Apple (AAPL)

Provision for Income Taxes

The Company’s effective tax rates were 32%, 32% and 30% for 2009, 2008 and 2007, respectively. The Company’s effective rates for these periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

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As of September 26, 2009, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $1.9 billion before being offset against certain deferred liabilities of $2.8 billion for presentation on the Company’s Consolidated Balance Sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the deferred tax assets. The Company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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 taxes in the period such resolution occurs.

Provision for Income Taxes

The Company’s effective tax rates were 29%, 30% and 30% for 2009, 2008 and 2007, respectively. The Company’s effective rates for these periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

As of September 26, 2009, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $3.2 billion before being offset against certain deferred liabilities of $1.8 billion for presentation on the Company’s Consolidated Balance Sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. The Company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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 taxes in the period such resolution occurs.

Provision for Income Taxes

The Company’s effective tax rate was 30% for both the three- and six-month periods ended March 28, 2009, compared to approximately 29% and 31% for the three- and six-month periods ended March 29, 2008, respectively. The Company’s effective rate for these periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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.

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Provision for Income Taxes

The Company’s effective tax rate for the three months ended December 27, 2008 was approximately 30% compared with approximately 32% for the quarter ended December 29, 2007. The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. The lower effective tax rate in the first three months of 2009 as compared to the same quarter in 2008 is due primarily to the Company recording a tax benefit as a result of legislation enacted on October 3, 2008, retroactively reinstating the research and development tax credit.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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.

Provision for Income Taxes

The Company’s effective tax rates were 30% for the years ended September 27, 2008 and September 29, 2007, and 29% for the year ended September 30, 2006. The Company’s effective rates differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

As of September 27, 2008, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $2.1 billion before being offset against certain deferred liabilities for presentation on the Company’s balance sheet. Management believes it is more likely than not that forecasted income, including

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income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. The Company released a valuation allowance of $5 million since it has been determined that it is more likely than not the associated deferred tax assets will be realized. The Company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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.

Provision for Income Taxes

FACE="Times New Roman" SIZE="2">The Company’s effective tax rates were 30% for the years ended September 27, 2008 and September 29, 2007, and 29% for the year ended September 30, 2006. The Company’s effective rates differ
from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

Provision for Income Taxes

The Company’s effective tax rates for the third quarter and the first nine months of 2008 were approximately 29% and 30%, respectively, compared to approximately 32% and 31% for the three and nine months ended June 30, 2007, respectively. The Company’s effective rates for both periods in 2008 differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. The lower effective tax rate for the first nine months of 2008 compared to the same period of 2007 is due primarily to a greater mix of foreign earnings.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. In addition, the Company is subject to audits by state, local, and foreign tax 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.

Provision for Income Taxes

The Company’s effective tax rate for the second quarter and the first six months of 2008 was approximately 29% and 31%, respectively, compared to approximately 32% and 31% for the three and six months ended March 31, 2007, respectively. The Company’s effective rate for both periods in 2008 differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the three months ended December 29, 2007 was approximately 32% compared with approximately 31% for the quarter ended December 30, 2006. The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

The Internal Revenue Service (“IRS”) has completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for the year ended September 29, 2007 was 30%. The Company's effective rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. In addition, the Company recorded a tax benefit of $63 million due to the settlement of prior year audits in the U.S.

As of September 29, 2007, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $1.1 billion before being offset against certain deferred liabilities and a valuation allowance for presentation on the Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. As of September 29, 2007 and September 30, 2006 a valuation allowance of $5 million was recorded against the deferred tax asset for the benefits of state operating losses that may not be realized. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service ("IRS") has completed its field audit of the Company's federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company's tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for the year ended September 29, 2007 was 30%. The Company's effective rate differs from the statutory federal income tax rate of 35%
due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. In addition, the Company
recorded a tax benefit of $63 million due to the settlement of prior year audits in the U.S.

