Apple 2012 Annual Report Download - page 37

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Operating Expenses
Operating expenses for 2012, 2011, and 2010 are as follows (in millions, except for percentages):
2012 2011 2010
Research and development .............................................. $ 3,381 $2,429 $1,782
Percentageofnetsales ............................................. 2% 2% 3%
Selling, general and administrative ....................................... $10,040 $7,599 $5,517
Percentageofnetsales ............................................. 6% 7% 8%
Research and Development (“R&D”) Expense
R&D expense increased $952 million or 39% in 2012 compared to 2011 and $647 million or 36% in 2011
compared to 2010. The growth in R&D expense was driven by an increase in headcount and related expenses to
support expanded R&D activities. Although total R&D expense increased 39% and 36% in 2012 and 2011,
respectively, it remained fairly consistent as a percentage of net sales.
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.
Selling, General and Administrative (“SG&A”) Expense
SG&A expense increased $2.4 billion or 32% during 2012 compared to 2011 and $2.1 billion or 38% during
2011 compared to 2010. These increases were primarily due to the Company’s continued expansion of its Retail
segment, increased headcount and related expenses, higher spending on professional services, marketing and
advertising programs, and increased variable costs associated with the overall growth of the Company’s net sales.
Other Income and Expense
Other income and expense for 2012, 2011, and 2010 are as follows (in millions):
2012 2011 2010
Interest and dividend income ............................................ $1,088 $ 519 $ 311
Other expense, net ..................................................... (566) (104) (156)
Total other income/(expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522 $ 415 $ 155
Total other income and expense increased $107 million or 26% to $522 million during 2012 compared to
$415 million and $155 million in 2011 and 2010, respectively. The year-over-year increase in other income and
expense during 2012 was due primarily to higher interest and dividend income on the Company’s higher cash,
cash equivalents and marketable securities balances, partially offset by higher premium expenses on foreign
exchange contracts. The overall increase in other income and expense in 2011 compared to 2010 was attributable
to higher interest income and net realized gains on sales of marketable securities. The weighted average interest
rate earned by the Company on its cash, cash equivalents and marketable securities was 1.03%, 0.77%, and
0.75% during 2012, 2011, and 2010, respectively. During 2012, 2011, and 2010, 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 approximately 25.2%, 24.2%, and 24.4% for 2012, 2011, and 2010,
respectively. The Company’s effective rates for these periods differ from the statutory federal income tax rate of
36