Summary of Significant Accounting Policies

6 Months Ended

Mar. 28, 2020

Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The condensed consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September 28, 2019 (the “2019 Form 10-K”).

The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. A 14th week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters. The Company’s fiscal years 2020 and 2019 span 52 weeks each. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

Recently Adopted Accounting Pronouncements

Leases

At the beginning of the first quarter of 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted the new leases standard utilizing the modified retrospective transition method, under which amounts in prior periods presented were not restated. For contracts existing at the time of adoption, the Company elected to not reassess (i) whether any are or contain leases, (ii) lease classification, and (iii) initial direct costs. Upon adoption, the Company recorded $7.5 billion of right-of-use (“ROU”) assets and $8.1 billion of lease liabilities on its Condensed Consolidated Balance Sheet.

Hedging

At the beginning of the first quarter of 2020, the Company adopted FASB ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, eliminates the separate measurement and presentation of hedge ineffectiveness, and updates disclosure requirements related to hedging. The Company adopted ASU 2017-12 utilizing the modified retrospective transition method. Upon adoption, the Company recorded a $136 million increase in accumulated other comprehensive income/(loss) (“AOCI”) and a corresponding decrease in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity.

Earnings Per Share

The following table shows the computation of basic and diluted earnings per share for the three- and six-month periods ended March 28, 2020 and March 30, 2019 (net income in millions and shares in thousands):



	Three Months Ended				Six Months Ended
	March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Numerator:
Net income	$	11,249	$	11,561	$	33,485	$	31,526

Denominator:
Weighted-average basic shares outstanding	4,360,101		4,674,071		4,387,570		4,704,945
Effect of dilutive securities	44,590		26,575		42,078		32,004
Weighted-average diluted shares	4,404,691		4,700,646		4,429,648		4,736,949

Basic earnings per share	$	2.58	$	2.47	$	7.63	$	6.70
Diluted earnings per share	$	2.55	$	2.46	$	7.56	$	6.66

Potentially dilutive securities representing 31.1 million and 30.0 million shares of common stock were excluded from the computation of diluted earnings per share for the three- and six-month periods ended March 30, 2019, respectively, because their effect would have been antidilutive.