Applied Industrial Technologies 3Q16 Earnings Call Notes

Neil A. Schrimsher – President, Chief Executive Officer & Director

Saw a stabilization as we went through the quarter, April was consistent with that

” For us, our sales per day, we had improvements really each month throughout the quarter, with a couple of days remaining April is consistent with March. So, perhaps I’d say consistent with others then, right, (17:10) seeing a stabilization perhaps as we go through the balance of our fiscal year and perhaps on through calendar 2016.”

M&A pipeline is productive

“I’d say short answer would be yes, but our M&A pipeline remains productive. We’re busy, I’d say, we have prospects or opportunities at really each stage of our funnel.”

Didn’t see any noticeable decline in the back half of March

” I’d say no noticeable decline in the back-half of March. So, I wouldn’t have seen or noticed that. And I would say April is consistent. Usually at month end, you can have a pickup in volume activity – hey, to be determined if we see that over this last couple of days, but it is looking like March, which was stronger as we moved through quarter three and we’ll look to being better in May and June to close out the quarter.”

Mark O. Eisele – CFO, Treasurer, VP & Head-Investor Relations

Did see an increase in bad debt expense relating to oil and gas companies

“Yeah. Adam, I’m happy to do that. I would say the majority of the bad debt expense increase really is relating to reserves that we’re putting on the books for receivables for our upstream oil and gas subsidiaries. And so they’ve had a meaningful increase for the whole year.

Jeff Gundlach Finanz und Wirtschaft interview April 2016 Notes

Recessions don’t drive financial markets it’s the other way around

“We will be on watch for that in the coming months. But it doesn’t really matter. Recessions don’t drive financial markets. It’s the other way around. People are so focused on this «recession-yes-or-no-question». What really matters is that we are in a low nominal growth environment and global growth keeps getting marked down. It is going to be slower in 2016 than in 2015.”

Yellen capitulated on rate increases on March 29

“I have been waiting for about two years for the Fed to capitulate on their interest rate increase dreams. Now, I think they did. Federal Reserve Chair Janet Yellen basically capitulated on March 29th.”

The Fed keeps saying we’ll get two rate hikes but it’s never going to happen

“The Fed has already reduced its forecast to two rate hikes. And that’s going to turn into one hike pretty quickly because we’re getting close to mid-year and I really doubt that they are going to do a rate hike in June. But what they are going to do is a rolling twelve month two hikes type of thing. So in June they will signal two hikes by June 2017 and then they will just keep pushing it forward. That’s a movie we’ve seen before. The Fed has pushed forward such decisions for years. We were always going to get to a Federal Funds Rate of 3% and it was always going to be starting in six months. But it never happened.”

The markets have humiliated the Fed

“The markets have humiliated the Fed into abandoning their pretty idiotic forecast.”

There is mounting evidence that negative rates do the opposite of what central bankers were hoping for

” I think the next big thing will be that at some point central bankers in Japan and in Europe will have to realize that they need to give up on negative interest rates. Negative interest rates are the dumbest idea ever. It’s horrible. Look at how badly it’s been working. The day that the Bank of Japan went negative the Yen started strengthening like crazy and the stock market is down. That’s exactly the opposite of what they wanted. The same thing happened with the ECB. Around a year ago, the consensus recommendation was to sell US equities and to buy European stocks because of negative interest rates in Europe. That turned out to be the most common mistake that was made in 2015. It’s been a horrible outcome. So there is mounting evidence that negative interest rates do the opposite of what the central bankers were hoping for.”

