Apple 2007 Annual Report Download - page 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively "Apple" or the "Company") design, manufacture, and market personal computers,
portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking
solutions. 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 Mac, iPod and iPhone 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.
The Company's fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Company's first quarter of fiscal year
2007 contained 13 weeks and the first quarter of fiscal year 2006 contained 14 weeks. The Company's fiscal year 2007 ended on September 29,
2007 and included 52 weeks, while fiscal year 2006 included 53 weeks and fiscal year 2005 included 52 weeks. Unless otherwise stated,
references to particular years or quarters refer to the Company's fiscal years ended in September and the associated quarters of those fiscal years.
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.
For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the
effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income in
shareholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects
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