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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”)
designs, manufactures, and markets personal computers,
mobile communication and media devices, and portable digital music players, and sells a variety of related software, services, peripherals,
networking solutions, and third-
party digital content and applications. The Company sells its products worldwide through its retail stores, online
stores, and direct sales force, and third-party cellular network carriers, wholesalers, resellers and value-
added resellers. In addition, the Company
sells a variety of third-party Macintosh (“Mac”),
iPhone, iPad and iPod compatible products including application software, printers, storage
devices, speakers, headphones, and various other accessories and supplies through its online and retail stores. The Company sells to consumer,
small and mid-sized business, education, enterprise, government and creative customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been
eliminated. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements
and accompanying notes. Actual results could differ materially from those estimates. Certain prior year amounts in the consolidated financial
statements and notes thereto have been reclassified to conform to the current year’s presentation.
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company’
s fiscal years 2010, 2009 and
2008 ended on September 25, 2010, September 26, 2009 and September 27, 2008, respectively, and included 52 weeks each. An additional week
is included in the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters. Unless otherwise stated,
references to particular years or quarters refer to the Company’
s fiscal years ended in September and the associated quarters of those fiscal years.
Retrospective Adoption of New Accounting Principles
In September 2009, the Financial Accounting Standards Board (“FASB”)
amended the accounting standards related to revenue recognition for
arrangements with multiple deliverables and arrangements that include software elements (“new accounting principles”).
The new accounting
principles permitted prospective or retrospective adoption, and the Company elected retrospective adoption during the first quarter of 2010.
Under the historical accounting principles, the Company was required to account for sales of both iPhone and Apple TV using subscription
accounting because the Company indicated it might from time-to-
time provide future unspecified software upgrades and features for those
products free of charge. Under subscription accounting, revenue and associated product cost of sales for iPhone and Apple TV were deferred at
the time of sale and recognized on a straight-line basis over each product’
s estimated economic life. This resulted in the deferral of significant
amounts of revenue and cost of sales related to iPhone and Apple TV.
The new accounting principles affect the Company’
s accounting for all past and current sales of iPhone, iPad, Apple TV and for sales of iPod
touch beginning in June 2010. The new accounting principles require the Company to account for the sale of these devices as two deliverables.
The first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale, and the
second deliverable is the right included with the purchase of these devices to receive on a when-and-if-
available basis, future unspecified
software upgrades and features relating to the product’
s essential software. The new accounting principles result in the recognition of a
substantial portion of the revenue and all product costs from
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