Apple 2005 Annual Report Download - page 83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6—Income Taxes (Continued)
On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a provision for the deduction of 85%
of certain foreign earnings that are repatriated, as defined in the AJCA. The legislation provided the Company with the option to apply this
provision to repatriations of qualifying earnings in either 2005 or 2006. The Company is continuing to evaluate the effects of the repatriation
provision and expects to complete the evaluation in 2006. A maximum of $755 million may be eligible for repatriation under the reduced tax
rate provided by AJCA. However, given the uncertainties and complexities of the repatriation provision and the Company’s continuing
evaluation, the Company has not yet determined the amount that may be repatriated or the related potential income tax effects of such
repatriation.
Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between
the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using
enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
As of September 24, 2005 and September 25, 2004, the significant components of the Company’s deferred tax assets and liabilities were (in
millions):
As of September 24, 2005, the Company had operating loss carryforwards for federal tax purposes of approximately $62 million, which expire
from 2011 through 2024. A portion of these carryforwards was acquired from the Company’s previous acquisitions, 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 $206 million and which expire between 2010 and 2025. The
remaining benefits from tax losses and credits do not expire. As of September 24, 2005 and September 25, 2004, a valuation allowance of $5
million and $30 million, respectively, was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The
remaining valuation allowance relates principally to the state operating losses. 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.
81
2005
2004
Deferred tax assets:
Accrued liabilities and other reserves
$
321
$
195
Tax losses and credits
305
329
Basis of capital assets and investments
96
65
Accounts receivable and inventory reserves
36
32
Other
9
26
Total deferred tax assets
767
647
Less valuation allowance
5
30
Net deferred tax assets
762
617
Deferred tax liabilities:
Unremitted earnings of subsidiaries
557
413
Total deferred tax liabilities
557
413
Net deferred tax asset
$
205
$
204