Apple 2015 Annual Report Download - page 49

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The following table shows the computation of basic and diluted earnings per share for 2015, 2014 and 2013 (net income in millions and
shares in thousands):
2015 2014 2013
Numerator:
Net income $ 53,394 $ 39,510 $ 37,037
Denominator:
Weighted-average shares outstanding 5,753,421 6,085,572 6,477,320
Effect of dilutive securities 39,648 37,091 44,314
Weighted-average diluted shares 5,793,069 6,122,663 6,521,634
Basic earnings per share $ 9.28 $ 6.49 $ 5.72
Diluted earnings per share $ 9.22 $ 6.45 $ 5.68
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share.
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 classifications 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. Marketable equity securities, including mutual funds, are classified 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 unrealized gains and losses, net of taxes, reported as a component of
accumulated other comprehensive income (“AOCI”) in shareholders’ equity, with the exception of unrealized losses believed to be other-
than-temporary which are reported in earnings in the current period. 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 AOCI 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, if any, is recognized in earnings in the current period. 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, both the net gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item are recognized in
earnings in the current period.
For derivative instruments and foreign currency debt that hedge the exposure to changes in foreign currency exchange rates used for
translation of the net investment in a foreign operation and that are designated as a net investment hedge, the net gain or loss on the
effective portion of the derivative instrument is reported in the same manner as a foreign currency translation adjustment. For forward
exchange contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward
carry component from its definition of effectiveness. Accordingly, any gains or losses related to this forward carry component are
recognized in earnings in the current period.
Derivatives that do not qualify as hedges are adjusted to fair value through earnings in the current period.
Apple Inc. | 2015 Form 10-K | 47