Apple 2013 Annual Report Download - page 36

services. The growth in SG&A during 2012 was 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 2013, 2012 and 2011 are as follows (in millions):
2013 Change 2012 Change 2011
Interest and dividend income .............................. $1,616 $1,088 $ 519
Interest expense ......................................... (136) 0 0
Other expense, net ....................................... (324) (566) (104)
Total other income/(expense), net ....................... $1,156 121% $ 522 26% $ 415
The year-over-year increase in other income and expense during 2013 was due primarily to higher interest and
dividend income resulting from the Company’s higher cash, cash equivalents and marketable securities balances
and lower premium expenses on foreign exchange contracts, partially offset by interest expense on debt issued in
the third quarter of 2013 and remeasurement losses from foreign exchange rate movements. The overall increase
in other income and expense in 2012 compared to 2011 was attributable 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 weighted average interest rate earned by the Company on
its cash, cash equivalents and marketable securities was 1.03% during 2013 and 2012 and 0.77% during 2011.
The Company had no debt outstanding during 2012 and 2011 and accordingly did not incur any related interest
expense.
Provision for Income Taxes
Provision for income taxes and effective tax rates for 2013, 2012 and 2011 are as follows (in millions):
2013 2012 2011
Provision for income taxes ............................................ $13,118 $14,030 $ 8,283
Effective tax rate ............................................... 26.2% 25.2% 24.2%
The Company’s effective tax rates for all periods differ from the statutory federal income tax rate of 35% due
primarily to certain undistributed foreign earnings, a substantial portion of which was generated by subsidiaries
organized in Ireland, for which no U.S. taxes are provided because such earnings are intended to be indefinitely
reinvested outside the U.S.
As of September 28, 2013, the Company had deferred tax assets arising from deductible temporary differences,
tax losses, and tax credits of $4.2 billion, and deferred tax liabilities of $16.5 billion. Management believes it is
more likely than not that forecasted income, including income that may be generated as a result of certain tax
planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to
fully recover the deferred tax assets. The Company will continue to evaluate the realizability of deferred tax
assets quarterly by assessing the need for and amount of a valuation allowance.
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. The Company has contested certain of
these adjustments through the IRS Appeals Office. The IRS is currently examining the years 2007 through 2012.
All IRS audit issues for years prior to 2004 have been resolved. In addition, the Company is subject to audits by
state, local, and foreign tax authorities. Management believes that adequate provisions have been made for any
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