Apple 2001 Annual Report Download - page 46

As of September 29, 2001, the Company had operating loss carryforwards for federal tax purposes of approximately $116 million, which
expire in 2012 and 2021. This does not include approximately $79 million of remaining operating loss carryforwards acquired from NeXT,
which expire in 2009 - 2012, and the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. The Company
also has Federal credit carryforwards and various state and foreign tax loss and credit carryforwards, the tax effect of which is approximately
$157 million and which expire between 2002 and 2021. The remaining benefits from tax losses and credits do not expire. As of September 29,
2001, a valuation allowance of $33 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized.
The valuation allowance relates primarily to the operating loss carryforwards acquired from NeXT. 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 the tax effects of
the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets.
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A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (35% in 2001,
2000, and 1999) to income (loss) before provision for income taxes, is as follows (in millions):
On February 15, 2001, the Internal Revenue Service (IRS) proposed adjustments to the Company's federal income tax returns for the years
1995 through 1997. The Company disagrees with most of the proposed adjustments and is contesting them through the IRS Appeals Office.
Substantially all IRS audit issues for years prior to 1995 have been resolved. Management believes that adequate provision has been made for
any adjustments that may result from tax examinations.
Note 7—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. During 1999, the Company
repurchased a total of 1.25 million shares of its common stock at a cost of $75 million. During the fourth quarter of 2001, the Company entered
into a forward purchase agreement to acquire 1.5 million shares of its common stock in September of 2003 at an average price of $16.64 per
share for a total cost of $25.5 million. Since inception of the repurchase plan, the Company has repurchased or committed to repurchase a total
of 6.55 million shares of its common stock at a cost of $217 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.
These shares were convertible by Microsoft after August 5, 2000, into shares of Apple common stock at a conversion price of $8.25 per share.
During 2000, 74,250 shares of preferred stock were converted to 9 million shares of the Company's common stock. During 2001, the remaining
75,750 preferred shares were converted into 9.2 million shares of the Company's common stock.
60
Total deferred tax liabilities
521
673
Net deferred tax asset (liability)
$
(45
)
$
(240
)
2001 2000 1999
Computed expected tax (benefit)
$
(18
)
$
382
$
236
State taxes, net of federal effect
(7
)
15
12
Indefinitely invested earnings of foreign subsidiaries
—
(
82
)
(29
)
Nondeductible executive compensation
—
32
—
Purchase accounting and asset acquisitions
10
—
—
Change in valuation allowance
—
(
27
)
(153
)
Research & development credit, net
(5
)
(5
)
—
Other items
5
(9
)
9
Provision for (benefit from) income taxes
$
(15
)
$
306
$
75
Effective tax rate
30%
28%
11%