Apple 2009 Annual Report Download - page 81

Table of Contents
to administrative appeals. The IRS is currently examining the 2004-
2006 years. In addition, the Company is also subject to audits by state, local
and foreign tax authorities. In major states and major foreign jurisdictions, the years subsequent to 1988 and 2000, respectively, generally remain
open and could be subject to examination by the taxing authorities.
Management believes that an 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. If any issues addressed in the Company’
s tax audits are 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. Although timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that tax
audit resolutions could reduce its unrecognized tax benefits by between $105 million and $145 million in the next 12 months.
Note 7 – Shareholders’ Equity and Stock-Based Compensation
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.
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to
revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’
equity but are excluded from net income. The
Company’
s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as
their functional currency, unrealized gains and losses on marketable securities categorized as available-for-
sale, and net deferred gains and losses
on certain derivative instruments accounted for as cash flow hedges.
The following table summarizes the components of accumulated other comprehensive income, net of taxes, as of the three years ended
September 26, 2009 (in millions):
The change in fair value of available-for-
sale securities included in other comprehensive income was $118 million, $(63) million and $(7)
million, net of taxes in 2009, 2008 and 2007, respectively. The tax effect related to the change in unrealized gain/loss on available-for-
sale
securities was $(78) million, $42 million and $4 million for 2009, 2008 and 2007, respectively.
The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the
three years ended September 26, 2009 (in millions):
78
2009
2008
2007
Net unrealized gains/losses on available
-
for
-
sale securities
$
48
$
(70
)
$
(7
)
Net unrecognized gains on derivative instruments
31
19
—
Cumulative foreign currency translation
5
59
70
Accumulated other comprehensive income
$
84
$
8
$
63
2009
2008
2007
Changes in fair value of derivatives
$
90
$
7
$
(1)
Adjustment for net gains/losses realized and included in net income
(78
)
12
(2)
Change in unrecognized gains/losses on derivative instruments
$
12
$
19
$
(3)