Apple Sales New Zealand Annual Financial Statements 24 September 2016 Apple Sales New Zealand Index Page Statement by Directors 1 Independent Auditor's Report 2 Statement of Financial Position 4 Statement of Comprehensive Income 5 Statement of Changes in Equity 6 Statement of Cash Flows 7' Notes to the Financial Statements Apple Sales New Zealand Statement by Directors In the opinion of the directors of Apple Sales New Zealandr the ?nancial statements and notes, on pages 4 to 30: . comply with generally accepted accounting practice in New Zealand; and . give a true and fair view of the ?nancial position of the Company as at 24 September 2016 and the ?nancial performance and cash flows of the Company for the year then ended: The directors believe that proper accounting records have been kept which enable, with reasonable accuracy. the determination of the ?nancial position and ?nancial performance of the Company and facilitate compliance of the ?nancial statements with the Financial Reporting Act 2013. The directors consider that they have taken adequate steps to safeguard the assets of the Company. and to prevent and detect fraud and other irregularities. internal control procedures are also considered to be suf?cient to provide reasonable assurance as to the integrity and reliability of the ?nancial statements. The directors are pleased to present the financial statements of Apple Sales New Zealand for the year ended 24 September 2016. For and on behalf of the board of directors 4246 Aireot 61/2th ul Whittingha Director 16 January 201? .1- Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor's Report To the Shareholders of Apple Sales New Zealand Report on the Financial Statements We have audited the financial statements of Apple Sales New Zealand (“the company”) on pages 4 to 30, which comprises the statement of financial position of Apple Sales New Zealand as at 24 September 2016, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. This report is made solely to the company's shareholders, as a body, in accordance with section 205B of the Companies Act 1993. Our audit has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Directors’ Responsibility for the Financial Statements The directors are responsible on behalf of the company for the preparation of the financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). These auditing standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected, depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we have considered the internal control relevant to the company’s preparation of the financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. Other than in our capacity as auditor we have no relationship with, or interest in Apple Sales New Zealand. Partners and employees of our firm may deal with the company on normal terms within the ordinary course of trading activities of the business of the company. -2- Opinion In our opinion, the financial statements on pages 4 to 30 present fairly, in all material respects, the financial position of Apple Sales New Zealand as at 24 September 2016 and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial reporting Standards with Reduced Disclosure Requirements. Ernst & Young 16 January 2017 Sydney -3- Apple Sales New Zealand Statement of Financial Position as at 24 September 2016 Note Non-current assets Property, plant and equipment 4 Deferred tax assets 5 Current assets Trade and other receivables 6 Other current assets 7 Derivative Financial Instruments 8 Cash and cash equivalents 9 Total assets Non-current liabilities Deferred revenue Other non-current liabilities 10 Current liabilities Trade and other payables 1?1 Provisions 12 Derivative Financial Instruments 8 Deferred revenue Total liabilities Net assets Share capital and reserve Share capital Share-based payment reserve Retained profits Total equity and liabilities 2016 2015 6 477.627 566,019 16,769,716 10,549.947 17.267.543 11,137,966 70,700,094 106,663.260 1.194.605 1,068,500 - 9,669,259 27,266,734 17,263,641 99,161,433 136,664,660 116,446,976 146,002,626 12,235,940 14,326,516 159,460 159,460 12,395,420 14,465,996 44,416,307 65,642,033 26,070,429 16,973,161 4.267.926 - 21,124,904 21,641,346 95,901,566 104,456,542 106,296,966 116,942,540 6,151,990 29,060,066 1 1 1,646,205 665,062 6,503,764 6,151,990 29,060,066 116,446,976 146.002.626 The accompanying accounting poiicies and explanatoqr information form an integrai part of the ?nanciat statements. 4 Apple Sales New Zealand Statement of Comprehensive Income for the ?nancial year ended 24 September 2016 Revenue Cost of sales Gross profit Other (expense)tincome - net Bates, marketing and distribution expenses Administrative expenses Finance income Profit before income tax Income tax expense Profit for the year Other comprehensive income Total comprehensive income for the year Note 13 14 15 16 201E 743.931.246 {729.177.237) 2015 732.011.2513 (701,957,525) 14,754,009 30.353923 (11.503) 523.134 (9.273.474) (5.439.227) (25.015) (54.950:- 1.114.519 1.151.573 9.553.531 26,650,122 (3.049.747) (3.579.373) 6.503.784 17,770,749 5.503.734 17.770.749 The accompanying accounting pottcies and exptanatory information form an tntegrat part of the financial statements. Apple Sales New Zealand Statement of Changes in Equity for the financial year ended 24 September 2016 At 28 September 2014 Total comprehensive income for the year Share-based payment expense At 26 September 2015 At 27 September 2015 Total comprehensive income for the year Share-based payment expense Dividends paid At 24 September 2016 Share based Share payments Retained capital reserve profits Total 1 556,230 10,624,274 11,180,505 17,??0,749 108.832 108.332 1 665,062 28,385,023 291060.086 1 665,062 28.395.023 29,060,086 6.503.784 5,503,784 983,143 983.143 (28,395,023) (28.395023) 1 1.648.205 8.151.990 6,503,784 The accounting poiicies and expianaior?y notes form an iniegrai part of the financiai statements. Apple Sales New Zealand Statement of lCash Flows for the financial year ended 24 September 2016 Operating activities Pro?t before income tax