Apple 2007 Annual Report Download - page 53

Other Income and Expense
Other income and expense for each of the last three fiscal years are as follows (in millions):
Total other income and expense increased $234 million or 64% to $599 million during 2007 as compared to $365 million and $165 million in
2006 and 2005, respectively. The increase in 2007 is attributable primarily to increased interest received from higher cash and short-term
investment balances and stronger investment yields resulting from higher average market interest rates partially offset by one less week of
interest income earned in 2007. The weighted average interest rate earned by the Company on its cash, cash equivalents, and short-term
investments increased to 5.27% in 2007 as compared to the 4.58% and 2.70% rates earned during 2006 and 2005, respectively. The current year
increase in interest income was partially offset by higher other expense, which was primarily associated with higher foreign currency hedging
expenses. During 2007, 2006 and 2005, the Company had no debt outstanding and accordingly did not incur any interest expense.
Provision for Income Taxes
The Company's effective tax rate for the year ended September 29, 2007 was 30%. The Company's effective rate differs from the statutory
federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such
earnings are intended to be indefinitely reinvested outside the U.S. In addition, the Company recorded a tax benefit of $63 million due to the
settlement of prior year audits in the U.S.
As of September 29, 2007, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of
$1.1 billion before being offset against certain deferred liabilities and a valuation allowance for presentation on the Company's balance sheet.
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. As of
September 29, 2007 and September 30, 2006 a valuation allowance of $5 million was recorded against the deferred tax asset for the benefits of
state operating losses that may not be realized. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by
assessing the need for and amount of the valuation allowance.
The Internal Revenue Service ("IRS") has completed its field audit of the Company's federal income tax returns for the years 2002 through 2003
and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. All IRS audit
issues for years prior to 2002 have been resolved. In addition, the Company is 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.
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities
-including an amendment of FASB Statement No. 115 ("SFAS No. 159"). SFAS No. 159 allows companies to choose to
elect measuring eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. SFAS
49
September 29,
2007
September 30,
2006
September 24,
2005
Interest income
$
647
$
394
$
183
Other income (expense), net
(48
)
(29
)
(18
)
Total other income and expense
$
599
$
365
$
165