As
of September 29, 2007, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $1.1 billion before being offset against
certain deferred liabilities and a valuation allowance for presentation on the Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may
be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. As of
September 29, 2007 and September 30, 2006 a valuation allowance of $5 million was recorded against the deferred tax asset for the benefits of state operating losses that may not
be realized. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The
Internal Revenue Service ("IRS") has completed its field audit of the Company's federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to
contest certain of these adjustments through the IRS Appeals Office. All IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and
foreign tax authorities. Management believes that 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. Should any issues addressed in the Company's tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the three and nine months ended June 30, 2007 was approximately 32% and 31%, respectively, compared with approximately 29% and 31% for the three and nine months ended July 1, 2006.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% primarily due to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The tax rate for the three months ended June 30, 2007, differs from the same period in 2006 due to a net tax benefit recorded in the third quarter of 2006 resulting from the repatriation of foreign earnings under the American Jobs Creation Act and the implementation of certain tax planning strategies associated with the repatriation.

The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments.  The Company intends to contest certain of these adjustments through the IRS Appeals Office.  Substantially all IRS audit issues for years prior to 2002 have been resolved.  In addition, the Company is subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the three and six months ended March 31, 2007 was approximately 32% and 31%, respectively, compared with approximately 32% for the three and six months ended April 1, 2006. The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. The lower tax rate in the first six months of 2007 versus 2006 is due to a tax

26

benefit resulting from legislation enacted on December 20, 2006, retroactively reinstating the research and development tax credit.

The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. Substantially all IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the three months ended December 30, 2006 was approximately 31% compared with approximately 32% for the quarter ended December 31, 2005.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The lower tax rate in the first three months of 2007 versus 2006 is primarily due to the Company recording a tax benefit as a result of legislation enacted on December 20, 2006, retroactively reinstating the research and development tax credit.

The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments.  The Company intends to contest certain of these adjustments through the IRS Appeals Office.  Substantially all IRS audit issues for years prior to 2002 have been resolved.  In addition, the Company is subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the year ended September 30, 2006 was approximately 29%. The Company’s effective rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. In addition, the Company recorded a tax benefit of $20 million due to settlement of prior year tax audits in the U.S., and a net benefit of $20 million resulting from the dividend repatriation under the American Jobs Creation Act of 2004 (“AJCA”) and international tax planning strategies associated with the repatriation as further discussed below.

As of September 30, 2006, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $739 million before being offset against certain deferred liabilities and a valuation allowance for presentation on the Company’s balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. As of September 30, 2006 and September 24, 2005, a valuation allowance of $5 million was recorded against the deferred tax asset for the benefits of state operating losses that may not be realized. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

On October 22, 2004, the AJCA was signed into law. The AJCA included a provision for the deduction of 85% of certain foreign earnings that were repatriated, as defined in the AJCA, within a specified time frame. Among other requirements, dividends qualifying for the 85% deduction must be reinvested in the United States in certain qualified investments pursuant to a domestic reinvestment plan approved by the CEO and Board of Directors. During 2006, the Company repatriated approximately $1.6 billion of foreign earnings. Of the earnings repatriated, $755 million is eligible for the reduced tax rate provided by the AJCA. Accordingly, the Company recorded a tax charge of $51 million related to the repatriation of foreign earnings under the provisions of the AJCA. In addition, the Company recorded a tax benefit of $71 million resulting from the implementation of tax planning strategies to recognize deferred tax assets that were previously not recognizable within certain foreign subsidiaries.

The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. The Company intends to contest certain of these adjustments through the IRS Appeals Office. Substantially all IRS audit issues for years prior to 2002 have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

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Provision for
Income Taxes

The Company’s effective tax rate for the year ended September 30,
2006 was approximately 29%. The Company’s effective rate differs from the
statutory federal income tax rate of 35% due primarily to certain undistributed
foreign earnings for which no U.S. taxes are provided because such earnings are
intended to be indefinitely reinvested outside the U.S. In addition, the
Company recorded a tax benefit of $20 million due to settlement of prior year
tax audits in the U.S., and a net benefit of $20 million resulting from the
dividend repatriation under the American Jobs Creation Act of 2004 (“AJCA”) and
international tax planning strategies associated with the repatriation as
further discussed below.

