Apple 2014 Annual Report Download - page 35

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The Company anticipates gross margin during the first quarter of 2015 to be between 37.5% and 38.5%. The foregoing
statement regarding the Company’s expected gross margin percentage in the first quarter of 2015 is forward-looking and
could differ from actual results. The Company’s future gross margins can be impacted by multiple factors including, but not
limited to those set forth above in Part I, Item 1A of this Form 10-K under the heading “Risk Factors” and those described in
this paragraph. In general, the Company believes gross margins 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 potential strengthening of the U.S. dollar, as well
as potential increases in the costs of outside manufacturing services and a potential shift in the Company’s sales mix towards
products with lower gross margins. In response to competitive pressures, the Company expects it will continue to take product
pricing actions, which would adversely affect gross margins. 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. Due to the
Company’s significant international operations, financial results can be significantly affected by fluctuations in exchange rates.
Operating Expenses
Operating expenses for 2014, 2013 and 2012 are as follows (dollars in millions):
2014 Change 2013 Change 2012
Research and development $ 6,041 35% $ 4,475 32% $ 3,381
Percentage of total net sales 3% 3% 2%
Selling, general and administrative $11,993 11% $10,830 8% $10,040
Percentage of total net sales 7% 6% 6%
Total operating expenses $18,034 18% $15,305 14% $13,421
Percentage of total net sales 10% 9% 9%
Research and Development (“R&D”) Expense
The year-over-year growth in 2014 and 2013 R&D expense was driven primarily by an increase in headcount and related
expenses, including share-based compensation costs and machinery and equipment to support expanded R&D activities. 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
The growth in SG&A expense during 2014 compared to 2013 was primarily due to increased headcount and related expenses,
including share-based compensation costs; higher spending on marketing, advertising and professional services; and the
Company’s continued expansion of its Retail segment. The growth in SG&A during 2013 compared to 2012 was primarily due
to the Company’s continued expansion of its Retail segment and increased headcount and related expenses, partially offset by
decreased spending on professional services.
Apple Inc. | 2014 Form 10-K | 33