Apple 2007 Annual Report Download - page 80

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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 also subject to audits by state, local, and foreign tax authorities.
Management believes that adequate provisions have 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. In 2007 and 2006, the Company recorded tax benefits of $63 million and $20 million, respectively, due to the settlement of prior year tax
audits in the U.S.
Note 6—Shareholders' Equity
Preferred Stock
The Company has five million shares of authorized preferred stock, none of which is issued or outstanding. Under the terms of the Company's
Restated Articles of Incorporation, the Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions of
the Company's authorized but unissued shares of preferred stock.
Restricted Stock Units
The Company's Board of Directors has granted RSUs to members of the Company's management team, excluding its CEO. These RSUs
generally vest over four years either at the end of the four-year service period, in two equal installments on the second and fourth anniversaries
of the date of grant, or in equal installments on each of the first through fourth anniversaries of the grant date. Upon vesting, the RSUs will
convert into an equivalent number of shares of common stock. The compensation expense incurred by the Company for RSUs is based on the
closing market price of the Company's common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite
service period. The RSUs have been reflected in the calculation of diluted earnings per share utilizing the treasury stock method.
During 2007 and 2006, 45,000 and 2.47 million, respectively, previously granted RSUs vested. A majority of these vested RSUs were net-share
settled such that the Company withheld shares with value equivalent to the employees' minimum statutory obligation for the applicable income
and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld of approximately 20,000 and
990,000 for 2007 and 2006, respectively, was based on the value of the RSUs on their vesting date as determined by the Company's closing
stock price. Total payments for the employees' tax obligations to the taxing authorities were $3 million and $59 million in 2007 and 2006,
respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. These net-share settlements had the
effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of
the vesting and did not represent an expense to the Company.
CEO Restricted Stock Award
On March 19, 2003, the Company's Board of Directors granted 10 million shares of restricted stock to the Company's CEO that vested on
March 19, 2006. The amount of the restricted stock award expensed by the Company was based on the closing market price of the Company's
common stock on the date of grant and was amortized ratably on a straight-line basis over the three-year requisite service period. Upon vesting
during 2006, the 10 million shares of restricted stock had a fair value of $646.6 million and had grant-date fair value of $7.48 per share. The
restricted stock award was net-share settled such that the Company withheld shares with value equivalent to the CEO's minimum statutory
obligation for the applicable
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