As of September 30, 2006, the Company had
deferred tax assets arising from deductible temporary differences, tax losses,
and tax credits of $739 million before being offset against certain deferred
liabilities and a valuation allowance for presentation on the Company’s balance
sheet. Management believes it is more likely than not that forecasted income,
including income that may be generated as a result of certain tax planning
strategies, together with the tax effects of the deferred tax liabilities, will
be sufficient to fully recover the remaining deferred tax assets. As of September 30,
2006 and September 24, 2005, a valuation allowance of $5 million was
recorded against the deferred tax asset for the benefits of state operating
losses that may not be realized. The Company will continue to evaluate the
realizability of the deferred tax assets quarterly by assessing the need for
and amount of the valuation allowance.

On October 22, 2004, the AJCA was signed into law.
The AJCA included a provision for the deduction of 85% of certain foreign
earnings that were repatriated, as defined in the AJCA, within a specified time
frame. Among other requirements, dividends qualifying for the 85% deduction
must be reinvested in the United States in certain qualified investments
pursuant to a domestic reinvestment plan approved by the CEO and Board of
Directors. During 2006, the Company repatriated approximately $1.6 billion of
foreign earnings. Of the earnings repatriated, $755 million is eligible for the
reduced tax rate provided by the AJCA. Accordingly, the Company recorded a tax
charge of $51 million related to the repatriation of foreign earnings under the
provisions of the AJCA. In addition, the Company recorded a tax benefit of $71 million
resulting from the implementation of tax planning strategies to recognize
deferred tax assets that were previously not recognizable within certain
foreign subsidiaries.

The Internal Revenue Service (“IRS”) has substantially
completed its field audit of the Company’s federal income tax returns for the
years 2002 through 2003 and proposed certain adjustments. The Company intends
to contest certain of these adjustments through the IRS Appeals Office. Substantially
all IRS audit issues for years prior to 2002 have been resolved. In addition,
the Company is subject to audits by state, local, and foreign tax authorities. Management
believes that 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. Should any issues addressed in the Company’s tax
audits be 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.

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Provision for Income Taxes

The Company’s effective tax rate for the three and nine months ended July 1, 2006 was approximately 29% and 31%, respectively.  The effective rate for the three and nine months ended July 1, 2006 differs from the same periods in fiscal year 2005 due primarily to a net benefit recognized in the third quarter of 2006 of $24 million resulting from the dividend repatriation under the American Jobs Creation Act of 2004 (“AJCA”) and international tax planning strategies as further discussed below.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S., the AJCA dividend repatriation and implementation of certain tax planning strategies to realize deferred tax assets not previously recognized.

On October 22, 2004, the AJCA was signed into law.  The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA, within a specified time frame. Among other requirements, dividends qualifying for the 85% deduction must be reinvested in the United States in certain qualified investments pursuant to a domestic reinvestment plan approved by the Chief Executive Officer (“CEO”) and Board of Directors. During the third quarter of 2006, the Company initiated a plan to repatriate approximately $1.5 billion of foreign earnings prior to the end of fiscal 2006, of which approximately $1.3 billion was repatriated during the third quarter, and of which $755 million is eligible for the reduced tax rate provided by the AJCA.   Accordingly, the Company recorded a tax charge of $54 million related to the repatriation of foreign earnings under the provisions of the AJCA. In addition, the Company recorded a tax benefit of $78 million resulting from the implementation of tax planning strategies to realize deferred tax assets that were previously not recognizable within certain foreign subsidiaries.

The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003  and proposed certain adjustments.  The Company intends to contest certain of these adjustments through the IRS Appeals Office.  Substantially all IRS audit issues for years prior to

40

2002 have been resolved.  In addition, the Company is subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

Provision for Income Taxes

The Company’s effective tax rate for the three and six-months ended April 1, 2006 was approximately 32%, relatively consistent with the same periods in 2005. The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

The Internal Revenue Service (IRS) has completed its field audit of the Company’s federal income tax returns for all years prior to 2002 and proposed certain adjustments. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues for these years have been resolved. In addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to repatriations of qualifying earnings in fiscal year 2006. The Company is continuing to evaluate the effects of the repatriation provision and expects to complete the evaluation in fiscal year 2006. A maximum of $755 million may be eligible for repatriation under the reduced tax rate provided by AJCA. However, given the uncertainties and complexities of the repatriation provision and the Company’s continuing evaluation, the Company has not yet determined the amount that may be repatriated or the related potential income tax effects of such repatriation.