Negative interest rates are themselves deflationary

“Negative interest rates are designed to fight deflation. But they are the very definition of deflation: Your money is disappearing. As an investor, you are going to have less money in the future than you have today with negative interest rates. That’s deflation! So negative interest rates are deflationary and they are tremendously negative for monetary velocity. ”

This is all about capital preservation right now

“It’s all about capital preservation. If you can get a few percent return in a deflationary environment you’re doing fine. Because if you invest in European government bonds your base case is that you are going to have a negative return. The same applies if you invest in Japanese government bonds. So gold is a high yielding investment. You are getting zero yield versus negative yields in the case of short term European bonds and most Japanese bonds. Gold (Gold 1266.15 1.65%) is doing fine. It’s preserving capital in the US, it’s been making money over the last couple of years for European investors. That’s why I own gold. Because in a negative return environment anything that holds its value or makes a little is good.”

The stock market seems egregiously overvalued versus other stock markets

“The US stock market seems egregiously overvalued versus other stock markets. Emerging markets look vastly better, Japan looks better and Europe does too. That’s because they’re all down. It’s remarkable that the US stock market is within about 2% of its all-time high and every other significant stock market is down substantially. Also fundamentally, it’s very hard to believe in US stocks. Earnings and profit margins are dropping and companies basically are borrowing money to pay dividends and to buy back shares”

I think the rally is basically over, the default rate in the next five years could be the highest in the history of the high yield bond market

“Just like oil, the high yield market has enjoyed the easy rally. I think it’s basically over. I don’t see how you are supposed to be all fond off high yield bonds, since they are facing enormous fundamental problems. I thought people would learn their lesson but the issuance in the years 2013/14 was vastly worse than the issuance in 2006/07. Also, in the bank loan market covenant lite issuance rose to 40% in 2006/07. In this cycle it climbed to 75%. The leverage in the high yield bond market is enormous and you’re about to have a substantial increase in defaults. I wouldn’t be surprised if the cumulative default rate in the next five years were going to be the highest in the history of the high yield bond market.”

We are in a culture of default

“We are now in a culture of default. There is no stigma about defaulting anymore. During the housing crash, homeowners walked away from their mortgages. That was the beginning of a massive tolerance of default. Today, people talk about Puerto Rico defaulting like it’s nothing.”

The next election will be more tansformative than this one because we’re on the verge of generational change

” The next election is going to be much more transformative than this one. Because in this election, both parties are kind of clinging to the belief that they can keep the genie in the bottle. But we’re on the cusp of big change and, unfortunately, it’s all wrapped up in generational problems. The big problem that is coming, of course, is the unfunded liabilities that have been promised to the baby boomers.”

Trump is going to win

“Trump is going to win. I think Clinton and Sanders are both very poor candidates. I know the polls are signaling the opposite. But the polls said the opposite four years ago, too.”

Moelis and Company 1Q16 Earnings Call Notes

Kenneth Moelis

M&A dialogue remains healthy

“Our M&A dialog remains healthy and the desire for interesting ideas and creative solutions for companies is the highest I have witnessed in a while”

We did witness an air pocket in Q1

“However, it’s important to note that during the first quarter we really did witness what amounted to an air pocket in M&A across Wall Street. M&A announcements were down significantly given market volatility and the sharp widening of credit spreads in January and February, as well as the increased level of government and political risk to transactions as both antitrust and tax authorities become more aggressive in their stands on deals. Since the first quarter, the market has recovered and credit markets are probably passed half way back to their mid-2015 levels, but the political and regulatory overhang has really not dissipated.”

If oil prices didn’t get down into the 30s you wouldn’t be so happy about 45

“Remember the levels at which you’re talking about materials, prices or energy prices, if we didn’t take a short trip down into low 30s you would think this was a very distress level of oil, let’s say oil price relative to the debt levels in the companies are out there. So yes there has been a recovery, but it’s still at a price that’s going to cause many companies to have to focus on restructuring their balance sheet and the same in the commodities part of the cycle, and we’re starting to see it in other parts of the consumer areas like retail. So I believe that we’ll continue to accelerate.”

