Apple 2004 Annual Report Download - page 92

Download and view the complete annual report

Please find page 92 of the 2004 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (35% in 2004,
2003, and 2002) to income before provision for income taxes, is as follows (in millions):
The Internal Revenue Service (IRS) has completed its field audit of the Company's federal income tax returns for all years prior to 2001 and
proposed certain adjustments. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues
for these years have been resolved. In addition, the Company is also 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. Should any issues addressed in the Company's tax audits be resolved in a manner not consistent with
management's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.
Note 7—Shareholders' Equity
Restricted Stock Units
During fiscal 2004, the Company's Board of Directors approved the grant of 2.515 million restricted stock units to selected members of the
Company's senior management, excluding its Chief Executive Officer (CEO). These restricted stock units generally vest in two equal
installments on the second and fourth anniversaries of the date of grant. The Company has recorded the $64.4 million value of these restricted
stock units as a component of shareholders' equity and will amortize that amount on a straight-line basis over the 4 year requisite service period.
The value of the restricted stock units was based on the closing market price of the Company's common stock on the date of grant. Quarterly
amortization will be approximately $4.0 million, of which approximately $0.5 million will be included in cost of sales; $1.3 million will be
included in research and development expense; and the remaining $2.2 million will be included in selling, general and administrative expense.
The restricted stock units have been included in the calculation of diluted earnings per share utilizing the treasury stock method.
CEO Restricted Stock Award
On March 19, 2003, the Company entered into an Option Cancellation and Restricted Stock Award Agreement (the Agreement) with Mr. Steven
P. Jobs, its CEO. The Agreement cancelled stock option
88
2004
2003
2002
Computed expected tax
$
134
$
32
$
30
State taxes, net of federal effect
(5
)
(4
)
7
Indefinitely invested earnings of foreign subsidiaries
(31
)
(13
)
—
Nondeductible executive compensation
10
5
(1
)
Stock repurchase
—
(
2
)
—
Purchase accounting and asset acquisitions
—
4
3
Change in valuation allowance
—
—
(
16
)
Research and development credit, net
(5
)
(7
)
(8
)
Nondeductible expenses
2
6
4
Other items
2
3
3
Provision for income taxes
$
107
$
24
$
22
Effective tax rate
28
%
26
%
25
%