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0000320193
20130424
10-Q
386
Net sales in the Europe segment continue to be negatively impacted by the region’s uncertain economic conditions.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
387
The Europe segment represented 23% and 22% of the Company’s total net sales in the second quarter of 2013 and 2012, and 23% of total net sales for both the first six months of 2013 and 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
388
Greater China Net sales in the Greater China segment increased $576 million or 8% during the second quarter of 2013 compared to the second quarter of 2012, and increased $3.3 billion or 28% during the first six months of 2013 compared to the same period in 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
389
The growth in net sales during the second quarter of 2013 was primarily driven by a significant increase in net sales of iPad resulting from the January 2013 launch in China of both the fourth generation iPad and iPad mini.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
390
The growth of net sales in the Greater China segment during the first six months of 2013 was primarily driven by increased demand for iPhone following the launch of iPhone 5 during the first quarter of 2013 and by the impact of launching the fourth generation iPad and iPad mini during the second quarter 2013.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
391
The Greater China segment represented 19% and 20% of the Company’s total net sales for the second quarter of 2013 and 2012, and 15% and 14% of total net sales for the first six months of 2013 and 2012, respectively.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
392
Japan Net sales in the Japan segment increased $490 million or 19% during the second quarter of 2013 compared to the second quarter of 2012, and increased $1.4 billion or 22% during the first six months of 2013 compared to the same period in 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
393
The growth in net sales resulted from increased demand for iPhone, iPad and Mac, and higher sales from iTunes partially offset by the strength of the U.S. dollar relative to the Japanese Yen on net sales.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
394
The Japan segment represented 7% of the Company’s total net sales for both the second quarter of 2013 and 2012, and 8% and 7% of total net sales for the first six months of 2013 and 2012, respectively.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
395
Rest of Asia Pacific Net sales in the Rest of Asia Pacific segment increased $646 million or 26% during the second quarter of 2013 compared to the second quarter of 2012, and increased $1.0 billion or 17% during the first six months of 2013 compared to the same period in 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
396
The growth in net sales during the second quarter and first six months of 2013 was primarily driven by increased demand for iPhone following the launch of iPhone 5, strong demand for iPad, and higher sales from iTunes, partially offset by a decrease in net sales of Mac.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
397
The Rest of Asia Pacific segment represented 7% and 6% of the Company’s total net sales for the second quarter of 2013 and 2012, respectively, and 7% and 8% of total net sales for the first six months of 2013 and 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
398
Retail Net sales in the Retail segment increased $842 million or 19% during the second quarter of 2013 compared to the second quarter of 2012, and increased $1.2 billion or 11% during the first six months of 2013 compared to the same period in 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
399
The growth in net sales during the second quarter of 2013 was primarily driven by increased demand for iPhone and iPad and increased Mac net sales following the launch of the new iMac.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
400
The Company opened one new retail store during the second quarter of 2013, which was outside the United States, ending the quarter with 402 stores compared to 363 stores at the end of the second quarter of 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
401
With an average of 401 and 361 open stores during the second quarter of 2013 and 2012, respectively, average revenue per store increased to $13.1 million in the second quarter of 2013, compared to $12.2 million in the second quarter of 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
402
Given the 14th week added to the first quarter of 2012, revenue per store on a per week basis increased 4% during the first six months of 2013 compared to the first six months of 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
403
The Retail segment represented 12% and 11% of the Company’s total net sales in the second quarter of 2013 and 2012, respectively, and 12% of total net sales for both the first six months of 2013 and 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
404
The Retail segment reported operating income of $1.1 billion during the second quarter of 2013 as compared to $1.2 billion during the second quarter of 2012, and reported operating income of $2.6 billion during the first six months of 2013 compared to $3.0 billion during the first six months of 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
405
The year-over-year decrease in Retail operating income during the second quarter and first six months of 2013 was primarily attributable to an overall decline in the segment’s gross margin percentage similar to that experienced by the Company overall, partially offset by the increase in the Retail segment’s net sales.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
406
As of March 30, 2013, the Retail segment had approximately 42,600 full-time equivalent employees.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
407
Gross Margin Gross margin for the three- and six- month periods ended March 30, 2013 and March 31, 2012 was as follows (in millions, except gross margin percentages): The gross margin percentage in the second quarter of 2013 was 37.5% compared to 47.4% in the second quarter of 2012, and the gross margin percentage for ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
408
The year-over-year decrease in gross margin during the second quarter and first six months of 2013 was driven by multiple factors including introduction of new versions of existing products with higher cost structures and flat or reduced pricing, introduction of iPad mini with gross margin significantly below the Compa...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
