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0000320193
20021219
10-K
1,021
As a result of such activity, the Company recognized net gains of $7 million in 2002 and $1 million in 2001.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,022
In order to provide a meaningful assessment of the interest rate risk associated with the Company's investment portfolio, the Company performed a sensitivity analysis to determine the impact that a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in ...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,023
Based on investment positions as of September 28, 2002, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $37.7 million decline in the fair market value of the portfolio.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,024
As of September 29, 2001, a similar 100 basis point shift in the yield curve would have resulted in a $17.8 million decline in fair value.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,025
Such losses would only be realized if the Company sold the investments prior to maturity.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,026
Except in instances noted above, the Company's policy is to hold investments to maturity.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,027
The Company sometimes enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its lon...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,028
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,029
During the last two years, the Company has entered into interest rate swaps with financial institutions in order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its long-term debt, and/or to diversify a portion of the...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,030
The interest rate swaps, which qualified as accounting hedges, generally required the Company to pay a floating interest rate based on the three- or six-month U.S. dollar LIBOR and receive a fixed rate of interest without exchanges of the underlying notional amounts.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,031
These swaps effectively converted the Company's fixed-rate 10-year debt to floating-rate debt and convert a portion of the floating rate investments to fixed rate.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,032
Due to prevailing market interest rates, during 2002 the Company entered into and then subsequently closed out debt swap positions realizing a gain of $6 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,033
During 2001 the Company closed out all of its then existing debt swap positions realizing a gain of $17 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,034
Both the gains in 2001 and 2002 were deferred, recognized in long-term debt and are being amortized to other income and expense over the remaining life of the debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,035
At certain times in the past, the Company has also entered into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,036
The Company does not hold or transact in such financial instruments for purposes other than risk management.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,037
The Company's asset swaps did not qualify for hedge accounting treatment and were recorded at fair value on the balance sheet with associated gains and losses recorded in interest and other income.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,038
Interest rate asset swaps outstanding as of September 30, 2000, had a weighted-average receive rate of 5.50% and a weighted-average pay rate of 6.66%.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,039
The unrealized loss on these assets swaps as of September 30, 2000, of $5.7 million was deferred and then recognized in income in 2001 as part of the SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,040
133 transition adjustment effective on October 1, 2000.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,041
The Company closed out all of its existing interest rate asset swaps during 2001 realizing a gain of $1.1 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,042
Foreign Currency Risk Overall, the Company is a net receiver of currencies other than the U.S. dollar and, as such, benefits from a weaker dollar and is adversely affected by a stronger dollar relative to major currencies worldwide.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,043
Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company's net sales and gross margins as expressed in U.S. dollars.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,044
There is also a risk that the Company will have to adjust local currency product pricing within the time frame of our hedged positions due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,045
The Company enters into foreign currency forward and option contracts with financial institutions primarily to protect against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, and probable but not firmly committed transactions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,046
Generally, the Company's practice is to hedge a majority of its existing material foreign exchange transaction exposures.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,047
However, the Company may not hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and limited availability of appropriate of hedging instruments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,048
The Company also enters into foreign currency forward and option contracts to offset the foreign exchange gains and losses generated by the re-measurement of certain recorded assets and liabilities denominated in non-functional currencies of its foreign subsidiaries.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,049
In order to provide a meaningful assessment of the foreign currency risk associated with certain of the Company's foreign currency derivative positions, the Company performed a sensitivity analysis using a value-at-risk (VAR) model to assess the potential impact of fluctuations in exchange rates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,050
The VAR model consisted of using a Monte Carlo simulation to generate 3000 random market price paths.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,051
The value-at-risk is the maximum expected loss in fair value, for a given confidence interval, to the Company's foreign exchange portfolio due to adverse movements in rates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,052
The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,053
The model assumes normal market conditions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,054
Forecasted transactions, firm commitments, and assets and liabilities denominated in foreign currencies were excluded from the model.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,055
Based on the results of the model, the Company estimates with 95% confidence a maximum one-day loss in fair value of $3.8 million as of September 28, 2002 compared to a maximum one-day loss of $6.8 million as of September 29, 2001.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,056
Because the Company uses foreign currency instruments for hedging purposes, losses incurred on those instruments are generally offset by increases in the fair value of the underlying exposures.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,057
Actual gains and losses in the future associated with the Company's investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of September 28, 2002 due to the inherent limitations associated with predicting the changes in the timing and amount of interest rates, fore...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,058
Item 8.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,059
Financial Statements and Supplementary Data All financial statement schedules have been omitted, since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and Notes...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,060
CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) See accompanying notes to consolidated financial statements.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,061
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except share and per share amounts) See accompanying notes to consolidated financial statements.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,062
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except share amounts which are in thousands) See accompanying notes to consolidated financial statements.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,063
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) See accompanying notes to consolidated financial statements.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,064
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1-Summary of Significant Accounting Policies Apple Computer, Inc. and its subsidiaries (the Company) designs, manufactures, and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and b...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,065