Provision for Income Taxes

The Company’s effective tax rate for the three months ended December 31, 2005 was approximately 32% compared with approximately 31% for the same period of 2005.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The higher tax rate in the first three months of 2006 versus 2005 is primarily due to an overall increase in earnings as well as a greater mix of earnings in the U.S. 

The Internal Revenue Service (IRS) has completed its field audit of the Company’s federal income tax returns for all years prior to 2002 and proposed certain adjustments.  Certain of these adjustments are being contested through the IRS Appeals Office.  Substantially all IRS audit issues for these years have been resolved.  In addition, the Company is subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law.  The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA.  The Company may elect to apply this provision to repatriations of qualifying earnings in fiscal year 2006.  The Company is continuing to evaluate the effects of the repatriation provision and expects to complete the evaluation in fiscal year 2006.  A maximum of $755 million may be eligible for repatriation under the reduced tax rate provided by AJCA.  However, given the uncertainties and complexities of the repatriation provision and the Company’s continuing evaluation, the Company has not yet determined the amount that may be repatriated or the related potential income tax effects of such repatriation.

The Company’s effective tax rate for the year ended September 24, 2005 was approximately 26%. The Company’s effective rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S., research and development tax credits, and a reduction of certain tax contingency reserves and adjustments to net deferred tax assets. The benefit from adjustments to tax contingency reserves and net deferred tax assets was $67 million. In addition, the Company recorded a $25 million reduction of the valuation allowance associated with deferred tax assets that, in management’s opinion, are now more likely than not to be realized in the future. $14 million of the valuation allowance reduction was recorded as a credit to income tax expense, and the remainder was recorded as a credit to goodwill.

As of September 24, 2005, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $767 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company’s balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of September 24, 2005 and September 25, 2004, a valuation allowance of $5 million and $30 million, respectively, was recorded against the deferred tax asset for the benefits of tax loss carryforwards that may not be realized. The remaining valuation allowance at September 24, 2005 relates principally to certain state operating loss carryforwards. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (IRS) has completed its field audit of the Company’s federal income tax returns for all years prior to 2002 and proposed certain adjustments. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues for these years have been resolved. In addition, the Company is also subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the

40

AJCA. The legislation provided the Company with the option to apply this provision to repatriations of qualifying earnings in either 2005 or 2006. The Company is continuing to evaluate the effects of the repatriation provision and expects to complete the evaluation in 2006. A maximum of $755 million may be eligible for repatriation under the reduced tax rate provided by AJCA. However, given the uncertainties and complexities of the repatriation provision and the Company’s continuing evaluation, the Company has not yet determined the amount that may be repatriated or the related potential income tax effects of such repatriation.

The Company’s effective tax rate for the year ended September 24,
2005 was approximately 26%. The Company’s effective rate differs from the
statutory federal income tax rate of 35% due primarily to certain undistributed
foreign earnings for which no U.S. taxes are provided because such earnings are
intended to be indefinitely reinvested outside the U.S., research and development
tax credits, and a reduction of certain tax contingency reserves and
adjustments to net deferred tax assets. The benefit from adjustments to tax
contingency reserves and net deferred tax assets was $67 million. In addition,
the Company recorded a $25 million reduction of the valuation allowance
associated with deferred tax assets that, in management’s opinion, are now more
likely than not to be realized in the future. $14 million of the valuation
allowance reduction was recorded as a credit to income tax expense, and the
remainder was recorded as a credit to goodwill.

