Apple 2003 Annual Report Download - page 50

ineffectiveness because these swaps meet the criteria for accounting under the short-cut method defined in SFAS No. 133.
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 10 years
for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to
the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 5 years.
Asset Retirement Obligations
On September 29, 2002, the Company adopted 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 assets. 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. All of the Company's
existing asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon
lease termination. The Company estimated that as of September 29, 2002, gross expected future cash flows of $9.5 million would be required
to fulfill these obligations.
62
As of the date of adoption, the Company recorded a $6 million long-term asset retirement liability and a corresponding increase in leasehold
improvements. This amount represents the present value of expected future cash flows associated with returning certain of the Company's
leased properties to original condition. The difference between the gross expected future cash flow of $9.5 million and its present value of
$6 million at September 29, 2002, is being accreted over the life of the related leases as an operating expense. Net of the related income tax
effect of approximately $1 million, adoption of SFAS No. 143 resulted in an unfavorable cumulative-effect type adjustment to net income
during the first quarter of 2003 of approximately $2 million. This adjustment represents cumulative depreciation and accretion that would have
been recognized through the date of adoption of SFAS No. 143 had the statement been applied to the Company's existing asset retirement
obligations at the time they were initially incurred.
The following table reconciles changes in the Company's asset retirement liability for fiscal 2003 (in millions):
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 27, 2003, 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 goodwill impairment test as of October 1, 2001, and
its annual goodwill impairment tests at August 30, 2003 and August 30, 2002, respectively, and found no impairment. The Company
Asset retirement liability recorded at September 29, 2002
$
5.5
Additional asset retirement obligations recognized
0.5
Accretion recognized
1.2
Asset retirement liability as of September 27, 2003
$
7.2