Apple 1997 Annual Report Download - page 51

A reconciliation of the provision (benefit) for income taxes, with the amount computed by applying the statutory federal income tax rate (35%
in 1997, 1996, and 1995) to income (loss) before provision (benefit) for income taxes, is as follows:
The Internal Revenue Service ("IRS") has proposed federal income tax deficiencies for the years 1984 through 1991, and the Company has
made certain prepayments thereon. The Company contested the proposed deficiencies by filing petitions with the United States Tax Court, and
most of the issues in dispute have now been resolved. On June 30, 1997, the IRS proposed income tax adjustments for the years 1992 through
1994. Although a substantial number of issues for these years have been resolved, certain issues still remain in dispute and are being contested
by the Company. Management believes that adequate provision has been made for any adjustments that may result from tax examinations.
SHAREHOLDERS' EQUITY
PREFERRED STOCK
In August 1997, the Company and Microsoft Corporation ("Microsoft") entered into patent cross licensing and technology agreements. In
addition, Microsoft purchased 150,000 shares of Apple Series 'A' non-voting convertible preferred stock ("preferred stock") for $150 million.
Except under limited circumstances, the shares of preferred stock may not be sold by Microsoft prior to August 5, 2000. Upon any sale of the
preferred stock by Microsoft, the shares will automatically be converted into shares of Apple common stock at a conversion price of $16.50 per
share and the shares can be converted at Microsoft's option at such price after August 5, 2000. Each share of preferred stock is entitled to
receive, if and when declared by the Company's Board of Directors, a dividend of $30.00 per share per annum, payable in preference to any
dividend on the Company's common stock, plus, if the dividends per share paid on the common stock are greater than the dividends per share
paid on the preferred stock on an "as if converted" basis, then the Board of Directors shall declare an additional dividend such that the
dividends per share paid on the preferred stock on an "as if converted" basis, shall equal the dividends per share paid on the common stock.
STOCK OPTION PLANS
1990 STOCK OPTION PLAN
The Company has in effect a 1990 Stock Option Plan (the "1990 Plan"), which replaced the 1981 Stock Option Plan terminated in October
1990 and the 1987 Executive Long Term Stock Option Plan (the "1987 Plan") terminated in July 1995. Options granted before these plans'
termination dates remain outstanding in accordance with their terms. Options may be granted under the 1990 Plan to employees, including
officers and directors who are employees, at not less than the fair market value on the date of grant. These options generally become
exercisable over a period of three years, based on continued
48
1997 1996 1995
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(IN MILLIONS)
Computed expected tax (benefit)............................................... $ (366) $ (453) $ 236
State taxes, net of federal effect............................................ (3) (48) 10
Research and development tax credit........................................... -- -- (1)
Indefinitely invested earnings of foreign subsidiaries........................ -- -- (21)
Purchase accounting and asset acquisitions.................................... 158 -- --
Valuation allowance........................................................... 208 -- 3
Other individually immaterial items........................................... 3 22 23
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Provision (benefit) for income taxes.......................................... $ -- $ (479) $ 250
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Effective tax rate............................................................ 0% 37% 37%
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