Apple 2009 Annual Report Download - page 80

Download and view the complete annual report

Please find page 80 of the 2009 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

Table of Contents
position will be sustained upon examination. If a tax position meets the more-likely-than-
not recognition threshold it is then measured to
determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement. Upon adoption of these new principles, the Company’
s cumulative
effect of a change in accounting principle resulted in an increase to retained earnings of $11 million. The Company had historically classified
interest and penalties and unrecognized tax benefits as current liabilities. Beginning with the adoption of these new principles, the Company
classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year
as non-
current liabilities in the Consolidated Balance Sheets. The total amount of gross unrecognized tax benefits as of the date of adoption was
$475 million, of which $209 million, if recognized, would affect the Company’s effective tax rate.
The Company’s total gross unrecognized tax benefits are classified as non-
current liabilities in the Consolidated Balance Sheets. As of
September 26, 2009, the total amount of gross unrecognized tax benefits was $971 million, of which $307 million, if recognized, would affect
the Company’
s effective tax rate. As of September 27, 2008, the total amount of gross unrecognized tax benefits was $506 million, of which
$253 million, if recognized, would affect the Company’s effective tax rate.
On May 27, 2009, the United States Court of Appeals for the Ninth Circuit issued its ruling in the case of Xilinx, Inc. v. Commissioner
, holding
that stock-
based compensation is required to be included in certain transfer pricing arrangements between a U.S. company and its offshore
subsidiary. As a result of the ruling in this case, the Company increased its liability for unrecognized tax benefits by approximately $86 million
and decreased shareholders’ equity by approximately $78 million in the year ended September 26, 2009.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the two years ended
September 26, 2009, is as follows (in millions):
The Company’
s policy to include interest and penalties related to unrecognized tax benefits within the provision for income taxes did not change
as a result of adopting the new accounting principles on accounting for uncertain tax positions in 2008. As of the date of adoption, the Company
had accrued $203 million for the gross interest and penalties relating to unrecognized tax benefits. As of September 26, 2009 and September 27,
2008, the total amount of gross interest and penalties accrued was $291 million and $219 million, respectively, which is classified as non-
current
liabilities in the Consolidated Balance Sheets. In 2009 and 2008, the Company recognized interest expense in connection with tax matters of $64
million and $16 million, respectively.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. For
U.S. federal income tax purposes, all years prior to 2002 are closed. The years 2002-
2003 have been examined by the Internal Revenue Service
(the “IRS”) and disputed issues have been taken
77
Balance as of September 30, 2007
$
475
Increases related to tax positions taken during a prior period
27
Decreases related to tax positions taken during a prior period
(70
)
Increases related to tax positions taken during the current period
85
Decreases related to settlements with taxing authorities
—
Decreases related to expiration of statute of limitations
(11
)
Balance as of September 27, 2008
506
Increases related to tax positions taken during a prior period
341
Decreases related to tax positions taken during a prior period
(24
)
Increases related to tax positions taken during the current period
151
Decreases related to settlements with taxing authorities
—
Decreases related to expiration of statute of limitations
(3
)
Balance as of September 26, 2009
$
971