Apple 2006 Annual Report Download - page 100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7—Income Taxes (Continued)
approximately $4.1 billion of the Company’s cash, cash equivalents, and short-term investments were held by foreign subsidiaries and are
generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on
repatriation to the U.S. The Company’s consolidated financial statements provide for any related tax liability on amounts that may be
repatriated, aside from undistributed earnings of certain of the Company’s foreign subsidiaries that are intended to be indefinitely reinvested in
operations outside the U.S. U.S. income taxes have not been provided on a cumulative total of $823 million of such earnings. It is not
practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.
On October 22, 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed into law. The AJCA included a provision for the
deduction of 85% of certain foreign earnings that were repatriated, as defined in the AJCA, within a specified time frame. Among other
requirements, dividends qualifying for the 85% deduction must be reinvested in the United States in certain qualified investments pursuant to a
domestic reinvestment plan approved by the Chief Executive Officer (“CEO”) and Board of Directors. During 2006, the Company repatriated
approximately $1.6 billion of foreign earnings. Of the earnings repatriated, $755 million is eligible for the reduced tax rate provided by the
AJCA. Accordingly, the Company recorded a tax charge of $51 million related to the repatriation of foreign earnings under the provisions of
the AJCA. In addition, the Company recorded a tax benefit of $71 million resulting from the implementation of tax planning strategies to
recognize deferred tax assets that were previously not recognizable within certain foreign subsidiaries.
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 30, 2006 and September 24, 2005, the significant components of the Company’s deferred tax assets and liabilities were (in
millions):
(1)
See Note 2, “Restatement of Consolidated Financial Statements.”
99
2006
2005
As Restated (1)
Deferred tax assets:
Accrued liabilities and other reserves
$
485
$
321
Tax losses and credits
55
262
Basis of capital assets and investments
124
96
Accounts receivable and inventory reserves
45
36
Other
30
17
Total deferred tax assets
739
732
Less valuation allowance
5
5
Net deferred tax assets
734
727
Deferred tax liabilities:
Unremitted earnings of subsidiaries
514
557
Total deferred tax liabilities
514
557
Net deferred tax asset
$
220
$
170