Also during 1998, the American Institute of Certified Public Accountants Accounting Standards Executive Committee issued the following Statements of Position (SOP):

• SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidelines on the accounting for internally developed computer software. This SOP is effective for fiscal years beginning after December 15, 1998. The company believes that the future adoption of this SOP will not have a significant impact on its results of operations or financial position.
  

• SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires the costs of startup activities be expensed as incurred. This SOP must be adopted in fiscal years beginning after December 15, 1998. When this SOP is adopted, the company must record a cumulative effect of a change in accounting principle to write off any unamortized startup costs that remain on the balance sheet at the date the new SOP is adopted. The company estimates that the pretax impact of this pronouncement, when implemented in the first quarter of 1999, will be from $135 million to $145 million ($85 million to $92 million after-tax, or $.43 to $.46 basic earnings per common share).
  
  

ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


FINANCIAL INSTRUMENTS
The company has, where appropriate, estimated the fair value of financial instruments. These fair value amounts may be significantly affected by the assumptions used, including the discount rate and estimates of cash flow. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. Where these estimates approximate carrying value, no separate disclosure of fair value is shown.

Financial instruments that potentially subject the company to concentrations of credit risk consist of real estate and related assets receivables and mortgage-related financial instruments, of which $68 million and $119 million are in the western geographical region of the United States at December 27, 1998, and December 28, 1997, respectively.


DERIVATIVES
The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. These include:

• Foreign exchange contracts, which are hedges for foreign denominated accounts receivable and accounts payable. These contracts generate gains or losses that are recognized at the contracts' respective settlement dates.
  

• Interest rate swaps entered into with major banks or financial institutions in which the company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. The premiums received by the company on the sale of these swaps are treated as deferred income and amortized against interest expense over the term of the agreements.

The company is exposed to credit-related gains or losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparties to fail to meet their obligations. The company deals only with highly rated counterparties.

The notional amounts of these derivative financial instruments are $102 million and $492 million at December 27, 1998, and December 28, 1997, respectively. These notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The exposure in a derivative contract is the net difference between what each party is required to pay based on the contractual terms against the notional amount of the contract, such as interest rates or exchange rates. The company's use of derivatives does not have a significant effect on the company's results of operations or its financial position.


CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow and fair value reporting, short-term investments with original maturities of 90 days or less are considered as cash equivalents. Short-term investments are stated at cost, which approximates market. >