Apple 1996 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 1996 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 87

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87

Summary of Significant Accounting Policies
Financial Instruments
Investments
All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents; investments
with maturities between three and twelve months are considered to be short-
term investments. There are no investments with maturities greater
than twelve months. The Company's cash equivalents consist primarily of U.S. Government securities, Euro-dollar deposits, and commercial
paper. Short-term investments consist principally of Euro-dollar deposits and commercial paper. The Company's cash equivalents and short-
term investments are generally held until maturity. The Company's marketable equity securities consist of securities issued by U.S.
corporations and are included in "Other assets" on the accompanying balance sheets.
Management determines the appropriate classification of its debt and marketable equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The Company's debt and marketable equity securities have been classified and accounted for as
available-for-sale. These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of
shareholders' equity. These unrealized gains or losses include any unrealized losses and gains on interest rate contracts accounted for as hedges
against the available-for-sale securities. Equity securities that are not considered marketable as defined are carried at cost. Realized gains and
losses on the sale of securities are included in interest and other income (expense), net. The cost of securities sold is based on the specific
identification method.
Financial Instruments with Off-Balance-Sheet Risk In the ordinary course of business and as part of the Company's asset and liability
management, the Company enters into various types of transactions that involve contracts and financial instruments with off- balance-sheet
risk. These instruments are entered into in order to manage financial market risk, primarily interest rate and foreign exchange risk. The
Company enters into these financial instruments with major international financial institutions utilizing over-the-counter as opposed to
exchange traded instruments. The Company does not hold or transact in financial instruments for purposes other than risk management.
Gains and losses on accounting hedges of existing assets or liabilities are recorded currently in income or shareholder's equity against the losses
and gains on the hedged transactions. Gains and losses related to qualifying accounting hedges of firmly committed or probable but not firmly
committed transactions are deferred until the occurrence of the hedged transactions. Gains and losses on interest rate and foreign exchange
contracts that do not qualify as accounting hedges are recorded currently in income.
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.
Interest Rate Derivatives
The Company enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in
order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with the fixed-rate interest
expense of its long-term debt, and/or to diversify a portion of the Company's exposure away from fluctuations in short-term U.S. interest rates.
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
In addition, the Company enters into foreign exchange forward contracts to hedge certain intercompany loan transactions. These forward
contracts effectively change certain foreign currency denominated debt into U.S. dollar denominated debt, which better matches against the
Company's U.S. dollar denominated cash equivalents and short-term investments.
31