Apple 2010 Annual Report Download - page 73

Table of Contents
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the three years ended
September 25, 2010, is as follows (in millions):
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September 25,
2010 and September 26, 2009, the total amount of gross interest and penalties accrued was $247 million and $291 million, respectively, which is
classified as non-
current liabilities in the Consolidated Balance Sheets. In 2010 and 2009, the Company recognized an interest benefit of $43
million and interest expense of $64 million, respectively, in connection with tax matters.
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 2004 are closed. The Internal Revenue Service (the “IRS”)
has completed its field audit of
the Company’
s federal income tax returns for the years 2004 through 2006 and proposed certain adjustments. The Company has contested
certain of these adjustments through the IRS Appeals Office. The IRS is currently examining the years 2007 through 2009. During the third
quarter of 2010, the Company reached a tax settlement with the IRS for the years 2002 through 2003. In connection with the settlement, the
Company reduced its gross unrecognized tax benefits by $100 million and recognized a $52 million tax benefit in the third quarter of 2010. 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 2001, 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 not certain, the Company does not believe it is reasonably possible that its
unrecognized tax benefits would materially change 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
70
2010 2009 2008
Beginning Balance
$
971
506
$
475
Increases related to tax positions taken during a prior year
61
341
27
Decreases related to tax positions taken during a prior year
(224
)
(24
)
(70
)
Increases related to tax positions taken during the current year
240
151
85
Decreases related to settlements with taxing authorities
(102
)
0
0
Decreases related to expiration of statute of limitations
(3
)
(3
)
(11
)
Ending Balance
$
943
$
971
$
506