Adjustments for: Grant of equity-settled share options to employees Depreciation Interest income Provisions Loss on disposal of property. plant and equipment Net unrealised foreign exchange Operating cash flows changes before changes in working capital Changes in working capital Trade and other receivables Trade and other payables Other current assets Provision utilized Deferred revenue Changes in working capital Cash flows from operations Income taxes paid Net cash flows generated fromltused in) Operating activities Investing activities Interest received Purchases of property, plant and equipment Net cash flows generated from investing activities Financing activity Dividend paid Net cash flows used in financing activity Net increasel (decrease) in cash and cash equivalent Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2016 2015 9,553,531 25,550,122 983.143 108.832 148.449 146.152 (1,114,519) (1,151,573) 40,356,015 30,491,350 - 1,454 5,097,698 (8,753,155) 55,034,317 47,483,171 37,963.156 (53,551,092) (11,540,551) (489,739) (125,105) (588,138) (31,258,747) (26,344,823) (2,607,022) 3,342,733 47,355,058 (77,831,059) (10,013,204) (6,437,456) 37,341,854 (36,785,343) 1,114,519 1,151,573 (38.257) (54.005) 1.076252 1,097.568 (28,395,023) - (28,395,023) - 10,023,093 (35,587,775) 17,253,541 52,951,415 27,285,734 17,253,541 The accounting policies and explanatory notes form an integral part of the ?nancial statements. Apple Sales New Zealand Notes to Financial Statement for the financial year ended 24 September 2016 2.1 2.1.1 2.2 2.2.1 Corporate information Apple Sales New Zealand (the "Company?) is a company incorporated and domiciled in New Zealand. The address of the registered of?ce is Ci? Level 22. Vero Centre, 48 Shortland Street. Auckland. New Zealand. The principal activities of the Company are those relating to the sale and marketing of mobile communication and media devices. personal computers, and portable digital music players. and sells a variety of related software. services. accessories. networking solutions. and third-party digital content and applications. The immediate and ultimate holding companies are Apple Pty and Apple lnc.. incorporated in Australia and the United States of America, respectively. Related corporations in these ?nancial statements refer to members of the Apple Inc. group of companies. Summary of significant accounting policies Basis of preparation The ?nancial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice GAAP). The Company is a Tier 2 For-pro?t entity and has elected to report in accordance with Tier 2 For-pro?t Accounting Standards. The Company is eligible to report in accordance with Tier 2 For-profit Accounting Standards on the basis that it does not have public accountability and is not a large for-pro?t public sector entity. The ?nancial statements are prepared on the historical cost basis. except for land and buildings classified as property. plant and equipment, derivative financial instruments and available-for-sale (AFB) ?nancial assets that have been measured at fair value. The ?nancial statements are presented in New Zealand dollars The ?nancial statements provide comparative information in respect of the previous period. Changes in accounting policies and disclosures New and amended standards and interpretations Certain other new accounting standards. amendments to accounting standards and interpretations have been published that are not mandatory for the current reporting period. These are not expected to have any material impact on the Company ?nancial statements in subsequent reporting periods. Apple Sales New Zeatand Notes to Financial Statement for the ?nancial year ended 24 September 2015 2.3 2.4 Summary of significant accounting policies lcont?d] Foreign currency Transactions in foreign currencies are measured in the functional currency of the Company and are recorded on initial recognition in the functional currency at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the date of the statement of ?nancial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Differences arising on the settlement or translation of monetary items at the date of statement of ?nancial position are recognised in pro?t or loss. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item Property, plant and equipment All items of property. plant and equipment are initially recorded at cost. The cost of an item of property. plant and equipment is recognised as an asset if. and only if. it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions. improvements and renewals are capitalised and expenditure for maintenance and repairs are charged to the Statement of Comprehensive income as incmred. The depreciable amount of an item of property. plant and equipment is determined after deducting its residual value. Depreciation of the depreciable amount is computed on a straight-line basis over the estimated useful lives of the assets as follows: Leasehold building and improvements - 5 to it) years Furniture and equipment - 3 to years Assets under construction included in property, plant and eq uipment are not depreciated as these assets are not yet available for use. The carrying values of property. plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying vatue may not be recoverable. The residual value, useful life and depreciation method are reviewed at each ?nancial year- end. and adjusted prospectively, ifappropriate. An item of property. plant and equipment is derecognised upon disposal or when no future economic bene?ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised. Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.5 Summary of significant accounting policies [cont?dl impairment of non-financial assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists. or when annual impairment testing for an asset is required, the Company estimates the asset?s recoverable amount. An asset?s recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs of disposal and its value in use. The recoverabte amount is determined for an individual asset. unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use. the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that re?ects Current market assessments of the time value of money and the risks speci?c to the asset. In determining fair value less costs of disposal. an appropriate valuation model is used. These calcutations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses are recognised in pro?t or loss except for assets that are previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. lfsuch indication exists. the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset?s recoverable amount since the last impairment loss was recognised. If that is the case. the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined. net of depreciation. had no impairment loss been recognised previously. Such reversal is recognised in profit or loss unless the asset is measured at revalued amount. in which case the reversal is treated as a revaluation increase. -10- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.6 Summary of significant accounting policies loont?dl Financial assets Initial recognition and measurement Financial assets are recognised on the statement of ?nancial position when, and only when, the Company becomes a party to the contractual provisions of the ?nancial instrument. The Company determines the classification of its financial assets at initial recognition. When ?nancial assets are recognised initially, they are measured at fair value, plus, in the case of ?nancial assets not at fair value through the income statement, directly attributable transaction costs. Subsequent measurement The subsequent measurement of financial assets depends on their classi?cation as follows: (bi Financial assets at fair value through the income statement Financial assets at fair value through the income statement include ?nancial assets held for trading and ?nancial assets designated upon initial recognition at fair value through the income statement. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative ?nancial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by NZ IAS 39. Derivatives. including separated embedded derivatives are also classi?ed as held for trading unless they are designated as effective hedging instruments. Subsequent to initial recognition, ?nancial assets at fair value through the income statement are measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in the income statement. Net gains or net losses on ?nancial assets at fair value through the income statement include exchange differences, interest and dividend income. Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classi?ed as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest rate method, less impairment. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, and through the amortisation process. -11- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.6 Summary of significant accounting policies (cont?d) Financial assets (cont'd) Derecognition A ?nancial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a ?nancial asset in its entirety. the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in the income statement. Ail regular way purchases and sales of ?nancial assets are recognised or derecognised on the trade date the date that the Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. impairment of ?nancier assets The Company assesses at each end of the reporting period whether there is any objective evidence that a ?nancial asset is impaired. Financial assets carried at amortised cost For ?nancial assets carried at amortised cost. the Company ?rst assesses individually whether objective evidence of impairment exists individually for financial assets that are individually signi?cant. or coliectively for ?nancial assets that are not individually signi?cant. It the Company determines that no objective evidence of impairment exists for an individually assessed ?nancial asset, whether signi?cant or not, it includes the asset in a group of ?nancial assets with similar credit risk characteristics and coltectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is. or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on ?nancial assets carried at amortised cost has incurred. the amount of the loss is measured as the difference between the asset?s carrying amount and the present value of estimated future cash ?ows discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the income statement. -12- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.7 2.8 2.9 Summary of significant accounting policies (cont?dj impairment of financial assets (cont'd) Financial assets carried at amortised cost (cont?d) When the asset becomes uncollectible. the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account. the amounts charged to the allowance account are written off against the carrying value of the ?nancial asset. To determine whether there is objective evidence that an impairment loss on ?nancial assets has incurred, the Company considers factors such as the probability of insolvency or signi?cant ?nancial dif?culties of the debtor and default or significant delay in payments. If. in a subsequent period. the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised. the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversat is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand. and short-term. highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value. Provisions and contingent liabilities Provisions are recognised when the Company has a present obligation (legal or constructive} as a result of a past event. it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each balance sheet date of the statement of ?nancial position and adjusted to re?ect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation. the provision is reversed. If the effect of the time value of money is material. provisions are discounted using a current pre tax rate that reflects. where appropriate. the risks specific to the liability. When discounting is used. the increase in the provision due to the passage of time is recognised as a ?nance cost. Where