409
The Company expects its gross margin percentage to be lower in 2013 than experienced in 2012, and the Company anticipates gross margin to be between 36% and 37% during the third quarter of 2013.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
410
The lower gross margin expected in 2013 is largely due to anticipation of a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers and anticipated component cost and other cost increases.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
411
Future strengthening of the U.S. dollar could further negatively impact gross margin.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
412
The foregoing statements regarding the Company’s expected gross margin percentage in 2013 and the third quarter of 2013 are forward-looking and could differ from actual results because of several factors including, but not limited to, those discussed below in Part II, Item 1A, “Risk Factors” of this Form 10-Q and those...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
413
In general, gross margins and margins on individual products 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...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
414
In response to competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
415
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
416
Due to the Company’s significant international operations, financial results can be significantly affected in the short-term by fluctuations in exchange rates.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
417
Operating Expenses Operating expenses for the three- and six- month periods ended March 30, 2013 and March 31, 2012, were as follows (in millions, except for percentages): Research and Development (“R&D”) Expense R&D expense increased $278 million or 33% during the second quarter of 2013 compared to the second quarter ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
418
These increases were primarily due to an increase in headcount and related expenses to support expanded R&D activities.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
419
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
420
As such, the Company expects to make further investments in R&D to remain competitive.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
421
Selling, General and Administrative (“SG&A”) Expense SG&A expense increased $333 million or 14% during the second quarter of 2013 compared to the second quarter of 2012, and increased $568 million or 11% during the first six months of 2013 compared to the same period in 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
422
These increases were primarily due to the Company’s continued expansion of its Retail segment, increased headcount and related expenses, and higher spending on marketing and professional services.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
423
Other Income and Expense Other income and expense for the three- and six-month periods ended March 30, 2013 and March 31, 2012, was as follows (in millions): Total other income and expense increased by $199 million during the second quarter of 2013 compared to the second quarter of 2012, and increased by $524 million d...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
424
The overall increase in other income and expense during the second quarter of 2013 and first six months of 2013 compared to the same period in 2012 was due primarily to higher interest and dividend income on the Company’s higher cash, cash equivalents and marketable securities balances and lower premium expenses on for...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
425
The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.05% and 1.01% in the second quarters of 2013 and 2012, respectively, and 1.06% and 1.01% in the first six months of both 2013 and 2012, respectively.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
426
Provision for Income Taxes The Company’s effective tax rates for the three- and six-month periods ended March 30, 2013 were 26.0% for both periods, compared to 25.2% for both the three- and six-month periods ended March 31, 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
427
The Company’s effective rate for both periods differs 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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
428
The higher effective tax rate during the second quarter and first six months of 2013 as compared to the same periods of 2012 is due primarily to a lower proportion of foreign earnings in the current year.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
429
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
430
The Company has contested certain of these adjustments through the IRS Appeals Office.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
431
The IRS is currently examining the years 2007 through 2009.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
432
All IRS audit issues for years prior to 2004 have been resolved.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
433
In addition, the Company is subject to audits by state, local, and foreign tax authorities.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
434
Management believes that adequate provisions have been made for any adjustments that may result from tax examinations.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
435
However, the outcome of tax audits cannot be predicted with certainty.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
436
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
437
Liquidity and Capital Resources The following table presents selected financial information and statistics as of March 30, 2013 and September 29, 2012 (in millions): As of March 30, 2013, the Company had $144.7 billion in cash, cash equivalents and marketable securities, an increase of $23.4 billion from September 29, ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
438
The principal component of this net increase was the cash generated by operating activities of $35.9 billion, which was partially offset by payments made for acquisition of property, plant and equipment and intangible assets of $4.8 billion, cash used to pay dividends and dividend equivalent rights of $5.0 billion and ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
439
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
440
The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
441
