Apple 1995 Annual Report Download - page 29

foreign currency instruments as of September 29, 1995, and September 30, 1994. The notional principal amounts for off-balance-sheet
instruments provide one measure of the transaction volume outstanding as of year end, and do not represent the amount of the Company's
exposure to credit or market loss. The credit risk amount shown in the table below represents the Company's gross exposure to potential
accounting loss on these transactions if all counterparties failed to perform according to the terms of the contract, based on then-current
currency exchange and interest rates at each respective date. The Company's exposure to credit loss and market risk will vary over time as a
function of interest rates and currency exchange rates.
The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information as of
September 29, 1995, and September 30, 1994. In certain instances where judgment is required in estimating fair value, price quotes were
obtained from several of the Company's counterparty financial institutions. Although the table below reflects the notional principal, fair value,
and credit risk amounts of the Company's interest rate and foreign exchange instruments, it does not reflect the gains or losses associated with
the exposures and transactions that the interest rate and foreign exchange instruments are intended to hedge. The amounts ultimately realized
upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market
conditions during the remaining life of the instruments.
(In millions)
Foreign exchange instruments
Spot/Forward contracts -- -- -- $ 300 --(A) --(A) Purchased options $3,046 $ 134 $134 $1,600 $ 32 $ 32 Sold options $6,082 $ (83) -- $5,511 $
(45) --
(A) Fair value is less than $0.5 million.
The interest rate swaps shown above generally require 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. Maturity dates for interest rate swaps
currently range from one to ten years. At September 29, 1995, and September 30, 1994, interest rate swaps classified as receive-fixed swaps
had weighted average receive rates of 6.38% and 5.89%, respectively. Weighted average pay rates on these swaps were 5.88% and 6.52% at
September 29, 1995, and September 30, 1994, respectively. Interest rate option contracts require the Company to make payments should
certain interest rates either fall below or rise above predetermined levels.
Interest rate collars limit the Company's exposure to fluctuations in short-term interest rates by locking in a range of interest rates. An interest
rate collar is a no-cost structure that consists of a purchased option and a sold option. The Company receives a payment when the three-month
LIBOR falls below predetermined levels, and makes a payment when the three- month LIBOR rises above predetermined levels. The entire
structure generally qualifies as an accounting hedge.
All interest rate option contracts outstanding at September 29, 1995, expire within three years.
Interest rate contracts not accounted for as hedges are carried at fair value with gains and losses recorded currently in income as a
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1995 1994
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Notional Fair Credit Notional Fair Credit
Principal Value Risk Principal Value Risk
Amount Amount
Transactions Qualifying as
Accounting Hedges
Interest rate instruments
Swaps $ 450 $ (7) $ 2 $ 669 $ (40) --
Interest rate collars $ 105 --(A) --(A) -- -- --
Sold options $ 150 --(A) -- -- -- --
Foreign exchange instruments
Spot / Forward contracts $1,211 $ 16 $ 23 $2,385 $ (23) $ 15
Purchased options $1,441 $ 32 $ 32 $1,510 $ 17 $ 21
Sold options -- -- -- $ 302 $ (1) --
Transactions Other Than
Accounting Hedges
Interest rate instruments
Swaps $ 10 --(A) -- -- -- --
Sold options $ 100 $ (1) -- $ 148 --(A) --