Apple 1996 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 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

(In millions)
The interest rate swaps 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. As a result, these swaps effectively convert the
Company's fixed-rate ten-year debt to floating-rate debt and generally qualify for hedge accounting treatment. Maturity dates for these swaps
currently range from one to seven years. At September 27, 1996, and September 29, 1995, interest rate swaps classified as receive-fixed swaps
had weighted average receive rates of 6.04% and 5.89%, respectively. Weighted average pay rates on these swaps were 5.82% and 5.88% at
September 27, 1996, and September 29, 1995, respectively. The unrealized gains and losses on these swaps are generally deferred and
recognized in income in the same period as the hedged transaction. Deferred losses on such contracts totaled approximately $13 million and $9
million at September 27, 1996, and September 29, 1995, respectively.
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. Purchased floors limit the Company's exposure to falling interest rates on its cash
equivalents and short-term investments by locking in a minimum interest rate. The Company receives a payment when interest rates fall below
a predetermined level. A purchased floor generally qualifies for hedge accounting treatment and is reported on the balance sheet at its premium
cost, which is amortized over the life of the floor. The interest rate collars and purchased floors are generally designated and effective as hedges
against interest rate risk on the Company's debt securities classified as available-for-sale and are carried at fair value as an adjustment to the
basis of the underlying security. The related unrealized gains and losses,net of taxes, are reported as a component of shareholders' equity and
are recognized in income in the same period as the hedged transaction. Unrealized gains and losses on such contracts were immaterial at
September 27, 1996, and September 29, 1995.
35
1996 1995
Credit Credit
Notional Fair Risk Notional Fair Risk
Principal Value Amount Principal Value Amount
Transactions
Qualifying as
Accounting
Hedges
Interest rate
instruments
Swaps $ 315 $ (13) $ -- $ 450 $ (7) $ 2
Interest
rate collars $ 80 $ -- $ -- $ 105 $ -- $ --
Purchased
floors $ 475 $ 1 $ 1 $ -- $ -- $ --
Sold options $ -- $ -- $ -- $ 150 $ -- $ --
Foreign exchange
instruments
Spot/Forward
contracts $2,035 $ 9 $ 16 $1,211 $ 16 $ 23
Purchased
options $1,475 $ 9 $ 9 $1,441 $ 32 $ 32
Transactions
Other Than
Accounting
Hedges
Interest rate
instruments
Swaps $ -- $ -- $ -- $ 10 $ -- $ --
Sold options $ -- $ -- $ -- $ 100 $ (1) $ --
Foreign
exchange
instruments
Spot/Forward
contracts $ 182 $ -- $ -- $ -- $ -- $ --
Purchased
options $ 606 $ 8 $ 8 $3,046 $ 134 $ 134
Sold options $ 506 $ (6) $ -- $6,082 $ (83) $ --