Credit markets have been a little bit slower to come back than the stock market

“Yeah the financing market is a part I think the stock market has rebounded 95%, 99% of the way back to where it was. And the credit markets are a little slower the spreads are still wide, there is still caution in the market, deals are still being more diligent on covenants and structure. So it’s a little different in the middle market, it’s a little slower on the comeback.”

It’s a low growth environment and companies are looking to M&A as a way to increase growth

“Look as you remember my call on the fourth quarter I was pretty — I try to give a warning that if that volatility stayed where it was we’d have a problem. It was short, it was sharp and outside of credit spreads still by the way the credit spreads are still different than they were. So that’s having an impact. But I think corporates are back and looking and how they can improve their business. It’s a very low growth environment out there, they still have to look at M&A as a way to either take out cost or increase growth.”

Let me remind you that we still only see a few percent of the deal market

“Let me say this, one of the things is I think I would say I see about 2%, 3%, 4% of the deal environment. So when I say I’m optimistic I’m very optimistic about where Moelis & Company is positioned. It’s really actually hard we all pretend to speak for the other 96% of the market that we don’t see or whatever given our market share. But and I’m very bullish about where we’re positioned on this. If I had to say on revenue growth, I would pick restructuring because where you came off a low base. If you were to ask me where the absolute dollars of growth would come from I think I’d say M&A.”

Jones Lang LaSalle 1Q16 Earnings Call Notes

Colin Dyer

The first quarter has proven to be a pause not a trend

“We are particularly pleased with these results because they came in a market environment which earlier in the quarter was anxious and unsettled. Financial market volatility, depressed lower prices and concerns about both the Chinese economy and the approaching Brexit vote in the UK, caused investors to hesitate and corporate tenants to hold back expansion and relocation plans. But as we predicted on our February call, this to be a pause, not a trend.”

Institutions continue to view real estate as an attractive asset class

“Institutional investors continue to view real estate as an attractive asset class. So new equity capital continues to be allocated to real estate even while existing commitments remain unspent. Corporate tenants are more confident than they were at the start of the year and resulting demand against the constraints supply is forcing rents higher on a global scale as you will see from our slides.”

This has been a different sort of cycle

“with nearly seven years into this recovery cycle, it’s been an interestingly different one from previous ones in the sense that it has been slow and hesitant and it hasn’t been accompanied by the usual interest rate raises that you see as a cycle matures. Indeed in many countries, the interest rates have been going the other way and in the U.S. the increases have been very hesitant. ”

The usual bottlenecks are emerging in some areas

“So it’s been a seven year recovery process but it’s been slow and gentle. And if you look around, in our markets, and indeed more broadly across business markets, there’s been, there is very good sign of the usual bottlenecks that emerge in cycles, in production capacity or shipping capacity we need in our markets, a scarcity of space. And whilst we see a slow increase in the overall global levels of occupancy, it is very gradual indicating that supply and demand are remaining broadly in line.”

There’s nothing out there that says that this cycle is about to turn

“So there’s nothing really out there, which at this point says that even though we are in the fourth quarter here, there is anything imminent that suggests that this cycle is about to win. That’s partly why we were so clear in quarter one by saying that the quarter one developments, the first half of the first quarter if you like, were a pause and not a trend. Now I think the progress since that mid-February low point of markets as a whole, and indeed real estate markets, has been solid and sort of bears out that prediction.”

General level of corporate confidence is high

“the general level of corporate confidence as you can see from business surveys globally is high, corporates are well funded, they still retain a little cash in the balance sheet, they have adequate access to relatively cheap debt globally, and the general center of corporate CEOs may deal with and generally – the general corporate clients is positive. So there an expansion remote rather than contraction and rationalization, so that’s on the demand side broad brush that it’s the global situation. It’s not euphoric I said this earlier, which has been a steady, calm relatively conservative recovery certainly on the corporate side and people are investing – whether investing or doing it carefully.”

