Other Income and Expense
Total other income and expense decreased $24 million or 48% to $26 million during second quarter of 2011 compared to the same period of 2010, and increased $79 million or 95% to $162 million during the first six months of 2011 compared to the same period in 2010. The overall decrease during second quarter of 2011 in other income and expense is primarily attributable to higher premium expenses on foreign exchange option contracts, partially offset by higher interest income on the Company’s higher cash, cash equivalents and marketable securities balances as compared to the second quarter of 2010. The overall increase during the first six months of 2011 in other income and expense is primarily attributable to higher interest income and net realized gains on sales of marketable securities, partially offset by higher premium expenses on foreign exchange option contracts as compared to the first six months of 2010. The weighted-average interest rate earned by the Company on its cash, cash equivalents and marketable securities increased to 0.76% in the second quarter of 2011 from 0.70% in the second quarter of 2010.
Provision for Income Taxes
The Company’s effective tax rates for the three- and six-month periods ended March 26, 2011 were approximately 24% for both periods, compared to approximately 24% and 27% for the three- and six-month periods ended March 27, 2010, respectively. The Company’s effective rates for both periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. The lower effective tax rate during the first six months of 2011 compared to the same period in 2010 is due primarily to a higher proportion of foreign earnings and the recognition of a tax benefit as a result of legislation enacted during the first quarter of 2011 retroactively reinstating the research and development tax credit.
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 2009. 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 provision has 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.
Liquidity and Capital Resources
The following table summarizes selected financial information and statistics as of March 26, 2011 and September 25, 2010 (in millions):
Cash, cash equivalents and marketable securities
Accounts receivable, net Inventory Working capital
March 26, 2011
September 25, 2010
As of March 26, 2011, the Company had $65.8 billion in cash, cash equivalents and marketable securities, an increase of $14.8 billion from September 25, 2010. The principal component of this net increase was the cash generated by operating activities of $16.0 billion, which was partially offset by payments for acquisition of property, plant and equipment of $1.8 billion. 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.
The Company’s marketable securities investment portfolio is invested primarily in highly rated securities, generally with a minimum rating of single-A or equivalent. As of March 26, 2011 and September 25, 2010, $40.2 billion and $30.8 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar- denominated holdings.
The Company’s capital expenditures were $2.2 billion during the first six months of 2011 consisting of approximately $142 million for retail store facilities and $2.1 billion for other capital expenditures, including product tooling and manufacturing process equipment, real estate for the future development of the Company’s second corporate campus, and other corporate facilities and infrastructure. The Company’s actual cash payments for capital expenditures during the first six months of 2011 were $1.8 billion, of which $151 million relates to retail store facilities.