it is not probable that an out?ow of economic bene?ts will be required. or the amount cannot be estimated reliably. the obligation is disclosed as a contingent liability. unless the probability of out?ow of economic bene?ts is remote. Possible obligations. whose existence will only be con?rmed by the occurrence or non-occurrence of one of more future events. are also disclosed as contingent liabilities unless the probability of out?ow of economic bene?ts is remote. -13- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.10 2.11 Summary of significant accounting policies lcont'd) Financial liabilities Financial liabilities are recognised on the statement of financial position when. and only when, the Company becomes a party to the contractual provisions of the ?nancial instrument Financial liabilities are recognised initially at fair value. plus in the case of ?nancial liabilities other than derivatives. directly attributable transaction costs. Subsequent to initial recognition. all financial liabilities are measured at amortised cost using the effective interest method. For financial liabilities other than derivatives. gains and losses are recognised in the income statement when the liabilities are derecognised, and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When an existing ?nancial liability is replaced by another from the same lender on substantially different terms. or the terms of an existing liability are substantially modi?ed. such an exchange or modi?cation is treated as a derecognition of the original liability and the recognition of a new liability. and the difference in the respective carrying amounts is recognised in the income statement. Employee benefits Short-term employee benefits and contributions to defined contribution retirement plans Salaries. annual bonuses. paid annual leave, contributions to de?ned contribution retirement plans and the cost of non-monetary bene?ts are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material. these amounts are stated at their present values. Share-based payments Share-based compensation cost for restricted stock units is measured based on the closing fair market value of Apple lnc.?s common stock on the date of grant. Share- based compensation cost for stock options and employee stock purchase plan rights is estimated at the grant date and offering date, respectively, based on the fair-value as calculated by the Blacki?acholes-Merton option-pricing model. The BSM option- pricing model incorporates various assumptions including expected volatility, expected life and interest rates. The Company recognises share-based compensation cost as expense over the requisite service period. -14- Apple Sales New Zealand Notes to Financial Statement for the financial year ended 24 September 2016 2.11 Summary of significant accounting policies (ccnt'd) Employee benefits {cont?d} Employee stock purchase plan The Employee Stock Purchase Plan (the "Purchase Plan") is a shareholder approved plan under which substantially all employees may purchase Apple Inc. common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee?s payroll deductions under the Purchase Plan are limited to 10% of the employee's compensation and employees may not purchase more than $25.000 of stock during any calendar year. Restricted stock units 2014 Employee Stock Plan In the second quarter of 2014. shareholders approved the 2014 Employee Stock Plan (the ?2014 Plan") and terminated Apple nc.'s authority to grant new awards under the 2003 Employee Stock Plan (the "2003 Plan"). The 2014 Plan provides for broad-based equity grants to employees. including executive of?cers. and permits the granting of RSUs. stock grants. performance-based awards. stock options and stock appreciation rights. as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years. based on continued employment. and are settled upon vesting in shares of Apple Inc?s common stock on a one-lor-one basis. Each share issued with respect to RSUs granted under the 2014 Plan reduces the number of shares available for grant under the plan by two shares. RSUS cancelled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs cancelled or shares withheld. Currently. all RSUs granted under the 2014 Plan have dividend equivalent rights which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. 2003 Employee Stock Plan The 2003 Plan is a shareholder approved plan that provided for broad-based equity grants to employees. including executive of?cers. The 2003 Plan permitted the granting of incentive stock options. non?statutory stock options. RSUs. stock appreciation rights. stock purchase rights and performance-based awards. Options granted under the 2003 Plan generally expire seven to ten years after the grant date and generally become exercisable over a period of four years, based on continued employment. with either annual. semi- annual or quarterly vesting. RSUs granted under the 2003 Plan generally vest over two to four years. based on continued employment and are settled upon vesting in shares of Apple Inc.'s common stock on a one-for-one basis. All RSUs. other than RSUs held by the Chief Executive Of?cer. granted under the 2003 Plan have DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. In the second quarter of 2014, Apple Inc. terminated the authority to grant new awards under the 2003 Plan. -15- Apple Sales New Zealand Notes to Financial Statement for the financial year ended 24 September 2016 2.12 2.13 Summary of significant accounting policies icont?d) Operating lease Operating lease payments are recognised as an expense in pro?t or loss on a straight?line basis over the lease term. Lease incentives received are recognised in pro?t or loss as an integral part of the total lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. Revenue Revenue is recognised to the extent that it is probable that the economic benefits wiil flow to the Company and the revenue and cost. if applicable. can be reliably measured. Sales of Goods Revenue from sales of goods is recognised upon transfer of signi?cant risk and rewards of ownership of the goods to the customer. Revenue is measured at the fair value of the consideration received or receivable. Revenue is not recognised to the extent there are significant uncertainties regarding recovery ofthe consideration due. The Company records reductions to revenue for estimated commitments related to price protection and for customer incentive programs. The estimated cost of these programs is recognised in the period the Company has sold the product and committed to a pian. 