Apple 2014 Annual Report Download - page 55

Share-based Compensation
The Company recognizes expense related to share-based payment transactions in which it receives employee services in
exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity instruments. Share-based compensation cost for restricted
stock and restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock
on the date of grant. The Company recognizes share-based compensation cost over the award’s requisite service period on a
straight-line basis for time-based RSUs and on a graded basis for RSUs that are contingent on the achievement of performance
metrics. The Company recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’
Equity if an incremental tax benefit is realized. In addition, the Company recognizes the indirect effects of share-based
compensation on R&D tax credits, foreign tax credits and domestic manufacturing deductions in the Consolidated Statements of
Operations. Further information regarding share-based compensation can be found in Note 9, “Benefit Plans” of this Form 10-K.
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are
measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are
expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount
that is believed more likely than not to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the financial statements from such positions are then measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon settlement. See Note 5, “Income Taxes” of this Form 10-K for additional information.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available
to common shareholders by the weighted-average number of shares of common stock outstanding during the period
increased to include the number of additional shares of common stock that would have been outstanding if the potentially
dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased
under the Company’s employee stock purchase plan, unvested restricted stock and unvested RSUs. The dilutive effect of
potentially dilutive securities is reflected in diluted earnings per 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 shows the computation of basic and diluted earnings per share for 2014, 2013 and 2012 (net income in
millions and shares in thousands):
2014 2013 2012
Numerator:
Net income $ 39,510 $ 37,037 $ 41,733
Denominator:
Weighted-average shares outstanding 6,085,572 6,477,320 6,543,726
Effect of dilutive securities 37,091 44,314 73,757
Weighted-average diluted shares 6,122,663 6,521,634 6,617,483
Basic earnings per share $ 6.49 $ 5.72 $ 6.38
Diluted earnings per share $ 6.45 $ 5.68 $ 6.31
Potentially dilutive securities, the effect of which would have been antidilutive, were not significant for 2014, 2013 and 2012.
The Company excluded these securities from the computation of diluted earnings per share.
Apple Inc. | 2014 Form 10-K | 53