Apple 2002 Annual Report Download - page 44

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Non-Current Debt and Equity Investments
Investments categorized as non-current debt and equity investments on the consolidated balance sheet are in equity and debt instruments of
public companies. They are not categorized as current assets either because, given their nature, they are not readily convertible into cash or
because they represent potentially longer-term investments by the Company. Further, the fair value of these investments has been subject to a
high degree of volatility. The Company's non-current debt and equity investments have been categorized as available-for-sale requiring that
they be carried at fair value with unrealized gains and losses, net of taxes, reported in equity as a component of accumulated other
comprehensive income. However, the Company recognizes an impairment charge to earnings in the event a decline in fair value below the cost
basis of one of these investments is determined to be other-than-temporary. The Company includes recognized gains and losses resulting from
the sale or from other-than-temporary declines in fair value associated with these investments in other income and expense. Occasionally, the
Company uses short-term equity derivatives to manage potential dispositions of non-current debt and equity investments. Any gains or losses
associated with such derivatives are recognized currently in other income and expense.
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews property, plant, and equipment and certain identifiable intangibles, excluding goodwill, for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by
comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate. If property, plant, and equipment and
certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value
of the assets exceeds its fair market value. For the three years ended September 28, 2002, the Company has made no material adjustments to its
long-lived assets except those made in connection with the restructuring actions described in Note 5.
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets , in the first quarter of fiscal 2002. SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually or
sooner whenever events or changes in circumstances indicate that they may be impaired. Prior to fiscal 2002, goodwill was amortized using the
straight-line method over its estimated useful life. The Company completed its transitional and annual goodwill impairment tests as of
October 1, 2001, and August 30, 2002, respectively, and found no impairment. The Company established reporting units based on its current
reporting structure. For purposes of testing goodwill for impairment, goodwill has been allocated to these reporting units to the extent it relates
to each reporting unit.
SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful lives and reviewed for
impairment in accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of . The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from 3 to 7 years.
Foreign Currency Translation
The Company translates the assets and liabilities of its international non-U.S. functional currency subsidiaries into U.S. dollars using exchange
rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect
during the period. Gains and losses from these translations are credited or charged to "accumulated translation adjustment" included in
"accumulated other comprehensive income (loss)" in shareholders' equity. The Company's foreign manufacturing subsidiaries and certain other
international subsidiaries that use the U.S. dollar as their functional currency, remeasure monetary assets and liabilities at year-end exchange
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rates, and inventories, property, and nonmonetary assets and liabilities at historical rates. Gains and losses from these translations are included
in the Company's results of operations.
Revenue Recognition
Net sales consist primarily of revenue from the sale of products (hardware, software, and peripherals), consulting and implementation services,
and extended warranty and support contracts. The Company recognizes revenue pursuant to applicable accounting standards, including
Statement of Position (SOP) No. 97-2, Software Revenue Recognition , as amended. Revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is probable. Product is considered delivered
to the customer once it has been shipped, and title and risk of loss have been transferred. For online sales to individuals, for some sales to
education customers in the United States, and for certain other sales, the Company defers revenue until product is received by the customer
because the Company legally retains a portion of the risk of loss on these sales during transit. For other product sales, these criteria are met by
the Company at the time product is shipped. The Company records reductions to revenue for estimated commitments related to price protection
and for customer incentive programs, including reseller and end user rebates and other sales programs and volume
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based incentives.