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 coltected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Service and support contracts Revenue from service and support contracts is deferred and recognised over the service coverage periods. These contracts typically include extended phone support. repair services, web-based support resources, diagnostic tools. and extend the service coverage offered under the Company's one-year limited warranty. -16- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.13 Summary of significant accounting policies (cont'd) Revenue (cont?d) Revenue Recognition for Arrangements with Muitipie Deiiverabies 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 products 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: vendor-speci?c objective evidence of fair value (ii) third-party evidence of selling price and best estimate of the selling price 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 speci?c software accounting guidance. the Company allocates revenue to all deliverables based on the 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 devices"). Mac. Apple Watch and Apple TV. the Company has indicated it may from time to time provide future unspeci?ed software upgrades to the device?s essential software andior non-software services free of charge. The Company has identified up to three deliverables regularly included in arrangements involving the sale of these devices. The first deliverable. which represents the substantial portion of the allocated sales price. 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 qualifying devices to receive on a when-and-if?available basis, future unspeci?ed software upgrades relating to the product?s essential software. The third deliverable is the non-software services to be provided to qualifying devices. The Company allocates revenue between these deliverables using the relative selling price method. Because the Company has neither VSOE nor TPE for these deliverables. the allocation of revenue is based on the Company's ESPs. Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale provided the other conditions for revenue recognition have been met. Revenue allocated to the embedded unspeci?ed software upgrade rights and the non-software services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and non-software services are expected to be provided. Cost of sales related to delivered hardware and related essential software, including estimated warranty costs. are recognized at the time of sale. Costs incurred to provide non-software services are recognized as cost of sales as incurred. and engineering and sales and marketing costs are recognized as operating expenses as incurred. Service fee income Service fee income is recognised when the services are rendered. interest income Interest income is recognised on an accrual basis. using the effective interest rate method by applying the rate that discounts the estimated future cash receipts through the expected life of the ?nancial instrument to the not carrying amount of the ?nancial asset. -17- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.14 Summary of significant accounting policies (cont'dl income tax Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the date ofthe statement of financial position. Current income taxes are recognised in the income statement except to the extent that the tax relates to items recognised outside the income statement. either in other comprehensive income or directly in equity. Deferred tax Deferred income tax is provided using the liability method on temporary differences at the date of the statement of ?nancial position between the tax bases of assets and liabilities and their carrying amounts for ?nancial reporting purposes. Deferred tax liabilities are recognised for ail temporary differences. except: where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and. at the time of the transaction. affects neither the accounting pro?t nor taxable pro?t or loss;and in respect of taxable temporary differences associated with investments in subsidiaries. associates and interests in joint ventures. where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences. carry forward of unused tax credits and unused tax losses. to the extent that it is probable that taxable profit will be available against which the deductible temporary differences. and the carry fonivard of unused tax credits and unused tax losses can be utilised except: where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and. at the time of the transaction. affects neither the accounting pro?t nor taxable pro?t or loss; and in respect of deductible temporary differences associated with investments in subsidiaries. associates and interests in joint ventures. deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised. -13- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 2.14 3.1 Summary of significant accounting policies (cont'd) income tax (cont?d) The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that suf?cient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each date of the statement of ?nancial position and are recognised to the extent that it has become probable that future taxable pro?t will allow the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled. based on tax rates and tax laws that have been enacted or substantively enacted at the date of the statement of financial position. Deferred income tax relating to items recognised outside the income statement is recognised outside the income statement. