Apple 2005 Annual Report Download - page 73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
Earnings Per Common Share
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-
average number of
shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to
common shareholders by the weighted-
average number of shares of common stock outstanding during the period increased to include the
number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been
issued. The dilutive effect of outstanding options, restricted stock and restricted stock units is reflected in diluted earnings per share by
application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’
s common
stock can result in a greater dilutive effect from outstanding options, restricted stock and restricted stock units. Additionally, the exercise of
employee stock options and the vesting of restricted stock and restricted stock units can result in a greater dilutive effect on earnings per share.
The following table sets forth the computation of basic and diluted earnings per share:
Potentially dilutive securities representing approximately 12.4 million, 8.7 million, and 101.6 million shares of common stock for the years
ended September 24, 2005, September 25, 2004, and September 27, 2003, respectively, were excluded from the computation of diluted
earnings per share for these periods because their effect would have been antidilutive. These potentially dilutive securities include stock
options, restricted stock, and restricted stock units.
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 generally accepted accounting principles are recorded as an element of shareholders’ equity but
are excluded from net income. The Company’s other comprehensive income is comprised of foreign currency translation adjustments from
those subsidiaries not using the U.S. dollar as their functional currency, unrealized gains and losses on marketable securities categorized as
available-for-sale, and net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges.
71
2005
2004
2003
Numerator (in millions):
Income before accounting changes
$
1,335
$
276
$
68
Cumulative effects of accounting changes, net of tax
—
—
1
Net income
$
1,335
$
276
$
69
Denominator (in thousands):
Weighted
-
average shares outstanding, excluding unvested restricted stock
808,439
743,180
721,262
Effect of dilutive options, restricted stock units and restricted stock
48,341
31,442
5,670
Denominator for diluted earnings per share
856,780
774,622
726,932
Basic earnings per share before accounting changes
$
1.65
$
0.37
$
0.09
Basic earnings per share after accounting changes
$
1.65
$
0.37
$
0.10
Diluted earnings per share before accounting changes
$
1.56
$
0.36
$
0.09
Diluted earnings per share after accounting changes
$
1.56
$
0.36
$
0.09