Apple 2010 Annual Report Download - page 42

Table of Contents
Research and Development Expense (
“R&D”)
R&D expense increased 34% or $449 million to $1.8 billion in 2010 compared to 2009. This increase was due primarily to an increase in
headcount and related expenses in the current year to support expanded R&D activities. Also contributing to this increase in R&D expense in
2010 was the capitalization in 2009 of software development costs of $71 million related to Mac OS X Snow Leopard. Although total R&D
expense increased 34% during 2010, it declined as a percentage of net sales given the 52% year-over-
year increase in net sales in 2010. 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. As such, the
Company expects to make further investments in R&D to remain competitive.
R&D expense increased 20% or $224 million to $1.3 billion in 2009 compared to 2008. This increase was due primarily to an increase in
headcount in 2009 to support expanded R&D activities and higher stock-
based compensation expenses. Additionally, $71 million of software
development costs were capitalized related to Mac OS X Snow Leopard and excluded from R&D expense during 2009, compared to $11 million
of software development costs capitalized during 2008. Although total R&D expense increased 20% during 2009, it remained relatively flat as a
percentage of net sales given the 14% increase in revenue in 2009.
Selling, General and Administrative Expense (“SG&A”)
SG&A expense increased $1.4 billion or 33% to $5.5 billion in 2010 compared to 2009. This increase was due primarily to the Company’
s
continued expansion of its Retail segment, higher spending on marketing and advertising programs, increased stock-
based compensation
expenses and variable costs associated with the overall growth of the Company’s net sales.
SG&A expenses increased $388 million or 10% to $4.1 billion in 2009 compared to 2008. This increase was due primarily to the Company’
s
continued expansion of its Retail segment in both domestic and international markets, higher stock-
based compensation expense and higher
spending on marketing and advertising.
Other Income and Expense
Other income and expense for the three years ended September 25, 2010, are as follows (in millions):
Total other income and expense decreased $171 million or 52% to $155 million during 2010 compared to $326 million and $620 million in 2009
and 2008, respectively. The overall decrease in other income and expense is attributable to the significant declines in interest rates on a year-
over-year basis, partially offset by the Company’
s higher cash, cash equivalents and marketable securities balances. The weighted average
interest rate earned by the Company on its cash, cash equivalents and marketable securities was 0.75%, 1.43% and 3.44% during 2010, 2009 and
2008, respectively. Additionally the Company incurred higher premium expenses on its foreign exchange option contracts, which further
reduced the total other income and expense. During 2010, 2009 and 2008, the Company had no debt outstanding and accordingly did not incur
any related interest expense.
Provision for Income Taxes
The Company’s effective tax rates were 24%, 32% and 32% for 2010, 2009 and 2008, respectively. The Company’
s effective rates for these
periods differ from the statutory federal income tax rate of 35% due
39
2010 2009 2008
Interest income
$
311
$
407
$
653
Other income (expense), net
(156
)
(81
)
(33
)
Total other income and expense
$
155
$
326
$
620