Basis of Presentation and Preparation The accompanying consolidated financial statements include the accounts of the Company.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,066
Intercompany accounts and transactions have been eliminated.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,067
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,068
Actual results could differ materially from those estimates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,069
Typically, the Company's fiscal year ends on the last Saturday of September.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,070
Fiscal years 2002 and 2001 were each 52-week years.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,071
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,072
Consequently, an additional week was added to the first quarter of fiscal 2000.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,073
All information presented herein is based on the Company's fiscal calendar.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,074
Financial Instruments Investments The Company places its short-term investments in highly liquid securities issued by high credit quality issuers.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,075
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 are classified as short-term investments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,076
Management determines the appropriate classification of its investments in debt and marketable equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,077
The Company's marketable debt and equity securities have been classified and accounted for as available-for-sale.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,078
These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders' equity.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,079
The cost of securities sold is based upon the specific identification method.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,080
Derivative Financial Instruments On October 1, 2000, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,081
133, Accounting for Derivative Instruments and Hedging Activities.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,082
SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,083
133 establishes accounting and reporting standards for derivative instruments, hedging activities, and exposure definition.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,084
SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,085
133 requires that all derivatives be recognized as either assets or liabilities at fair value.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,086
Derivatives that are not hedges must be adjusted to fair value through income.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,087
If the derivative is a hedge, depending on the nature of the hedge, changes in fair value will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,088
Net of the related income tax effect of approximately $5 million, adoption of SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,089
133 resulted in a favorable cumulative-effect-type adjustment to net income of approximately $12 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,090
Net of the related income tax effect of approximately $5 million, adoption of SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,091
133 resulted in a favorable cumulative-effect-type adjustment to other comprehensive income of approximately $12 million, all of which was reclassified to earnings during 2001.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,092
Management does not believe that ongoing application of SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,093
133 will significantly alter the Company's hedging strategies.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,094
However, its application may increase the volatility of other income and expense and other comprehensive income.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,095
For derivative instruments that hedge the exposure to variability in expected future cash flows that are attributable to a particular risk and that are designated as cash flow hedges, the net gain or loss on the derivative instrument is reported as a component of other comprehensive income in stockholders' equity and r...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,096
To receive hedge accounting treatment, cash flow hedges must be highly effective in achieving offsetting changes to expected future cash flows on hedged transactions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,097
For derivative instruments that hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that are attributable to a particular risk and that are designated as fair value hedges, the net gain or loss on the derivative instrument as well as the offsetting gain or loss on...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,098
The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the foreign currency translation exposure of the net investment in a foreign operation is reported in the same manner as a foreign currency translation adjustment.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,099
For forward contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its definition of effectiveness.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,100
Accordingly, any gains or losses related to this component are recognized in current earnings.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,101
For derivative instruments not designated as hedging instruments, changes in fair value are recognized in earnings in the current period.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,102
For foreign currency forward contracts designated as cash flow hedges, hedge effectiveness is measured based on changes in the fair value of the contract attributable to changes in the forward exchange rate.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,103
Changes in the expected future cash flows on the forecasted hedged transaction and changes in the fair value of the forward hedge are both measured from the contract rate to the forward exchange rate associated with the forward contract's maturity date.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,104
For currency option contracts designated as cash flow hedges, hedge effectiveness is measured based on changes in total fair value of the option contract.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,105
Hedge effectiveness is assessed by comparing the present value of the cumulative change in expected cash flows on the hedged transactions determined as the sum of the probability-weighted outcomes with respect to the option strike rates with the total change in fair value of the option hedge.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,106
For interest rate swap agreements qualifying as fair value hedges, the Company assumes no ineffectiveness because these swaps meet the criteria for accounting under the short-cut method defined in SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,107
133.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,108
Inventories Inventories are stated at the lower of cost (first-in, first-out) or market.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,109
If the cost of the inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,110
Property, Plant, and Equipment Property, plant, and equipment are stated at cost.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,111
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 estimated useful lives for leasehold improvements.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,112
The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,113
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,114
Prior to the fourth quarter of 2001, the Company had classified capitalized costs related to internal-use software on the balance sheet in other assets.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,115
Effective as of September 29, 2001, and for all other periods presented, the Company has reclassified internal-use software to property, plant, and equipment and reclassified related cash flows for the purchase or development of internal-use software from cash flow from operations to cash flow from investing activities...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,116
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,117
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,118
Further, the fair value of these investments has been subject to a high degree of volatility.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,119
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,120
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.
0001047469-02-007674/full-submission.txt