Don’t have a supply boom either

“On the supply side, particularly in offices there has been globally a restrained level of development, with the level of delivery if office stock is still below the 2007 and 2001 peak levels. And so you haven’t got a boom of supply hitting the markets and tending to depress pricing.”

Prices have been steady with some exceptions

“prices in general have been very steady across global investment sales markets I think we talked in the script about just a 10 to 20 basis point compression year-on-year. Where there has been declines, it’s been exceptional Russia, Sao Paulo and Rio in Brazil, and as you mentioned, some Tier 2 cities in China, what’s happening in China is that the growth in the service and retail sector which is the order of 12% is favoring of the larger Tier 1 cities so Shenzhen, Shanghai, Beijing, where we have seen good revenue growth. On the other hand places like Chongqing, Chengdu and Changyang, which are the more traditional industrial cities in the industry as you know not growing it’s even declining, they are having a harder time”

Cullen Frost 1Q16 Earnings Call Notes

Phil Green

49% loan to deposit ratio

“our loan to deposit ratio of only 48% down from 80% in 2008. And we will prudently extend this overtime. We’re also solidly asset sensitive and will take great advantage of this as rates rise. Just look at the impact of the recent 25 basis point increase in December.”

Not seeing contagion into other sectors

“Not necessarily. We’re not seeing much if any contagion in the portfolio right now. And so I would not expect that to happen from a contagion basis as far as the reserve itself, I mean, any and all of the reserve stands ready be against all loans even though we’ve specifically noted the $85 million related to energy. So, and if you look at the performance of the portfolio, and how it’s doing with regard to classified levels et cetera, it’s extremely strong. So we feel the good reserve as it stands today.”

First thing we think about is how to create better customer experiences

“The first thing I think about is how we create even better customer experiences and that we’re world-class at it today and you can see it through the third-party recognition that we’ve got, but we need to better and we are going to be better. And I think about how can we get more people who are non-customers in the State of Texas to consider Frost as a viable alternative to the – too big to fail, frankly, and they should because we are and we will provide a better experience for them. And as we crack the code on becoming a more and more viable candidate and given the response of the market to our value proposition and our retention rates, I’m extremely optimistic about what this company can do going forward.”

Jerry Salinas

Simon Property Group 1Q16 Earnings Call Notes

Simon Property Group’s (SPG) CEO David Simon on Q1 2016

We were cautious and we remain cautious

” look I think a quarter ago we were cautious, we continue to be cautious. I don’t want to mention specific retailers whether they paid rent or not paid rent. The only one that’s filed bankruptcy thus far is Paxton [ph]. I am sure there were some pre-petition amounts that we wrote-off in the quarter. I mean it’s not overly material and that’s part of what we have dealt with for 60 years retail bankruptcies. So we remain cautious, our biggest reason we were cautious, is that the U.S. economy continues to flatten out, I mean there is not a lot of growth I suggest you look at a lot of industries in our beyond real estate to see what’s going on in the U.S. economy and it is what it is.”

We don’t see the death of brick and mortar

” the media about the death we don’t see it, demand is fine. Properties are getting better, we got supply and demand in our favour, no one’s building Class A Outlets or Malls to any degreeable issue, certainly there will be retail space that gets re-focussed which will help us obviously in supply and demand equations and I just — I don’t view it beyond that.

A lot of money has been spent in e-com and it’s not showing up for retailers. Best opportunity continues to be brick and mortar

The Internet is not the panacea. A lot of CapEx have been spent there. It’s not showing the returns for retailers, so I think they are going to — their biggest and best opportunity continues to be bricks and mortar and you know we’ll keep plugging along.”

There are a few tenants out there who may or may not go bankrupt

“We are consumer oriented company, and I mean we are the basically the worldwide economy is flattening. There is a lot of stuff out there. And we are just being a lit bit of cautious. And obviously I mean, we all know there is a few tenants out there that may or may not go bankrupt may or may not close the bunch of stores. We’ve got to be — we have got to be judicious on how we model their future.”

