Apple 2014 Annual Report Download - page 36

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Other Income and Expense
Other income and expense for 2014, 2013 and 2012 are as follows (dollars in millions):
2014 Change 2013 Change 2012
Interest and dividend income $ 1,795 $ 1,616 $ 1,088
Interest expense (384) (136) 0
Other expense, net (431) (324) (566)
Total other income/(expense), net $ 980 (15)% $ 1,156 121% $ 522
The decrease in other income and expense during 2014 compared to 2013 was due primarily to higher interest expense on
debt and higher expenses associated with foreign exchange rate movements, partially offset by lower premium expenses on
foreign exchange contracts and higher interest income. 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 higher expenses associated with foreign exchange rate movements.
The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was
1.11%, 1.03% and 1.03% during 2014, 2013 and 2012, respectively. The Company had no debt outstanding during 2012 and
accordingly did not incur any related interest expense.
Provision for Income Taxes
Provision for income taxes and effective tax rates for 2014, 2013 and 2012 are as follows (dollars in millions):
2014 2013 2012
Provision for income taxes $13,973 $13,118 $14,030
Effective tax rate 26.1% 26.2% 25.2%
The Company’s effective tax rates for all years 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 27, 2014, the Company had deferred tax assets arising from deductible temporary differences, tax losses and
tax credits of $5.1 billion and deferred tax liabilities of $20.3 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 the amount of a valuation
allowance.
During the fiscal year ended September 27, 2014, the U.S. Internal Revenue Service (“IRS”) concluded its review of the years
2004 through 2009. The IRS is currently examining the years 2010 through 2012. 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 adjustments
that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. 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.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue
recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be
entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first
quarter of 2018. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period
presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently
evaluating the impact of adopting the new revenue standard on its consolidated financial statements.
Apple Inc. | 2014 Form 10-K | 34