As of September 24, 2005, the Company had
deferred tax assets arising from deductible temporary differences, tax losses,
and tax credits of $767 million before being offset against certain deferred
tax liabilities and a valuation allowance for presentation on the Company’s
balance sheet. Management believes it is more likely than not that forecasted
income, including income that may be generated as a result of certain tax
planning strategies, will be sufficient to fully recover the remaining net
deferred tax assets. As of September 24, 2005 and September 25, 2004,
a valuation allowance of $5 million and $30 million, respectively, was
recorded against the deferred tax asset for the benefits of tax loss
carryforwards that may not be realized. The remaining valuation allowance at September 24,
2005 relates principally to certain state operating loss carryforwards. The
Company will continue to evaluate the realizability of the deferred tax assets
quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (IRS) has completed its
field audit of the Company’s federal income tax returns for all years prior to
2002 and proposed certain adjustments. Certain of these adjustments are being
contested through the IRS Appeals Office. Substantially all IRS audit issues
for these years have been resolved. In addition, the Company is also subject to
audits by state, local, and foreign tax authorities. Management believes that
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. Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004,
the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a provision
for the deduction of 85% of certain foreign earnings that are repatriated, as
defined in the

40

AJCA. The legislation
provided the Company with the option to apply this provision to repatriations
of qualifying earnings in either 2005 or 2006. The Company is continuing to
evaluate the effects of the repatriation provision and expects to complete the
evaluation in 2006. A maximum of $755 million may be eligible for repatriation
under the reduced tax rate provided by AJCA. However, given the uncertainties
and complexities of the repatriation provision and the Company’s continuing
evaluation, the Company has not yet determined the amount that may be
repatriated or the related potential income tax effects of such repatriation.

Provision for Income Taxes

The Company’s effective tax rate for the three and nine months ended June 25, 2005 was approximately 32% compared with approximately 28% for the same periods of 2004.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The higher tax rate in the first nine months of 2005 versus 2004 is due primarily to an overall increase in earnings as well as a greater mix of earnings in the U.S.

The Internal Revenue Service (IRS) has completed its field audit of the Company’s federal income tax returns for all years prior to 2002 and proposed certain adjustments.  Certain of these adjustments are being contested through the IRS Appeals Office.  Substantially all IRS audit issues for these years have been resolved.  In addition, the Company is subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law.  The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA.  The Company may elect to apply this provision to repatriations of qualifying earnings in either fiscal year 2005 or 2006.  The Company is currently evaluating the effects of the repatriation provision and expects to complete the evaluation in fiscal year 2006.  A maximum of $755 million may be eligible for repatriation under the reduced tax rate provided by AJCA.  However, given the uncertainties and complexities of the repatriation provision and the Company’s continuing evaluation, it is not possible at this time to determine the amount that may be repatriated or the related potential income tax effects of such repatriation.

Provision for Income Taxes

The Company’s effective tax rate for the three and six months ended March 26, 2005 was approximately 33% and 32% respectively compared with approximately 28% for the same periods of 2004.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The higher tax rate in the first six months of 2005 versus 2004 is due primarily to an overall increase in earnings as well as a greater mix of earnings in the U.S.

32

Provision for Income Taxes

The Company’s effective tax rate for the first three months of 2005 was approximately 31% compared with approximately 28% for the first three months of 2004.  The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.  The higher tax rate in the first three months of 2005 versus 2004 is due primarily to an overall increase in earnings as well as a greater mix of earnings in the U.S.

The Internal Revenue Service (IRS) has completed its field audit of the Company’s federal income tax returns for all years prior to 2001 and proposed certain adjustments.  Certain of these adjustments are being contested through the IRS Appeals Office.  Substantially all IRS audit issues for these years have been resolved.  In addition, the Company is also subject to audits by state, local, and foreign tax authorities.  Management believes that 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.  Should any issues addressed in the Company’s tax audits be 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.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law.  The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA.  The Company may elect to apply this provision to repatriations of qualifying earnings in either fiscal year 2005 or 2006.  The Company is currently evaluating the effects of the repatriation provision.  An important factor in the Company’s evaluation is additional clarification of key elements of the provision to be issued by the U.S. Treasury Department.  Assuming there is sufficient guidance from the U.S. Treasury Department, the Company expects to complete its evaluation of the effects of the repatriation provision no later than the fourth quarter of 2005.  A maximum of $755 million may be eligible for repatriation.  However, given the preliminary stage of the Company’s evaluation, it is not possible at this time to determine the amount that may be repatriated or the related potential income tax effects of such repatriation.

