Apple 2002 Annual Report Download - page 27

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primarily the result of declining investment yields on the Company's cash and short-
term investments resulting from substantially lower market
interest rates. The weighted average interest rate earned by the Company on its cash, cash equivalents and short-term investments fell to 2.85%
in 2002 compared to 5.38% in 2001.
Net interest and other income increased $14 million or 7% to $217 million during 2001. The increase was due in part to interest income from
higher cash and invested balances in 2001, partially offset by declining interest rates and investment yields, and a rebalancing of the aggregate
investment portfolio to a higher proportion of lower risk and better credit investments. The weighted average interest rate earned by the
Company on its cash, cash equivalents and short-term investments fell to 5.38% in 2001 compared to 6.12% in 2000.
The Company expects interest and other income, net to decline substantially in 2003 as declines in interest rates continue to impact earnings on
the Company's investment portfolio. The Company's expects this decline to be most pronounced in the second half of the fiscal year. The
foregoing statements are forward-
looking. Interest and other income, net could differ from expected levels because of several factors, including
certain of those set forth below in the subsection entitled "Factors That May Affect Future Results and Financial Condition." Additionally,
actual future interest and other income, net may be significantly impacted by unforeseen changes in market interest rates, foreign currency
exchange rates, and the fair value of the Company's short-term and long-term investments.
Provision for Income Taxes
The Company's effective tax rate for 2002 was 25% compared to the higher statutory rate due primarily to the research and development credit
and the reversal of valuation allowances. As of September 28, 2002, the Company had deferred tax assets arising from deductible temporary
differences, tax losses, and tax credits of $369 million before being offset against certain deferred tax liabilities for presentation on the
Company's balance sheet. Management believes it is more likely than not that forecasted income, including income that may be generated as a
result of certain tax planning strategies, will be sufficient to fully recover the remaining net deferred tax assets. As of September 28, 2002, a
valuation allowance of $30 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The
valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which
is subject to certain limitations imposed by the Internal Revenue Code. The Company will continue to evaluate the realizability of the deferred
tax assets quarterly by assessing the need for and amount of the valuation allowance.
32
The Internal Revenue Service (IRS) has completed audits of the Company's federal income tax returns through 1997. Substantially all IRS
audit issues for years through 1997 have been resolved. Management believes that adequate provision has been made for any adjustments that
may result from tax examinations.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations , which addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is
added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The Company
is required to adopt the provisions of SFAS No. 143 for the first quarter of its fiscal 2003. Management does not expect the adoption of SFAS
No. 143 to have a material impact on the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets
(Statement 144), which supersedes both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30 (Opinion 30), Reporting the Results of Operations—
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions , for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 retains the fundamental
provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. For example, SFAS No. 144
provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144
retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to
include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144
will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. No. 142, Goodwill and Other
Intangible Assets.
The Company is required to adopt the provisions of SFAS No. 144 for the first quarter of its fiscal 2003. Management does not expect the
adoption of SFAS No. 144 for long-lived assets held for use to have a material impact on the Company's financial statements because the
impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The provisions of SFAS No. 144 for assets held for
sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities.