Apple 1995 Annual Report Download - page 30

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component of interest and other income (expense), net. Unrealized gains and losses on interest rate contracts that are designated and effective
as hedges are deferred and recognized in income in the same period as the hedged transaction. Unrealized losses on such agreements totaled
approximately $9 million and $40 million at September 29, 1995, and September 30, 1994, respectively, primarily reflecting the net present
value of unrealized losses on the ten-year swap contracts, which effectively convert the Company's fixed-rate ten-year debt to floating- rate
debt.
The foreign exchange forward contracts not accounted for as hedges are carried at fair value and are adjusted each balance sheet date for
changes in exchange rates, and the adjustment is recognized in income at that time. Unrealized gains and losses on foreign exchange forward
contracts that are designated and effective as hedges are deferred and recognized in income in the same period as the hedged transactions.
Deferred gains and losses on such agreements at September 29, 1995, and September 30, 1994, were immaterial. All foreign exchange forward
contracts expire within one year.
Purchased foreign exchange option contracts that qualify for hedge accounting treatment are reported on the balance sheet at the premium cost,
which is amortized over the life of the option. Unrealized gains and losses on these option contracts are deferred until the occurrence of the
hedged transaction and recognized as a component of the hedged transaction. Deferred gains and losses on such agreements were immaterial at
September 29, 1995, and September 30, 1994. As of September 29, 1995, maturity dates for purchased foreign exchange option contracts
ranged 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 29, 1995, 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 on 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.
Fair Values of Other Financial Instruments The carrying amounts and estimated fair values of the Company's other financial instruments are as
follows:
(In millions)
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 29, 1995.
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
28
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 756 $ 756 $ 1,203 $ 1,203
Short-term investments $ 196 $ 196 $ 55 $ 55
Short-term borrowings $ 461 $ 461 $ 292 $ 292
Long-term debt:
Ten-year unsecured notes $ 300 $ 289 $ 300 $ 259
Other $ 3 $ 3 $ 5 $ 5