Apple 2000 Annual Report Download - page 55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (35% in 2000,
1999, and 1998) to income before provision for income taxes, is as follows (in millions):
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 most of the issues for these years have been resolved, certain issues still remain in dispute and are being contested by the Company.
Management believes adequate provision has been made for any adjustments that may result from tax examinations.
NOTE 6--SHAREHOLDERS' EQUITY
STOCK REPURCHASE PLAN
In July 1999, the Company's Board of Directors authorized a plan for the Company to repurchase up to $500 million of its common stock. This
repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time.
During 2000, the Company repurchased a total of 2.55 million shares of its common stock at a cost of $116 million. Since inception of the plan,
the Company has repurchased a total of 5.05 million shares of its common stock at a cost of $191 million.
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 nonvoting convertible preferred stock ("preferred stock") for $150 million.
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. Additionally, 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. On September 15, 2000, approximately 74,000 shares of preferred stock were converted to 9 million shares of
the Company's common stock.
52
2000 1999 1998
-------- -------- --------
Computed expected tax.................................. $382 $236 $115
State taxes, net of federal effect..................... 15 12 10
Indefinitely invested earnings of foreign
subsidiaries......................................... (82) (29) (15)
Nondeductible executive compensation................... 32 -- 8
Change in valuation allowance.......................... (27) (153) (97)
Other individually immaterial items.................... (14) 9 (1)
---- ---- ----
Provision for income taxes............................. $306 $ 75 $ 20
==== ==== ====
Effective tax rate..................................... 28% 11% 6%