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Significant accounting judgments and estimates The preparation of the Company's ?nancial statements requires management to make judgments. estimates and assumptions that affect the reported amounts of revenues. expenses. assets and liabilities, and the accompanying disciosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Significant accounting judgments and estimates income taxes Significant judgment is involved in determining the Company's provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is subject to the agreement by the relevant tax authority. The Company recognises liabilities for such transactions based on estimates of whether additional taxes will be due. Where the ?nal tax outcome of these matters is different from the amounts that were initially recognized. such differences will impact the income tax in the period in which such determination is made. The carrying amount of the Company's tax payables and deferred tax assets respectively as at 24 September 2016 were $9,267,904 (2015: 510.055.020} and (2015: $10,549,943. -19- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 3.1 3.2 Significant accounting judgments and estimates (cont?d) Significant accountingjudgments and estimates (cont'dj Revenue recognition Significant judgment is involved in determining the Company's revenue recognition for arrangements with multiple deliverables. The Company's process for determining ESPs involves management?s judgment. The Company's process considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered change. including the estimated or actual costs incurred to provide non-software services or the estimated lives of the related devices. or should future facts and circumstances lead the Company to consider additional factors. the Company?s ESP for software upgrades and non?software services related to future sales of these devices could change. If the estimated life of one or more of the devices shoutd change. the future rate of amortization of the revenue allocated to the software upgrade rights would also change. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty. At the date of the statement of financial position. that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ?nancial year are discussed below. Provision for product warranties and phone support Under the terms of the Company?s sales agreements. the Company will provide phone support services and rectify any product defects arising within one year of the date of sale. Provision is made using the best estimate of the expected costs of support and settlement under these agreements in respect of sales made within the one year prior to the end ofthe reporting period. The Company estimates the provision based on the Company's historical claim experience. Actual costs incurred could differ from these estimates. The carrying amounts of the Company's provision for product warranties and phone support at the end of the reporting period are disclosed in Note 12 to the financial statements. Share-based payment transactions The Company measures the cost of share-based payment transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determining using the BIack-Scholes option pricing model. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments. which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the vaiuation model including the expected life of the option. volatility and dividend yield and making assumptions about them. The variables used are disclosed in Note 1? to the ?nancial statements. -20- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 4. Property, Plant and Equipment Furniture Leasehold and improvements equipment Total Cost At 27 September 2014 578.184 104.329 682.513 Additions - 64.005 64.005 Disposed (1.454) - (1.454) At 26 September 2015 576.730 168.334 745.064 Additions - 38.257 38.257 Disposed - - - At 24 September 2016 676.730 206.591 783.321 Accumulated depreciation At 27 September 2014 9.154 1.739 10.893 Depreciation charge for the year 111.330 34.822 146.152 At 26 September 2015 120.484 36.561 157.045 Depreciation charge for the year 111.625 36.824 148.449 At 24 September 2016 232.109 73.365 305.494 Net carrying amount At 26 September 2015 456.246 131.773 566.019 At 24 September 2016 344.621 133.206 477.827 5. Deferred tax asset Statement of financial Statement of position comprehensive income 2016 2015 2016 2015 Accruais 7.884.566 5.169.686 2.714.879 1.236.207 Deferred income 7.338.240 8.000.771 (662.531) 1.457.449 Unrealised exchange gain 1.529.309 (2.625.950) 4.155.259 (486,696) Property. plant and equipment 37.601 5.438 32.162 1.994 16.789.716 10.549.947 6.239.769 2.210.954 -21- Appte Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 Trade and other receivables 2016 2015 3 Trade receivables 69.68?.436 96.180.309 Amounts due to - ultimate holding company 900.027 - Allowance for impairment - non-related parties - - Trade receivables, net 70.587.463 96.180.309 Other receivables 112.631 12.482.951 T0.700.094 108,663,260 Other current assets 2016 2015 Deferred cost 1.194.605 1.031.493 Prepayments - 37.007 1.194.605 1.068.500 Classification of financial instruments Assets and Liabilities measured at fair value Forward currencyr contracts are valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models. using present value calculations. The models incorporate various inputs including foreign exchange spot and forward rates. interest rate curves and forward rate curves. -22- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 6. Classification of ?nancial instruments (cont'd) 2016 Assets Trade and other receivables Other current assets Cash and cash equivalents Property. plant and equipment Deferred tax assets Liabilities Trade and other payables Provisions Deferred revenue Other non-current liabilities Derivative financial instruments 2015 Assets Trade and other receivables Dther current assets Derivative financiai instruments Cash and cash equivalents Property. plant and equipment Deferred tax assets Liabilities Trade and other payables Provisions Deferred revenue Other non-current liabilities