The Greater China segment experienced year-over-year growth in net sales in that was significantly higher than the growth rate for the Company overall. Greater China growth was driven by higher unit sales and net sales of all major product categories except iPod, in addition to higher net sales of iTunes, Software and Services. Table of Contents The growth in net sales in the Greater China segment during resulted from two major iPhone introductions during the year, iPhone 5 in December and iPhone 5c and iPhone 5s in September Further contributing to the growth in was the introduction of the fourth generation iPad and iPad mini during the second quarter of and an increase in iPhone channel inventory as of the end of compared to the end of The following table presents Japan net sales information for , and dollars in millions:.
In the Japan segment generated year-over-year increases in net sales and unit sales of every major product category except iPod and experienced growth in net sales of iTunes, Software and Service. These positive factors were partially offset by weakness in the Japanese Yen relative to the U. The increase in net sales in the Japan segment during reflected significant increases in unit volumes of iPhone and iPad, strong growth of iTunes Store net sales and an increase in iPhone channel inventory as of the end of compared to the end of The following table presents Rest of Asia Pacific net sales information for , and dollars in millions:.
Net sales in the Rest of Asia Pacific segment declined in compared to due to year-over-year reductions in net sales in all major product categories except Mac and reductions in unit sales of iPad and iPod. Net sales in were also negatively affected by the weakness in several foreign currencies relative to the U. The year-over-year growth in Rest of Asia Pacific segment net sales during was primarily driven by the launch of iPhone 5 and higher sales from the iTunes Store, partially offset by a decrease in net sales of iPad and Mac.
Table of Contents Retail. The growth in Retail segment net sales in was primarily driven by increases in net sales and unit sales of iPhone and Mac, partially offset by declines in net sales and unit sales of iPad and iPod. The growth in Retail segment net sales during was primarily driven by increased unit sales of iPhone and iPad following the new product introductions in the first half of and increased sales of services.
The year-over-year increase in Retail segment operating income in was attributable to higher net sales and higher gross margin primarily due to a higher mix of iPhone. The year-over-year decrease in Retail segment operating income in was primarily attributable to lower gross margin similar to that experienced by the Company overall, partially offset by higher net sales.
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Gross margin for , and are as follows dollars in millions:. The year-over-year increase in the gross margin percentage in was driven by multiple factors including lower commodity costs, a favorable shift in mix to products with higher margins and improved leverage on fixed costs from higher net sales, which was partially offset by the weakness in several foreign currencies relative to the U.
Table of Contents The Company anticipates gross margin during the first quarter of to be between 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.
In response to competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins. Operating expenses for , and are as follows dollars in millions:. Selling, general and administrative.
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Table of Contents Other Income and Expense. Other income and expense for , and are as follows dollars in millions:. Interest and dividend income. The decrease in other income and expense during compared to 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 weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 1.
The Company had no debt outstanding during and accordingly did not incur any related interest expense. Provision for Income Taxes. Provision for income taxes and effective tax rates for , and are as follows dollars in millions:. Provision for income taxes. 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.
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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. The IRS is currently examining the years through 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. ASU 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 will be effective for the Company beginning in its first quarter of 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. Table of Contents Liquidity and Capital Resources. Cash, cash equivalents and marketable securities. Property, plant and equipment, net. Cash generated by operating activities. Cash used in investing activities. Cash used in financing activities. The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations over the next 12 months.
To provide additional flexibility in managing liquidity, the Company began accessing the commercial paper markets in the third quarter of The Company currently anticipates the cash used for future dividends and the share repurchase program will come from its current domestic cash, cash generated from on-going U.
Amounts held by foreign subsidiaries are generally subject to U. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss. Table of Contents Capital Assets. During , the Company expects to open about 25 new retail stores, with approximately three-quarters located outside of the U.
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During , the Company also expects to remodel approximately five of its existing stores. The Company intends to use the net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. The Company has entered, and may enter in the future, into interest rate swaps to manage interest rate risk on the Notes.
Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments. The share repurchase program is expected to be completed by the end of December Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b under the Exchange Act. The Company expects to complete the capital return program by the end of December by paying dividends and dividend equivalents, repurchasing shares and remitting withheld taxes related to net share settlement of restricted stock units.
To assist in funding its capital return program, the Company expects to access the debt markets, both domestically and internationally. Leases for retail space are for terms ranging from five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. Table of Contents Purchase Commitments.
These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts and open orders based on projected demand information. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the above contractual obligation table.
The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights. However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual property rights.
The Company has entered into indemnification agreements with its directors and executive officers.
Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations and payments made under these agreements historically have not been material.
The preparation of financial statements and related disclosures in conformity with U.