Provision for Income Taxes

The Company's effective tax rate for the year ended September 25, 2004 was approximately 28%. The Company's effective rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to

40

be indefinitely reinvested outside the U.S. As of September 25, 2004, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $647 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of September 25, 2004, a valuation allowance of $30 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The Internal Revenue Service (IRS) has completed its field audit of the Company's federal income tax returns for all years prior to 2001 and proposed certain adjustments. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues for these years have been resolved. In addition, the Company is also subject to audits by state, local, and foreign tax authorities. Management believes that 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. Should any issues addressed in the Company's tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for the year ended September 25, 2004 was approximately 28%. The Company's effective rate differs from the statutory federal income tax
rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to

40

be
indefinitely reinvested outside the U.S. As of September 25, 2004, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of
$647 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company's balance sheet. Management believes it is more likely than
not that forecasted income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of
September 25, 2004, a valuation allowance of $30 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance
relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. The
Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

The
Internal Revenue Service (IRS) has completed its field audit of the Company's federal income tax returns for all years prior to 2001 and proposed certain adjustments. Certain of these adjustments
are being contested through the IRS Appeals Office. Substantially all IRS audit issues for these years have been resolved. In addition, the Company is also subject to audits by state, local, and
foreign tax authorities. Management believes that 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. Should any issues addressed in the Company's tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for 2003 was 26% compared to the higher statutory rate due primarily to research and development credits, a non-taxable gain on stock repurchase and certain undistributed foreign earnings for which no U.S. taxes were provided. As of September 27, 2003, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $452 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company's consolidated balance sheet. As of September 27, 2003, a valuation allowance of $30 million was

35

recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

On April 10, 2003, the Internal Revenue Service (IRS) proposed adjustments to the Company's federal income tax returns for the years 1998 through 2000, and the Company has made certain prepayments thereon. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues for years prior to 1998 have been resolved. Management believes that 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. Should any issues addressed in the Company's tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for 2003 was 26% compared to the higher statutory rate due primarily to research and development credits, a non-taxable gain on
stock repurchase and certain undistributed foreign earnings for which no U.S. taxes were provided. As of September 27, 2003, the Company had deferred tax assets arising from deductible
temporary differences, tax losses, and tax credits of $452 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company's
consolidated balance sheet. As of September 27, 2003, a valuation allowance of $30 million was

35

recorded
against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and
other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. Management believes it is more likely than not that forecasted income, including
income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. The Company will continue to evaluate the
realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

On
April 10, 2003, the Internal Revenue Service (IRS) proposed adjustments to the Company's federal income tax returns for the years 1998 through 2000, and the Company has made certain
prepayments thereon. Certain of these adjustments are being contested through the IRS Appeals Office. Substantially all IRS audit issues for years prior to 1998 have been resolved. Management believes
that 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. Should any issues addressed in
the Company's tax audits be 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.

Provision for Income Taxes

The Company's effective tax rate for 2002 was 25% compared to the higher statutory rate due primarily to the research and development credit and the reversal of valuation allowances. As of September 28, 2002, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $369 million before being offset against certain deferred tax liabilities for presentation on the Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of September 28, 2002, a valuation allowance of $30 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.

32

The Internal Revenue Service (IRS) has completed audits of the Company's federal income tax returns through 1997. Substantially all IRS audit issues for years through 1997 have been resolved. Management believes that adequate provision has been made for any adjustments that may result from tax examinations.

Provision for Income Taxes

The Company's effective tax rate for 2002 was 25% compared to the higher statutory rate due primarily to the research and development credit and the reversal of valuation
allowances. As of September 28, 2002, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $369 million before being offset
against certain deferred tax liabilities for presentation on the Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated
as a result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of September 28, 2002, a valuation allowance of $30 million
was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT
and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code. The Company will continue to evaluate the realizability of the deferred tax
assets quarterly by assessing the need for and amount of the valuation allowance.

32

The
Internal Revenue Service (IRS) has completed audits of the Company's federal income tax returns through 1997. Substantially all IRS audit issues for years through 1997 have been resolved.
Management believes that adequate provision has been made for any adjustments that may result from tax examinations.