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0000320193
20041203
10-K
1,211
As a result of such activity, the Company recognized net gains of $1 million in 2004, $21 million in 2003, and $7 million in 2002.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,212
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 ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,213
Based on investment positions as of September 25, 2004, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $14.4 million decline in the fair market value of the portfolio.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,214
As of September 27, 2003, a similar 100 basis point shift in the yield curve would have resulted in a $12.9 million decline in fair value.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,215
Such losses would only be realized if the Company sold the investments prior to maturity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,216
Except in instances noted above, the Company's policy is to hold investments to maturity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,217
From time to time, the Company has entered into interest rate derivative transactions 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 debt, and/or to diversify a portion of the...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,218
The Company did not enter into any interest rate derivatives during 2004 or 2003 and had no open interest rate derivatives at September 25, 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,219
In prior years, the Company had entered into interest rate debt swaps with financial institutions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,220
The interest rate debt swaps 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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,221
These swaps effectively converted the Company's fixed-rate 10-year debt to floating-rate debt.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,222
Due to prevailing market interest rates, during 2001 and 2002 the Company entered into and then subsequently closed out interest rate debt swap positions realizing gains of $23 million.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,223
The gains were deferred, recognized in long-term debt and were amortized to other income and expense over the remaining life of the debt.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,224
Foreign Currency Risk In general, the Company is a net receiver of currencies other than the U.S. dollar.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,225
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,226
There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,227
The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows, and net investments in foreign subsidiaries.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,228
Generally, the Company's practice is to hedge a majority of its existing material foreign exchange transaction exposures.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,229
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 hedging instruments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,230
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,231
The VAR model consisted of using a Monte Carlo simulation to generate 3000 random market price paths.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,232
The VAR 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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,233
The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,234
The model assumes normal market conditions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,235
Forecasted transactions, firm commitments, and assets and liabilities denominated in foreign currencies were excluded from the model.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,236
Based on the results of the model, the Company estimates with 95% confidence a maximum one-day loss in fair value of $3.2 million as of September 25, 2004 compared to a maximum one-day loss of $7.5 million as of September 27, 2003.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,237
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,238
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 25, 2004 due to the inherent limitations associated with predicting the changes in the timing and amount of interest rates, fore...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,239
Item 8.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,240
Financial Statements and Supplementary Data All financial statement schedules have been omitted, since the required information is not applicable 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 No...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,241
CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) See accompanying notes to consolidated financial statements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,242
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except share and per share amounts) See accompanying notes to consolidated financial statements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,243
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except share amounts which are in thousands) See accompanying notes to consolidated financial statements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,244
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) See accompanying notes to consolidated financial statements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,245
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1-Summary of Significant Accounting Policies Apple Computer, Inc. and subsidiaries (the Company) designs, manufactures and markets personal computers and related software, services, peripherals and networking solutions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,246
The Company also designs, develops and markets a line of portable digital music players along with related accessories and services including the online distribution of third-party music and audio books.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,247
The Company sells its products worldwide through its online stores, its own retail stores, its direct sales force and third-party wholesalers, resellers and value added resellers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,248
In addition to its own hardware, software and peripheral products, the Company sells a variety of third-party hardware and software products through its online and retail stores.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,249
The Company sells to education, consumer, creative professional, business and government customers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,250
Basis of Presentation and Preparation The accompanying consolidated financial statements include the accounts of the Company.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,251
Intercompany accounts and transactions have been eliminated.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,252
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,253
Actual results could differ materially from those estimates.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,254
Certain prior year amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,255
Typically, the Company's fiscal year ends on the last Saturday of September.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,256
Fiscal years 2004, 2003 and 2002 were each 52-week years.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,257
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,258
The Company expects to add this additional week in its first fiscal quarter of 2006.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,259
All information presented herein is based on the Company's fiscal calendar.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,260
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,261
Highly liquid investments with maturities greater than three months are classified as short-term investments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,262
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,263
The Company's debt and marketable equity securities have been classified and accounted for as available-for-sale.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,264
These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders' equity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,265
The cost of securities sold is based upon the specific identification method.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,266
Financial Instruments with Characteristics of Both Liabilities and Equity On May 15, 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,267
150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,268
SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,269
150 requires issuers to classify as liabilities (or assets in some circumstances) certain freestanding financial instruments that embody obligations for the issuer and have characteristics of both liabilities and equity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,270
The Company adopted the provisions of SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,271
150 on June 29, 2003, which resulted in a favorable cumulative-effect type adjustment of approximately $3 million.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,272
This adjustment related to a forward purchase agreement that allowed the Company to acquire 1.5 million shares of its common stock at an average price of $16.64 per share for a total cost of $25.5 million.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,273
The Company settled this forward purchase agreement in August 2003, which resulted in an additional gain of approximately $6 million representing the increase in fair value of the agreement from June 29, 2003 through the settlement date.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,274
Derivative Financial Instruments The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,275
Derivatives that are not hedges must be adjusted to fair value through income.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,276
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,277
For derivative instruments that hedge the exposure to variability in expected future cash flows 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 shareholders' equity and reclassified into earnings in the same period or...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,278
To receive hedge accounting treatment, cash flow hedges must be highly effective in achieving offsetting changes to expected future cash flows on hedged transactions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,279
For derivative instruments that hedge the exposure to changes in the fair value of an asset or a liability 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 the hedged item attributable to the hedged risk are recognized in earnings ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,280
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,281
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,282
Accordingly, any gains or losses related to this component are recognized in current earnings.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,283
For derivative instruments not designated as hedging instruments, changes in fair value are recognized in earnings in the current period.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,284
In accordance with SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,285
133, hedges related to probable but not firmly committed transactions of an anticipatory nature are designated and documented at hedge inception as cash flow hedges and evaluated for hedge effectiveness quarterly.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,286
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,287
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,288
For currency option contracts, hedge effectiveness is assessed by comparing the present value of the cumulative change in expected future cash flows on the hedged transaction to changes in expected cash flow of the option hedge at maturity.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,289
The net gains or losses on derivative instruments qualifying as cash flow hedges are reported as components of other comprehensive income in shareholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,290
Any hedge ineffectiveness is recognized in current earnings in other income and expense.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,291
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,292
The Company may enter into foreign currency forward contracts to hedge the translation and economic exposure of a net investment position in a foreign subsidiary.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,293
For such contracts, hedge effectiveness is measured based on changes in the fair value of the contract attributable to changes in the spot exchange rate.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,294
The effective portion of the net gain or loss on a derivative instrument designated as a hedge of the net investment position in a foreign subsidiary is reported in the same manner as a foreign currency translation adjustment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,295
Any residual changes in fair value of the forward contract, including changes in fair value based on the differential between the spot and forward exchange rates, are recognized in current earnings in other income and expense.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,296
Inventories Inventories are stated at the lower of cost (first-in, first-out) or market.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,297
If the cost of the inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,298
Property, Plant, and Equipment Property, plant, and equipment are stated at cost.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,299
Depreciation is computed by use of the straight-line method 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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,300
The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,301
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,302
Asset Retirement Obligations On September 29, 2002, the Company adopted SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,303
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,304
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,305
SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,306
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,307
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,308
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,309
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,310
As of the date of adoption, the Company recorded a $6 million long-term asset retirement liability and a corresponding increase in leasehold improvements.
0001047469-04-035975/full-submission.txt