Set out below is a comparison by category of carrying amounts of all the Company's ?nancial instruments as of the 24 September 2016 and 26 September 2015: Non- Liabilities at Liabilities:I ?nancial Loans and amortised assets at fair assetsir receivables cost value liabilities Total 70,700,094 - - 70,700,094 - - - 1,194,605 1,194,605 27,266,734 - - - 27,266,734 - - - 477,627 477,627 - - - 16,769,716 16,769,716 97,966,626 - - 16,462,146 116,446,976 - 44,416,307 - - 44,416,307 - - - 26,070,429 26,070,429 - - 33,360,644 33,360,844 - - - 159,460 159,460 - - 4,267,926 - 4,267,926 - 44,418,307 4,267,926 59,590,753 106,296,966 106,663,260 106,663,260 1,066,500 1,066,500 9,669,259 9,669,259 17,263,641 17,263,641 566,019 566,019 - 10,549,947 10,549,947 125,926,901 9,669,259 12,206,466 146,002,626 65,642,033 65,642,033 16,973,161 16,973,161 35,967,666 35,967,666 159,460 159,460 65,642,033 53,100,507 116,942,540 23? Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 9. 10. 11. Cash and cash equivalents 2016 2015 3 Cash at bank and on hand 27,286,734 1?,263,641 Short term deposits - - 1?,263,641 Other non-current liabilities 2016 2015 5 Asset retirement obligation 159,480 159,480 The asset retirement obligation relates to land and building under the Company's leases. Signi?cant asset retirement obligation for the Company includes commitments to return leased properties to their original condition at the end of the facilities' operating lease. Trade and other payables 2016 2015 Trade payables 8,205,238 15,769,201 Amounts due to - related corporations 19,953,900 14,038,151 - immediate holding company 13,354,652 33,697,507 - ultimate holding company - 1,5?4 41,513,790 63,506,433 Other payabtes and accruals 2,904,517 2,335,600 44,418.30? 65,842,033 Trade and other payables are non-interest bearing. Trade payables are normally settled on 45-day terms. Amounts due to retated corporations, immediate and ultimate holding company are unsecured, non-interest bearing and are repayable on demand. They represent amounts outstanding mainly for trade purchases. -24- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 12. 13. 14. Provisions Warranty costs Others 15 At 27 September 2014 9,688,711 3,137,923 Provision made during the year 18,480,930 12,010,420 Provision used during the year (12,050,165) (14,294,658) Total 12.826.534 30,491,350 {255.344.1323} At 26 September 2015 Provision made during the year Provision used during the year 15,119,475 15,455,921 (13,592,795) 553,555 24,599,594 111575.952} 15,973,151 40,355,015 (31,253,747) At 24 September 2016 17,893,602 8,176,827 26.0?0.429 Provision for warranties The provision for warranties relates mainly to products sold during the year. The provision is based on estimates made from historical warranty data associated with similar products. The Company expects to incur the liability over the next year. Revenue The amount of each significant category of revenue recognised during the year is as follows: 2016 2015 55 6 Sales of goods T31.56T.528 Service fee income 12,363,?18 11,494,553 732.011.2513 Other expense and income net 2016 2015 Service fee income 840,642 182,119 Foreign exchange gainitloss} 0382.557) Net unrealised (lossligain on derivatives (3.052.190) ?.828.416 Others (36) 156 (11.508) 628,134 -25- Apple Sales New Zealand Notes to Financial Statement for the financial year ended 24 September 2016 '15. 1B. 17. Finance income Interest income on bank deposits Income tax expense 2016 1.114.519 2015 1.151.573 The company calculates the income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense are: Income taxes Current income tax expense Adjustment in respect of income tax of previous years Deferred income tax expense related to origination and reversal of deferred taxes Income tax expense Reconciliation of effective tax rate: Profit before income tax Income tax using the statutory tax rate 30% Adjustment in respect of income tax of previous years Others Income tax expense Personnel expenses Wages and salaries Contribution to superannuation funds Equity-settled share based payment expense -25- 2016 2015 9,267,904 10.065.020 21.612 1.025.307 (8.239.769) (2.210.954) 3.049.747 6,379,373 9.553.531 26.650.122 2.966.059 7.995.037 21.612 1.025.307 162.076 (140.971) 3.049.747 9.979.373 2016 2015 1.673.690 896.776 67.027 46.050 933.143 100.332 2.723.060 1.051.650 Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 17. Personnel expenses (cont?d) Employee Benefit Plans As of 24 September 2016. the Company did not have any equity-settled plans or transactions. However, the Company's Parent. Apple Inc. had three employee bene?t plans retevant to the Company: the 2014 Employee Stock Plan (the ?2014 Plan?). the 2003 Employee Stock Plan (the ?2003 Plan"). and the Employee Stock Purchase Plan {the "Purchase Plan"}. Under these plans. the Company?s Parent issues shares of Apple Inc. upon vesting of restricted stock units (RSUs). exercise of stock options or the employees' purchase of shares under the plans. The issuance of shares and cash received upon exercise or sale is undertaken solely by Apple Inc. and as a result no dilution in shareholder's equity or cash in?ows will occur for the Company. Apple Inc.'s relevant employee benefit plans are summarized as follows: 2014 Employee Stock Ptan In the second quarter of 2014. shareholders approved the 2014 Employee Stock Plan (the "2014 Plan?) and terminated Apple Inc.?s authority to grant new awards under the 2003 Employee Stock Plan (the "2003 Plan"). The 2014 Plan provides for broad-based equity grants to employees. including executive of?cers. and permits the granting of RSUs. stock grants. performance-based awards. stock options and stock appreciation rights. as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years. based on continued employment. and are settled upon vesting in shares of Apple nc.'s common stock on a one-for-one basis. Each share issued with respect to RSUs granted under the 2014 Ptan reduces the number of shares available for grant under the plan by Mo shares. RSUs cancelled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs cancelled or shares withheld. Currently. all RSUs granted under the 2014 Plan have dividend equivalent rights which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. 