product tooling and manufacturing process equipment, and corporate facilities and i...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
443
During 2012, the Company expects to open 35 new stores, approximately three quarters of which will be located outside of the U.S. Dividend and Stock Repurchase Program In March 2012, the Board of Directors of the Company approved a dividend policy pursuant to which it plans to make, subject to subsequent declaration, q...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
444
Additionally, in March 2012, the Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock beginning in 2013.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
445
The repurchase program is expected to be executed over a three-year period with the primary objective to neutralize the impact of dilution from future employee equity grants and employee stock purchase programs.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
446
The repurchase program does not obligate the Company to acquire any specific number of shares.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
447
The Company anticipates that it will utilize approximately $45 billion of domestic cash to pay dividends, repurchase shares, and to remit withheld taxes related to net share settlement of RSUs in the first three years of the dividend and stock repurchase programs.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
448
The Company anticipates the cash used for future dividends and the repurchase program will come primarily from current domestic cash and from on-going U.S. operating activities and the cash generated from such activities.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
449
On July 24, 2012, the Board of Directors declared a dividend of $2.65 per share to shareholders of record as of the close of business on August 13, 2012, payable on August 16, 2012.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
450
The Company expects to pay approximately $2.5 billion in conjunction with this dividend in the fourth quarter of 2012.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
451
Off-Balance Sheet Arrangements and Contractual Obligations The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
452
Lease Commitments The Company’s major facility leases are typically for terms not exceeding 10 years and generally provide renewal options for terms not exceeding five additional years.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
453
Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
454
As of June 30, 2012, the Company’s total future minimum lease payments under noncancelable operating leases were $4.1 billion, of which $3.0 billion related to leases for retail space.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
455
Long-Term Supply Agreements As of June 30, 2012, the Company had outstanding off-balance sheet commitments under certain long-term supply agreements to make inventory component prepayments and to acquire capital equipment to be used to manufacture such components of $302 million.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
456
Purchase Commitments with Outsourcing Partners and Component Suppliers 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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
457
These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
458
The Company also obtains individual components for its products from a wide variety of individual suppliers.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
459
Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
460
As of June 30, 2012, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase commitments of $13.6 billion.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
461
Other Obligations In addition to the off-balance sheet commitments mentioned above, the Company had outstanding obligations of $4.5 billion as of June 30, 2012, that were comprised mainly of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
462
The Company’s other non-current liabilities in the Condensed Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross unrecognized tax benefits and the related gross interest and penalties.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
463
As of June 30, 2012, the Company had non-current deferred tax liabilities of $13.2 billion.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
464
Additionally, as of June 30, 2012, the Company had gross unrecognized tax benefits of $1.8 billion and an additional $343 million for gross interest and penalties classified as non-current liabilities.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
465
At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments due to uncertainties in the timing of tax audit outcomes.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
466
Indemnification The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
467
Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
468
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
469
In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual property rights.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
470
The Company did not record a liability for infringement costs related to indemnification as of June 30, 2012 or September 24, 2011.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
471
The Company has entered into indemnification agreements with its directors and executive officers.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
472
Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
473
It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
474
However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not been material.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
475
Item 3.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
476
Quantitative and Qualitative Disclosures About Market Risk The Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of its 2011 Form 10-K have not changed materially for the nine months ended June 30, 2012.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
477
Item 4.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
478
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 ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
479
Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the third quarter of 2012, 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 ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
480
PART II.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
481
OTHER INFORMATION Item 1.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
482
Legal Proceedings The Company is subject to the various legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
483
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 in excess of a recorded accrual, with respect to loss contingencies.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
484
However, the outcome of legal proceedings and claims brought against the Company are subject to significant uncertainty.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
485
Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be ma...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
486
See the risk factors “The Company is frequently the subject of intellectual property litigation, and could be found to have infringed on intellectual property rights” and “The Company could be impacted by unfavorable results of legal proceedings” in Part II, Item 1A, “Risk Factors” of this Form 10-Q.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
487
The Company settled certain matters during the third quarter of 2012 that did not individually or in the aggregate have a material impact on the Company’s financial condition and results of operations.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
488
The Apple iPod iTunes Antitrust Litigation (formerly Charoensak v. Apple Computer, Inc. and Tucker v. Apple Computer, Inc.); Somers v. Apple Inc.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
489
These related cases have been filed on January 3, 2005, July 21, 2006 and December 31, 2007 in the United States District Court for the Northern District of California on behalf of a purported class of direct and indirect purchasers of iPods and iTunes Store content, alleging various claims including alleged unlawful t...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
490
Plaintiffs are seeking unspecified compensatory and punitive damages for the class, treble damages, injunctive relief, disgorgement of revenues and/or profits and attorneys fees.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
491
Plaintiffs are also seeking digital rights management free versions of any songs downloaded from iTunes or an order requiring the Company to license its digital rights management to all competing music players.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
492
The cases are currently pending.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
493
Apple eBooks Antitrust Litigation (United States of America v. Apple Inc., et al.)
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
494
On April 11, 2012, the U.S. Department of Justice (“DOJ”) filed a civil antitrust action against the Company and five major book publishers in the U.S. District Court for the Southern District of New York, alleging an unreasonable restraint of interstate trade and commerce in violation of §1 of the Sherman Act and seek...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
495
The DOJ’s complaint asserts, among other things, that the decision by the five publishers to shift to an agency model to sell eBooks and their agreements with the Company were an attempt to “raise, fix and stabilize retail e-book prices, to end price competition among e-book retailers, and to limit retail price competi...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
496
The lawsuit is now in discovery, with an initial trial date set for June 2013.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
497
Item 1A.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
498
Risk Factors The following description of risk factors includes any material changes to and supersedes the description of risk factors associated with the Company’s business previously disclosed in Part I, Item 1A, “Risk Factors,” of the Company’s 2011 Form 10-K.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
499
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial co...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
500
Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and common stock price.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
501
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, 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 per...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
502
Global economic conditions could materially adversely affect the Company.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
503
The Company’s operations and performance depend significantly on worldwide economic conditions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
504
Uncertainty about global economic conditions poses a risk as consumers and businesses postpone spending in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
505
For example, the continuing sovereign debt crisis, financial market volatility, and other factors in Europe have resulted in reduced consumer and business confidence and spending in many countries.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
506
These worldwide and regional economic conditions could have a material adverse effect on demand for the Company’s products and services.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
507
Demand also could differ materially from the Company’s expectations because the Company generally raises prices on goods and services sold outside the U.S. to correspond with the effect of a strengthening of the U.S. dollar.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
508
Other factors that could influence demand include increases in fuel and other energy costs, conditions in the real estate and mortgage markets, unemployment, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer spending behavior.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
509
These and other economic factors could materially adversely affect demand for the Company’s products and services.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
510
In the event of financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed i...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
511
This could have a number of effects on the Company’s business, including the insolvency or financial instability of outsourcing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products resulting in product delays; inability of customers, including channel partners, to...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
512
Other income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances; and changes in fair value of de...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
513
Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
514
Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
515
The Company’s products and services compete in highly competitive global markets characterized by aggressive price cutting and resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance c...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
516
The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products and technologies to the marketplace.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
517
The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications, and related services.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
518
As a result, the Company must make significant investments in research and development, and as such, the Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks.
0001193125-12-314552/full-submission.txt