Apple 1994 Annual Report Download - page 34

component of the hedged transaction. Deferred gains and losses on such agreements were immaterial at September 30, 1994, and at September
24, 1993. Maturity dates for purchased foreign exchange option contracts range from one to twelve months.
Purchased and sold foreign exchange option contracts that do not qualify for hedge accounting treatment are carried at fair value and, as such,
are adjusted each balance sheet date for changes in exchange rates. Gains and losses associated with these financial instruments are recorded
currently in income. As of September 30, 1994, maturity dates for these sold option contracts ranged from one to six months.
The Company monitors its interest rate and foreign exchange positions daily based upon applicable and commonly used pricing models. The
correlation between the changes in the fair value of hedging instruments and the changes in the underlying hedged items is assessed
periodically over the life of the hedged instrument. In the event that it is determined that a hedge is ineffective, the Company recognizes in
income the change in market value of the instrument beginning on the date it was no longer an effective hedge.
Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial instruments are as follows:
Short-term investments are carried at cost plus accrued interest, which approximates fair value. The carrying amount of short-term borrowings
approximates their fair value due to their short-term maturities. The fair value of the ten-year unsecured notes is based on their listed market
value as of September 30, 1994.
Concentrations of Credit Risk
The Company distributes its products principally through third-party computer resellers and various education and consumer channels.
Concentrations of credit risk with respect to trade receivables are limited because of flooring arrangements for selected customers with third-
party financing companies and because the Company's customer base consists of large numbers of geographically diverse customers dispersed
across several industries. As such, the Company generally does not require collateral from its customers.
The counterparties to the agreements relating to the Company's investments and foreign exchange and interest rate instruments consist of a
number of major international financial institutions. To date, no such counterparty has failed to meet its financial obligations to the Company.
The Company does not believe that there is significant risk of nonperformance by these counterparties because the Company continually
monitors its positions and the credit ratings of such counterparties, and limits the financial exposure and the amount of agreements and
contracts it enters into with any one party. The Company generally does not require collateral from counterparties, except for margin
agreements associated with the ten-year interest rate swaps on the Company's long- term debt. To mitigate the credit risk associated with these
ten-year swap transactions, the Company entered into margining agreements with its third-party bank counterparties. Margining under these
agreements generally does not start until 1997. Furthermore, these agreements would require the Company or the counterparty to post margin
only if certain credit risk thresholds were exceeded.
31
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 1,203 $ 1,203 $ 676 $ 676
Short-term investments $ 54 $ 54 $ 216 $ 216
Short-term borrowings $ 292 $ 292 $ 823 $ 823
Long-term debt:
Ten-year unsecured notes $ 300 $ 259 -- --
Other $ 4 $ 4 $ 7 $ 7