Apple 2012 Annual Report Download - page 64

The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties,
for 2012, 2011, and 2010, is as follows (in millions):
2012 2011 2010
Beginning Balance ..................................................... $1,375 $ 943 $ 971
Increases related to tax positions taken during a prior year . . . . . . . . . . . . . . . . . . 340 49 61
Decreases related to tax positions taken during a prior year ................. (107) (39) (224)
Increases related to tax positions taken during the current year . . . . . . . . . . . . . . 467 425 240
Decreases related to settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . (3) 0 (102)
Decreases related to expiration of statute of limitations .................... (10) (3) (3)
Ending Balance ........................................................ $2,062 $1,375 $ 943
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income
taxes. As of September 29, 2012 and September 24, 2011, the total amount of gross interest and penalties accrued
was $401 million and $261 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 2012 and 2011 of
$140 million and $14 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 1989 and 2002, 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 believes it is reasonably possible that tax audit
resolutions could reduce its unrecognized tax benefits by between $120 million and $170 million 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.
Dividend and Stock Repurchase Program
In 2012, the Board of Directors of the Company approved a dividend policy pursuant to which it plans to make,
subject to subsequent declaration, quarterly dividends of $2.65 per share. On July 24, 2012, the Board of
Directors declared a dividend of $2.65 per share to shareholders of record as of the close of business on
August 13, 2012. The Company paid $2.5 billion in conjunction with this dividend on August 16, 2012. No
dividends were declared in the first three quarters of 2012 or in 2011 and 2010.
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