Apple 1998 Annual Report Download - page 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Apple Computer, Inc., and its subsidiaries (the Company), designs, manufactures, and markets microprocessor-based personal computers and
related software and peripherals for sale primarily to education, creative, consumer, business, and government customers.
BASIS OF PRESENTATION AND PREPARATION
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions have been eliminated. The Company's fiscal year-end is the last Friday in September.
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual
results could differ materially from those estimates.
FINANCIAL INSTRUMENTS
INVESTMENTS
All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents; investments
with maturities between three and twelve months are considered to be short-term investments. Management determines the appropriate
classification of its investments in debt and marketable equity securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company's debt and marketable equity securities have been classified and accounted for as available-for-sale. These
securities are carried at fair value, with the unrealized gains and losses reported as a component of shareholders' equity. These unrealized gains
or losses include any unrealized losses and gains on interest rate contracts accounted for as hedges against the available-for-sale securities. The
cost of securities sold is based upon the specific identification method.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the ordinary course of business and as part of the Company's asset and liability management, the Company enters into various types of
transactions that involve contracts and financial instruments with off-balance-sheet risk. These instruments are entered into in order to manage
financial market risk, primarily interest rate and foreign exchange risk. The Company enters into these financial instruments with major
international financial institutions utilizing over-the-counter as opposed to exchange traded instruments. The Company does not hold or
transact in financial instruments for purposes other than risk management.
The Company enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in
order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest
expense on its long-term debt, and/or to diversify a portion of the Company's exposure away from fluctuations in short-term U.S. interest rates.
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
The Company enters into foreign exchange forward and option contracts with financial institutions primarily to protect against currency
exchange risks associated with existing assets and liabilities, and certain firmly committed and 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
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