As of March 30, 2013 and September 29, 2012, $102.3 billion and $82.6 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
442
Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
443
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, and other liquidity requirements associated with its existing operations over the next 12 months.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
444
The Company anticipates the cash used for future dividends and the share repurchase program will come primarily from its current domestic cash, cash generated from on-going U.S. operating activities and from borrowings.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
445
Capital Assets The Company’s capital expenditures were $2.4 billion during the first six months of 2013 consisting of $177 million for retail store facilities and $2.2 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
446
The Company’s actual cash payments for capital expenditures during the first six months of 2013 were $4.3 billion.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
447
The Company anticipates utilizing approximately $10 billion for capital expenditures during 2013, including approximately $850 million for retail store facilities and approximately $9.15 billion for other capital expenditures, including for product tooling and manufacturing process equipment, and corporate facilities a...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
448
During 2013, the Company expects to open approximately 30 new retail stores, with more than three-quarters located outside of the U.S. Dividend and Share Repurchase Program On April 23, 2013, the Company announced it was raising its third quarter 2013 cash dividend by 15% to $3.05 per common share.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
449
The Company expects to pay quarterly dividends of $3.05 per common share for a total of approximately $2.9 billion each quarter, subject to declaration by the Board of Directors.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
450
In 2012, the Company’s Board of Directors authorized a program to repurchase up to $10 billion of the Company’s common stock.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
451
In April 2013, the Company’s Board of Directors increased the share repurchase program authorization from $10 billion to $60 billion, of which $1.95 billion had been utilized as of March 30, 2013.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
452
The share repurchase program is expected to be completed by December 2015.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
453
The Company’s share repurchase program does not obligate it to acquire any specific number of shares.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
454
Beginning in August 2012 through December 2015, the Company anticipates it will utilize approximately $100 billion to pay dividends, repurchase shares, and to remit withheld taxes related to net share settlement of restricted stock units, of which $10 billion had been utilized through March 30, 2013.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
455
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...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
456
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
457
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
458
As of March 30, 2013, the Company’s total future minimum lease payments under noncancelable operating leases were $4.5 billion, of which $3.2 billion related to leases for retail space.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
459
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
460
These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
461
The Company also obtains individual components for its products from a wide variety of individual suppliers.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
462
Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
463
As of March 30, 2013, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase commitments of $13.8 billion.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
464
Other Obligations In addition to the commitments mentioned above, the Company had additional off-balance sheet obligations of $1.4 billion as of March 30, 2013, that were comprised mainly of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
465
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
466
As of March 30, 2013, the Company had non-current deferred tax liabilities of $16.5 billion.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
467
Additionally, as of March 30, 2013, the Company had gross unrecognized tax benefits of $3.2 billion and an additional $539 million for gross interest and penalties classified as non-current liabilities.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
468
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
469
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
470
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
471
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
472
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
473
The Company did not record a liability for infringement costs related to indemnification as of March 30, 2013 or September 29, 2012.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
474
The Company has entered into indemnification agreements with its directors and executive officers.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
475
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
476
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
477
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.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
478
Item 3.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
479
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 2012 Form 10-K have not changed materially for the six months ended March 30, 2013.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
480
Item 4.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
481
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 ...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
482
Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the second quarter of 2013, 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...
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
483
PART II.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
484
OTHER INFORMATION Item 1.
0001193125-13-168288/full-submission.txt
0000320193
20130424
10-Q
485
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.
0001193125-13-168288/full-submission.txt