Apple 2012 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 of the 2012 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 88

  • 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

customers. For third-party applications sold through the App Store and Mac App Store and certain digital content
sold through the iTunes Store, the Company does not determine the selling price of the products and is not the
primary obligor to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in
net sales only the commission it retains from each sale. The portion of the gross amount billed to customers that
is remitted by the Company to third-party app developers and certain digital content owners is not reflected in the
Company’s Consolidated Statements of Operations.
The Company records deferred revenue when it receives payments in advance of the delivery of products or the
performance of services. This includes amounts that have been deferred for unspecified and specified software
upgrade rights and non-software services that are attached to hardware and software products. The Company
sells gift cards redeemable at its retail and online stores, and also sells gift cards redeemable on the iTunes Store
for the purchase of digital content and software. The Company records deferred revenue upon the sale of the
card, which is relieved upon redemption of the card by the customer. Revenue from AppleCare service and
support contracts is deferred and recognized over the service coverage periods. AppleCare service and support
contracts typically include extended phone support, repair services, web-based support resources and diagnostic
tools offered under the Company’s standard limited warranty.
The Company records reductions to revenue for estimated commitments related to price protection and other
customer incentive programs. For transactions involving price protection, the Company recognizes revenue net
of the estimated amount to be refunded. For the Company’s other customer incentive programs, the estimated
cost of these programs is recognized at the later of the date at which the Company has sold the product or the
date at which the program is offered. The Company also records reductions to revenue for expected future
product returns based on the Company’s historical experience. Revenue is recorded net of taxes collected from
customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities
until remitted to the relevant government authority.
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements that include hardware products containing software essential to the hardware
product’s functionality, undelivered software elements that relate to the hardware product’s essential software,
and undelivered non-software services, the Company allocates revenue to all deliverables based on their relative
selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for
allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party
evidence of selling price (“TPE”), and (iii) best estimate of selling price (“ESP”). VSOE generally exists only
when the Company sells the deliverable separately and is the price actually charged by the Company for that
deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they
were sold regularly on a stand-alone basis. For multi-element arrangements accounted for in accordance with
industry specific software accounting guidance, the Company allocates revenue to all deliverables based on the
VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are
delivered.
For sales of qualifying versions of iPhone, iPad and iPod touch (“iOS devices”), Mac and Apple TV, the
Company has indicated it may from time to time provide future unspecified software upgrades and features to the
essential software bundled with each of these hardware products free of charge to customers. Essential software
for iOS devices includes iOS and related applications and for Mac includes OS X, related applications and iLife.
The Company also provides various non-software services to owners of qualifying versions of iOS devices and
Mac. The Company has identified up to three deliverables regularly included in arrangements involving the sale
of these devices. The first deliverable is the hardware and software essential to the functionality of the hardware
device delivered at the time of sale. The second deliverable is the embedded right included with the purchase of
iOS devices, Mac and Apple TV to receive on a when-and-if-available basis, future unspecified software
upgrades and features relating to the product’s essential software. The third deliverable is the non-software
services to be provided to qualifying versions of iOS devices and Mac. The Company allocates revenue between
48