Apple 2006 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Summary of Significant Accounting Policies
Apple Computer, Inc. and its wholly-owned subsidiaries (the Company) designs, manufactures, and markets personal computers and related
software, services, peripherals, and networking solutions. The Company also designs, develops, and markets a line of portable digital music
players along with related accessories and services including the online sale of third-party audio and video products. The Company sells its
products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added
resellers. In addition, the Company sells a variety of third-party Macintosh and iPod compatible products including application software,
printers, storage devices, speakers, headphones, and various other accessories and supplies through its online and retail stores. The Company
sells to education, consumer, creative professional, business, and government customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been
eliminated. The preparation of these consolidated financial statements in conformity with U.S. 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. Certain prior year amounts in the consolidated financial
statements and notes thereto have been reclassified to conform to the current year presentation.
Typically, the Company’s fiscal year ends on the last Saturday of September. Fiscal years 2005 and 2004 were each 52-week years. However,
approximately every six years, the Company reports a 53-
week fiscal year to align its fiscal quarters with calendar quarters by adding a week to
its first fiscal quarter. The Company added this additional week in the first fiscal quarter of its fiscal year 2006. All information presented
herein is based on the Company’s fiscal calendar.
Common Stock Split
On February 28, 2005, the Company effected a two-for-one stock split to shareholders of record as of February 18, 2005. All share and per
share information has been retroactively adjusted to reflect the stock split.
Financial Instruments
Cash Equivalents and Short-term Investments
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Highly liquid
investments with maturities greater than three months at the date of purchase are classified as short-term investments. The Company’s debt and
marketable equity securities have been classified and accounted for as available-for-
sale. Management determines the appropriate classification
of its investments in debt and marketable equity securities at the time of purchase and reevaluates the available-for-sale designations as of each
balance sheet date. These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of
shareholders’ equity. The cost of securities sold is based upon the specific identification method.
Derivative Financial Instruments
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not defined
as hedges in Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, must be adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge,
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