Apple 2011 Annual Report Download - page 66

As of September 24, 2011, the total amount of gross unrecognized tax benefits was $1.4 billion, of which $563 million, if recognized, would
affect the Company’
s effective tax rate. As of September 25, 2010, the total amount of gross unrecognized tax benefits was $943 million, of
which $404 million, if recognized, would affect the Company’s effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the three years ended
September 24, 2011, 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 24,
2011 and September 25, 2010, the total amount of gross interest and penalties accrued was $261 million and $247 million, respectively, which is
classified as non-
current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest expense
in 2011 and 2009 of $14 million and $64 million, respectively, and in 2010 the Company recognized an interest benefit of $43 million.
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. 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 6 – Shareholders’ Equity and Share-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
64
2011
2010
2009
Beginning Balance
$
943
971
$
506
Increases related to tax positions taken during a prior year
49
61
341
Decreases related to tax positions taken during a prior year
(39
)
(224
)
(24
)
Increases related to tax positions taken during the current year
425
240
151
Decreases related to settlements with taxing authorities
0
(102
)
0
Decreases related to expiration of statute of limitations
(3
)
(3
)
(3
)
Ending Balance
$
1,375
$
943
$
971