I’ve lost the argument about the correlation of retail sales and ability to drive rents

” I’ve lost the argument, so I will admit defeat, okay. I will admit defeat publicly. We have lost the argument on the correlation or lack thereof between retail sales and our ability to drive rents, which happens I believe that are more toward supply and demand and then retail sales, because as you know if retailer is not producing results and there are lease happens to come up, we have the ability certainly to replace them with a retailer that’s going to be more productive.”

If you’re not profitable, investors have to fund those investments

” I think at the end of the day the all retailers have to be profitable. All e-commerce player have to be profitable, unless you know Wall Street and other investors are going to fund those investments.”

Capital One 1Q16 Earnings Call Notes

Richard Fairbank

Rewards competition has intensified a bit but it’s always intense

“So, you ask the question about rewards competition. This is a very competitive space, I think the competition has intensified a bit over the past years, over the past year really issuers are continuing to introduce new offers, upfront bonuses have been gradually increasing over time. I still look at this, as the player its generally rational, intensely competitive and our strategy is design to go right into a marketplace like that.”

Purchase volume continues to be strong

“Okay. Chris, the purchase volume continues to be strong, let’s talk about where we’re seeing it. We’re seeing it across various segments in our business that are growing nicely and obviously the spender and rewards business is growing in our revolver business where we focus on revolvers rather high balance revolvers, we see it in small business.”

Biggest concern is impact of growing competition

“my biggest worry and it kind of gets to your question is the potential impact of growing a competition and actually the growth itself that we see of credit around us. We’ve seen a growth of revolving debt creep up to about 6% recently. That’s pretty high relative to the low and sometimes negative levels since the recession.”

We are watching the growth in the marketplace closely

” the math of the amount of growth that we see in the credit market place is not lost on us. Now it is in the context of a particularly on the card side growth being flattish for a long period of time so we are not overly alarmed by just a surge of growth but we’ll certainly have to keep an eye on this. And we know that in the end the growth, the things that we see in the market place with respect to growth not only affect our growth opportunity they can affect credit with the selection quality of new originations and can impact existing customers who take on more debt from other players.”

Chipotle 1Q16 Earnings Call Notes

Steve Ells – Chairman & Co-Chief Executive Officer

Never more important to delight customers

“Never has it been more important for us to delight our customers on each and every visit and we have great confidence in our managers and crews to remain focused and to provide the extraordinary customer experience our customers expect from us. ”

Seen an improvement in comps since beginning of Feb

“We begin to see sales recover in the second half of the first quarter as our transaction trends reversed course from the lows we saw in January. Since the beginning of February, we have seen an 18-point improvement in comp transactions compared to the full month of January.”

It will take some time to rebuild trust

“We recognize that it will take us some time to rebuild trust with our customers and to fully recover from the issues we faced late last year. And while we are encouraged that the recovery is underway, we know that there’s still a lot more work to be done.”

Montgomery F. Moran – Co-Chief Executive Officer, Secretary & Director

Survey data has come back a bit

“when we give people a list of restaurants including our brand, and ask them how likely they are to visit, before the food safety issues that hovered around 50%, right now that’s recovered to 43%. So we’re down 7% on that one, but it’s picking up at a consistent rate. Admiration before these incidents was 70%, now it’s at 61%. So again, recovering from down into the 50% area. So a lot of the stuff has come back up nicely.”

Lettuce is one example of quality decline for food safety

“Yeah. I think, generally, the changes have gone very, very well. I won’t say all of them have been met with immediate approval. And an example of that is we went over to a lettuce that was pre-shredded at a central kitchen in order to be able to be absolutely certain of the – that all the interventions were in place to make sure that that was food safe. And that lettuce, I think, people found to be a degradation in quality of the stuff that was cut in the restaurants by our teams who – when our restaurant teams do it, they’re able to cut it to the exact size they want, they’re able to really make sure that the presentation is exactly what they want and that they can assure the quality of the lettuce. This was a product which is really just completely prepared in a central kitchen.”

