Apple 2005 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2005 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
As required under SFAS No. 123, the pro forma effects of stock-based compensation on net income and earnings per common share for
employee stock options granted and employee stock purchase plan share purchases have been estimated at the date of grant and beginning of
the period, respectively, using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the
options and shares is amortized to pro forma net income over the options’ vesting period and the shares’ plan period.
The Company’s pro forma information for each of the last three fiscal years follows (in millions, except per share amounts):
In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment , which addresses the accounting
for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise
or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity
instruments. SFAS No. 123R eliminates the ability to account for share-
based compensation transactions using the intrinsic value method under
APB Opinion No. 25, and requires instead that such transactions be accounted for using a fair-value-based method. In January 2005, the SEC
issued SAB No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R will be effective for the
Company beginning in the first quarter of its fiscal 2006. The Company’s assessment of the estimated stock-based compensation expense is
affected by the Company’s stock price as well as assumptions regarding a number of complex variables and the related tax impact. These
variables include, but are not limited to, the Company’
s stock price, volatility, and employee stock option exercise behaviors and the related tax
impact. The Company will recognize stock-based compensation expense on all awards on a straight-line basis over the requisite service period
using the modified prospective method. Although the adoption of SFAS No. 123R is expected to have a material effect on the Company’s
results of operations, future changes to various assumptions used to determine the fair-value of awards issued or the amount and type of equity
awards granted create uncertainty as to whether future stock-based compensation expense will be similar to the historical SFAS No. 123 pro
forma expense.
70
2005
2004
2003
Net income
—as reported
$
1,335
$
276
$
69
Add: Stock-based employee compensation expense included in reported
net income, net of tax
38
33
15
Deduct: Stock-based employee compensation expense determined under
the fair value based method for all awards, net of tax
(114
)
(141
)
(181
)
Net income (loss)
—pro forma
$
1,259
$
168
$
(97
)
Net income per common share
—as reported
Basic
$
1.65
$
0.37
$
0.10
Diluted
$
1.56
$
0.36
$
0.09
Net income (loss) per common share
—
pro forma
Basic
$
1.56
$
0.23
$
(0.13
)
Diluted
$
1.47
$
0.22
$
(0.13
)