2003 Employee Stock Plan The 2003 Plan is a shareholder approved plan that provided for broad-based equity grants to employees. including executive of?cers. The 2003 Plan permitted the granting of incentive stock options. non-statutory stock options. RSUs, stock appreciation rights. stock purchase rights and performance-based awards. Options granted under the 2003 Plan generally expire seven to ten years after the grant date and generally become exercisable over a period of four years. based on continued employment. with either annual. semi- annual or quarterly vesting. RSUs granted under the 2003 Plan generally vest over two to four years. based on continued employment and are settled upon vesting in shares of Apple Inc.'s common stock on a one-for-one basis. All RSUs. other than RSUs held by the Chief Executive Officer. granted under the 2003 Plan have DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. In the second quarter of 2014. Apple Inc. terminated the authority to grant new awards under the 2003 Pian. Apple Sales New Zealand Notes to Financial Statement for the financial year ended 24 September 2016 17. 18. Personnel expenses (cont?d) Employee Stock Purchase Plan The Employee Stock Purchase Plan (the "Purchase Plan") is a shareholder approved plan under which substantially all employees may purchase Apple Inc. common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee's payroll deductions under the Purchase Plan are limited to 10% of the employee's compensation and employees may not purchase more than $25,000 of stock during any calendar year. Restricted Stock Units A summary of RSU activity and related information for the two years ended 24 September 2016 and 26 September 2015, is as follows: Number of Weighted RSUs average price Balance at 2? September 2014 5.495 Vested (2.285) Granted 3.518 Forfeited {2.445) Balance at 25 September 2015 4,283 USD95.92 Vested (2.568) Granted 15,204 USD 102.01 Forfeited - Balance at 24 September 2016 16,919 USD 101.94 Share-based Compensation Share-based compensation cost for RSUs is measured based on the closing fair market value of the Apple nc.'s common stock on the date of grant. Share-based compensation cost for stock options and employee stock purchase plan rights (?stock purchase rights") is estimated at the grant date and offering date. respectively, based on the fair-value as calculated by the Black-Scholes-Merton (BSM) option-pricing model. The BSM option- pricing model incorporates various assumptions including expected volatility, expected life and interest rates. The Company recognizes share-based compensation cost as expense over the requisite service period. Dividends On 15 June 2016, the directors declared a total dividend of NZD $28,395.023 to the Company?s sole shareholder. Apple Pty Limited. The dividend was paid on 15 June 2015. There were no dividends declared by the directors for the ?nancial year ended 25 September 2015. -23. Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 19. 20. Related parties Transactions with key management personnel Directors are remunerated by Apple Pty Limited. the parent company of Apple Sales New Zealand. No director has entered into a material contract with the Company during the financial year and there were no material contracts involving directors? interests subsisting at year-end. From time to time. key management personnel of the Company or their related entities may purchase goods from the Company. These purchases are on the same terms and conditions as those entered into by other Company customers and are trivial or domestic in nature. immediate and ultimate parent entity The immediate parent entity of Apple Sales New Zealand is Apple Pty Limited. a company incorporated in the State of New South Wales. Australia. The ultimate parent entity of Apple Sales New Zealand is Apple Inc.. a company listed in the United States of America and incorporated in the State of California, United States of America. Transactions with reiated parties During the ?nancial year the Company undertook the foilowing transactions with its related parties: 2016 2015 9.5 Purchase of inventory from related parties 875,895,939 Service fee income (940.642) (182.119) Payment made on behalf by related parties: - Tax payments 10.013.204 6.43?.455 - Audit fees 110.553 50.1?9 - Other expenses 78.823 271.878 All dealings with the ultimate parent entity and its controlled entities are in the ordinary course of business and on commercial terms and conditions. Operating lease - lessee 2016 2015 3 Payment recognised as an expense during the year 263.590 176.246 -29- Apple Sales New Zealand Notes to Financial Statement for the ?nancial year ended 24 September 2016 20. 21. 22. 23. Operating lease - lessee (cont?d) Commitment The Company has lease agreement with a local company covering its offices rental and service charges. The term ofthe agreement is 6 years. At the date of statement of ?nancial position, the Company has commitments for future minimum lease payments under non-cancellable operating leases as follows: 2016 2015 Payable: Within 1 year 243.?15 114.410 Over 1 year to 5 years 266.001 352.763 5091716 461173 Contingencies The directors are of the opinion that there are no contingent liabilities and contingent assets that require disclosure. Subsequent events There has not arisen in the interval between the end of the ?nancial year and the date of this report, any item. transaction or event of a material and unusual nature that is likely in the opinion of the directors of the Company. to affect signi?cantly the operations of the Company. the results of those operations. or the state of affairs of the Company in future ?nancial years. Authorisation of ?nancial statements The ?nancial statements for the financial year ended 24 September 2016 were authorised for issue in accordance with a resolution of the directors on 16 January 201 -30-