Apple 2006 Annual Report Download - page 54

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judgmental assumptions including volatility, forfeiture rates, and expected option life. If any of the assumptions used in the BSM model change
significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.
In connection with the Company’
s restatement of its consolidated financial statements, the Company has applied judgment in choosing whether
to revise measurement dates for prior option grants. Information regarding the restatement, including ranges of possible additional stock-based
compensation expense if other measurement dates had been selected for certain grants, is set forth in the “Explanatory Note” immediately
preceding Part I, Item 1 and in Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements of
this Form 10-K.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with SFAS
No. 109,
Accounting for Income Taxes , the provision for income taxes is computed using the asset and liability method, under which deferred
tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using
the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or
settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be
realized.
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. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation
allowance would be charged to earnings in the period such determination is made. Similarly, if the Company subsequently realizes deferred tax
assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive
adjustment to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in
estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with
management’s expectations could have a material impact on the Company’s results of operations and financial position.
53