Steak quality has actually gotten better

“The rest of the changes have been met very positively. The sous viding of the steak is delicious. We’ve actually had a reduction in the number of customer complaints. With steak, there’s always been over time some complaints because steak contains naturally some chewy bits and whatnot because we use real steak. And with the sous vide, the technique has allowed us to break down some of those aspects of the steak through kind of a long breathing process in the sous vide process which makes the steak juicier and more tender and more delicious. So actually we’re very, very pleased with how that’s going and our customers seemed to be very pleased as well.”

Mark Crumpacker – Chief Creative & Development Officer

Buckets of customers in terms of loyalty

“We call our most frequent customers top loyal, they come 25 times or more a year. The next group are heavy customers, they come 13 times to 24 times, then medium which is 6 times to 12 times, light is 2 times to 5 times and a new or lapsed customer is one-time. And you’re correct in that we saw larger declines in both new in the two – the top and bottom categories. So these are single-digit drops, but in new and lapsed, and in top loyal”

Integrated back of house with postmates

“We have completed the integration between Postmates, our largest delivery partner and our back-of-house ordering system. This allows Postmates to send orders directly to our back-of-house make line instead of standing in line to order.”

Robert Half 1Q16 Earnings Call Notes

Max Messmer

The sales cycle has elongated as customers uncertain

” clearly we see clients remaining cautious due to the uncertain macro environment. That lengthens the sale cycle. Further as we talked about before, candidates have many options with their current employer, with other employers. That makes them harder to close. That also lengthens the sale cycle. So generally speaking across our divisions, less so with the accounting and finance ones, but the sale cycle has elongated which has impacted our growth rates and is expected to impact our growth rates into the second quarter.”

We haven’t seen the white hot demand that usually happens at the top of the cycle

“Compared to prior cycles, it usually gets white hot for candidates such that clients will very quickly take any candidate that’s close and the current environment is no where near that environment, so to the extent in prior cycles, late stage has been indicated by this white hot hyper demand where permanent placement grows at very high double-digit rates. That hasn’t happened and notwithstanding the fact that we’re in year seven or whatever of this cycle, we still don’t see that type of hyper demand that we would typically see late cycle, but instead we continue to slug it out in this relatively sluggish macro environment. We saw that again in the first quarter. Our guidance anticipates more of same in the second quarter.”

Deceleration in tech and perm, but not unexpected

“With respect to RH Tech and Perm I would say those trends were particularly evident in both of those divisions. While it’s true that Tech’s year-over-year growth rate slowed from 10% to 6%, if you look at the year-ago comps they got harder from 12% to 19%. So given the tougher comps, the deceleration in the growth wasn’t totally unexpected. Perm did fine in the beginning of the quarter, as we said. It decelerated late. That deceleration continued into the first part of this quarter.”

everyone is in a little bit state of limbo here

“So I think everyone is in a little bit state of limbo here, waiting to see what the macro economy is going to do. From our standpoint, it certainly doesn’t feel late cycle, let’s put it that way. We’ve had elongated sales cycles in the past and my guess this one will change also and go to a more traditional format depending on which way the economy breaks in the months ahead.”

Keith Waddell

Germany is strongest non-US operation

Sure. The – once again Germany by leaps and bounds was our strongest non-U.S. operation. It performed just wonderfully on very tough, tough comps a year ago. It’s where we’ve invested the most head count. It’s where we focused the most effort. And we’re getting a very nice return on our German investment. The UK and Belgium were also very solid. On the flip side we had challenges in Canada and Australia, which are minerals mining related and France continues to struggle a little bit as well, but Germany easily number one, UK Belgium solid, the other three trailing behind a bit.

