Apple 2012 Annual Report Download - page 52

the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially
dilutive securities.
The following table shows the computation of basic and diluted earnings per share for 2012, 2011, and 2010 (in
thousands, except net income in millions and per share amounts):
2012 2011 2010
Numerator:
Net income ................................................. $ 41,733 $ 25,922 $ 14,013
Denominator:
Weighted-average shares outstanding ............................ 934,818 924,258 909,461
Effect of dilutive securities .................................... 10,537 12,387 15,251
Weighted-average diluted shares ................................ 945,355 936,645 924,712
Basic earnings per share ........................................... $ 44.64 $ 28.05 $ 15.41
Diluted earnings per share ......................................... $ 44.15 $ 27.68 $ 15.15
Potentially dilutive securities representing 1.0 million, 1.7 million and 1.6 million shares of common stock for
2012, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per 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 marketable debt and equity securities have been classified and accounted for as
available-for-sale. Management determines the appropriate classification of its investments at the time of
purchase and reevaluates the designations at 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 debt securities with maturities of 12 months or less are classified as short-term and marketable debt
securities with maturities greater than 12 months are classified as long-term. The Company classifies its
marketable equity securities, including mutual funds, as either short-term or long-term based on the nature of
each security and its availability for use in current operations. The Company’s marketable debt and equity
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.
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 (“AOCI”) in shareholders’ equity and reclassified into
income 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, if any, is recognized in current income. 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 income. 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,
both the net gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk are recognized in earnings in the current period. The Company had no fair value
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