Apple 2012 Annual Report Download - page 48

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 mobile communication and media devices, personal computers, 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, as well as through third-party cellular network carriers, wholesalers, retailers and value-added
resellers. In addition, the Company sells a variety of third-party iPhone, iPad, Mac, and iPod compatible products
including application software, and various accessories through its online and retail stores. The Company sells to
consumers, small and mid-sized businesses, and education, enterprise and government 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. Prior period costs associated with the Company’s high-profile retail stores have been reclassified to
conform to the current period’s presentation. Refer to Note 8, “Segment Information and Geographic Data” of
this Form 10-K.
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 2012, 2011 and 2010 ended on September 29, 2012, September 24, 2011, and
September 25, 2010, respectively. An additional week is included in the first fiscal quarter approximately every
six years to realign fiscal quarters with calendar quarters. Fiscal year 2012 spanned 53 weeks, with a 14th week
included in the first quarter of 2012. Fiscal years 2011 and 2010 spanned 52 weeks each. 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.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications,
peripherals, and service and support contracts. The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable.
Product is considered delivered to the customer once it has been shipped and title and risk of loss have been
transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped.
For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the
Company defers revenue until the customer receives the product because the Company retains a portion of the
risk of loss on these sales during transit. The Company recognizes revenue from the sale of hardware products,
software bundled with hardware that is essential to the functionality of the hardware, and third-party digital
content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The
Company recognizes revenue in accordance with industry specific software accounting guidance for the
following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and
(iii) sales of software bundled with hardware not essential to the functionality of the hardware.
For the sale of most third-party products, the Company recognizes revenue based on the gross amount billed to
customers because the Company establishes its own pricing for such products, retains related inventory risk for
physical products, is the primary obligor to the customer and assumes the credit risk for amounts billed to its
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