Apple 2010 Annual Report Download - page 58

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Table of Contents
Potentially dilutive securities include outstanding stock options, shares to be purchased under the employee stock purchase plan and unvested
RSUs. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common 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 potentially dilutive securities.
The following table sets forth the computation of basic and diluted earnings per common share for the three years ended September 25, 2010 (in
thousands, except net income in millions and per share amounts):
Potentially dilutive securities representing 1.6 million, 12.6 million and 10.3 million shares of common stock for 2010, 2009 and 2008,
respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been
antidilutive.
Financial Instruments
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’
s
debt and marketable equity securities have been classified and accounted for as available-for-
sale. Management determines the appropriate
classification of its investments in debt securities at the time of purchase and reevaluates the available-for-
sale designations as of each balance
sheet date. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’
s underlying
contractual maturity date. Marketable securities with maturities of less than 12 months are classified as short-
term and marketable securities with
maturities greater than 12 months are classified as long-
term. These securities are carried at fair value, with the unrealized gains and losses, net
of taxes, reported as a component of shareholders’ equity. The cost of securities sold is based upon the specific identification method.
Derivative Financial Instruments
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not defined
as hedges must be adjusted to fair value through earnings.
For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the
effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income in
shareholders’
equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion of the gain or loss on the derivative instrument is recognized in current earnings. To receive hedge accounting treatment, cash
flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. For options designated as cash
flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in earnings. For derivative
instruments that hedge the exposure to changes in the fair value of an asset or a liability and that are designated as fair value hedges, the net gain
or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to
55
2010
2009
2008
Numerator:
Net income
$
14,013
$
8,235
$
6,119
Denominator:
Weighted
-
average shares outstanding
909,461
893,016
881,592
Effect of dilutive securities
15,251
13,989
20,547
Weighted
-
average diluted shares
924,712
907,005
902,139
Basic earnings per common share
$
15.41
$
9.22
$
6.94
Diluted earnings per common share
$
15.15
$
9.08
$
6.78