Apple 2000 Annual Report Download - page 42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses on interest rate and foreign exchange instruments not accounted for as hedges are recorded in income as a component of
interest and other income (expense), net. Sold interest rate and foreign exchange instruments do not qualify as accounting hedges. Premiums
associated with sold foreign exchange option contracts are recorded in other current assets and marked to market through earnings.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities"
was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, hedging activities, and exposure
definition. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in fair value will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in
earnings. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," was issued. The statement deferred the effective date of SFAS No. 133 until the first quarter of 2001. The Company
will adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as of October 1, 2000. Net of the related income
tax effect, the adoption of SFAS No. 133 is expected to have a favorable cumulative-effect-
type adjustment to net income of approximately $12
million and a favorable cumulative-effect-type adjustment to other comprehensive income of $15 million. Management does not believe that
adoption of SFAS No. 133 will significantly alter the Company's hedging strategies. However, its application may increase the volatility of
other income and expense and other comprehensive income.
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 are stated at cost. Depreciation is computed by use of the declining balance and straight-line methods over the
estimated useful lives of the assets, which are 30 years for buildings, from 2 to 5 years for equipment, and the shorter of lease terms or
estimated useful lives for leasehold improvements.
INTERNAL-USE SOFTWARE
Software acquired or developed for internal use is stated at cost and classified on the balance sheet in other assets. Depreciation is computed on
a straight-line basis using an estimated useful life of no more than 5 years. During fiscal year 2000, the Company adopted the American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires the capitalization of certain internal costs incurred in the acquisition or
development of internal-use software. The adoption of SOP 98-1 did not have a material impact on the Company's consolidated results of
operations or financial position during 2000. As of September 30, 2000 and September 25, 1999, the net carrying amount of software was $106
million and $44 million, respectively.
39