Tech softness tough comps

“Well, clearly tougher comps was a big part of the story, given how much tougher the comps got. But this whole this phenomena of the sales cycle elongating certainly applies to Tech. We have had clients take longer to pull the trigger; if you want to call that softening that would be fair. Candidates are still in tight supply, particularly the mid to higher level candidates. It does take longer to close them. That impacts growth rates as well. So we would characterize as the market for Tech as firm, as strong, but it’s taking us longer to get deals closed and therefore our growth rates are slowing, exacerbated by the toughness of the comps.”

Not yet at peak in temp gross margins

“Well, we do not believe we’re at or near peak on Temp gross margins. We do not believe 3.2% of revenue is peak conversions when the traditional range is 3% to 5%, midpoint being 4%; we just do not accept that 3.2% is as good as it gets. And whatever more we get above that is pure margin. ”

Longest we’ve ever seen a sluggish cycle last

“we certainly haven’t seen a cycle that’s lasted this long, that’s had sluggish 2% and less growth rates economically for this long. And so you’ve got this odd situation where clients are still cautious because they’re worried about the macro. But because the lapse time has been so long on the candidate side, they have a lot of choices. And so you get both sides of the equation dragging their feet to our detriment to some degree.”

Apple FY 2Q16 Earnings Call Notes

Timothy Donald Cook – Chief Executive Officer & Director

Smartphone market slow growth due to macro environment

” In terms of do I think the smartphone market is mature, I think that the market, as you know, is currently not growing. However, my view of that is that’s an overhang of the macroeconomic environment in many different places in the world. And we’re very optimistic that this too shall pass and that the market and particularly us will grow again.”

More people than we expected want the latest tech in a more compact package

“I think the iPhone SE is attracting two types of customers. One is customers that wanted the latest technology but wanted it in a more compact package, and we clearly see even more people than we thought in that category. And then secondly, it’s attracting people who aspire to own an iPhone but couldn’t quite stretch to the entry price of the iPhone, and we’ve established a new entry. ”

The upgrade rate is slightly higher to 6s than 5s but lower than 6

“The iPhone 6s upgrade cycle that we’ve measured for the first half of this year, so the first six months of our fiscal year to be precise, is slightly better than the rate that we saw with the iPhone 5s two years ago, but it’s lower than the iPhone 6. I don’t mean just a hair lower. It’s a lot lower. And so without giving you exact numbers, if we would have the same rate on iPhone 6s that we did iPhone 6, it would be time for a huge party. It would be a huge difference.”

Upgrade cycle is much longer in the tablet market than cell phone

“one of the challenges with the tablet market is that the replacement cycle is materially different than in the smartphone market. And so as you probably know, we haven’t had an issue in customer satisfaction on the iPad. It’s incredibly high. And we haven’t had an issue with usage of the iPad. The usage is incredibly high. But the consumer behavior there is you tend to hold on for a very long period of time before an upgrade.”

China is not as weak as has been talked about

“And so as I back up from this and look at the larger picture, I think China is not weak as has been talked about. I see China as may not have the wind at our backs that we once did, but it’s a lot more stable than what I think is the common view of it. And so we remain really optimistic on China. ”

Growing number of people in both parties that want tax reform so it will probably get done

“I think there are a growing number of people in both parties that would like to see comprehensive reform, and so I’m optimistic that it will occur. It’s just a matter of when. And that’s difficult to say, but I think most people do recognize that it’s in the U.S.’s interest to do this.”

Luca Maestri – Chief Financial Officer & Senior Vice President

Advocates for corporate tax reform

“On tax reform, maybe I can continue, and I’ll let Tim provide more color, but we’ve been strong advocates for comprehensive corporate tax reform in this country. We continue to do that. We think a reform of the tax code would have significant benefits for the entire U.S. economy, and we remain optimistic that we’re going to get to a point where we can see that tax reform enacted. At that point in time, of course, we would have much more flexibility around optimizing our capital structure and around providing more return of capital to our investors.”