Apple 1996 Annual Report Download - page 34

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Foreign Currency Instruments
The Company enters into foreign exchange forward and option contracts with financial institutions primarily to protect against currency
exchange risks associated with certain firmly committed and certain other probable but not firmly committed transactions. The Company's
foreign exchange risk management policy requires it to hedge a majority of its existing material foreign exchange transaction exposures.
However, the Company may not hedge certain foreign exchange transaction exposures that are immaterial either in terms of their minimal U.S.
dollar value or in terms of their historically high correlation with the U.S. dollar.
Probable but not firmly committed transactions comprise sales of the Company's products in currencies other than the U.S. dollar. A majority
of these non-U.S. dollar-based sales are made through the Company's subsidiaries in Europe, Asia (particularly Japan), Canada, and Australia.
The Company also purchases foreign exchange option contracts to hedge certain other probable but not firmly committed transactions. The
Company also sells foreign exchange option contracts, in order to partially finance the purchase of foreign exchange option contracts used to
hedge both firmly committed and certain other probable but not firmly committed transactions. In addition, the Company enters into other
foreign exchange transactions, which are intended to reduce the costs associated with its foreign exchange risk management programs. The
duration of foreign exchange hedging instruments, whether for firmly committed transactions or for probable but not firmly committed
transactions, currently does not exceed one year.
For further information regarding the Company's accounting treatment of its financial instruments, refer to pages 33 - 36 of the Notes to
Consolidated Financial Statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. If the cost of the inventories exceeds their market value, provisions are
made currently for the difference between the cost and the market value.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation and amortization is computed by use of the declining balance and straight-line
methods over the estimated useful lives of the assets.
Long-Lived Assets
Effective September 30, 1995, the Company adopted Financial Accounting Standard No. 121 ("FAS 121"), "Accounting for the Impairment of
Long- Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance with FAS 121, prior period financial statements have not
been restated to reflect this change in accounting principle and the cumulative effect of this change was not material.
Stock-Based Compensation
The Company has not elected early adoption of Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." FAS 123 becomes effective for the Company in 1997, and will have no impact on the Company's results of operations and
financial condition as the Company has elected to continue measuring compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." However, the Company will
provide pro forma disclosures of net income and earnings per share as if the fair value-based method prescribed by FAS 123 had been applied
in measuring compensation expense.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign sales subsidiaries at year-end exchange rates. Gains and losses from these
translations are credited or charged to "accumulated translation adjustment" included in shareholders' equity. The foreign manufacturing and
certain other entities use the U.S. dollar as the functional currency and translate monetary assets and liabilities at year-end exchange rates, and
inventories, property, and non-monetary assets and liabilities at historical rates. Gains and losses from these translations are included in the
results of operations and are immaterial.
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