Apple 1996 Annual Report Download - page 38

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Interest rate option contracts require the Company to make payments should certain interest rates either fall below or rise above predetermined
levels. These contracts are generally not accounted for as hedges and are carried at fair value with gains and losses recorded currently in
income as a component of interest and other income (expense), net.
The foreign exchange forward contracts not accounted for as hedges are carried at fair value with gains and losses recorded currently in income
as a component of interest and other income (expense), net. The foreign exchange forward contracts that are designated and effective as hedges
are also carried at fair value with gains and losses recorded currently in income as a component of interest and other income (expense), net,
against the losses and gains on the hedged transactions. All foreign exchange forward contracts expire within one year.
The premium costs of purchased foreign exchange option contracts that are designated and effective as hedges are amortized over the life of the
option. If the option contract is designated and effective as a hedge of a firmly committed transaction, or a probable but not firmly committed
transaction, then any gain or loss is deferred until the occurrence of the hedged transaction. Deferred gains and losses on such contracts were
immaterial at September 27, 1996, and September 29, 1995. If the option contract is used to hedge an asset or liability, then the hedge is carried
at fair value with gains or losses recorded currently in income as a component of interest and other income (expense), net, against the losses or
gains on the hedged transaction. As of September 27, 1996, maturity dates for purchased foreign exchange option contracts ranged from one to
twelve months.
The purchased and sold foreign exchange option contracts not accounted for as hedges are carried at fair value with gains and losses recorded
currently in income as a component of interest and other income (expense), net. As of September 27, 1996, maturity dates for 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.
Notes Payable to Banks
The weighted average interest rates for Japanese yen-denominated notes payable to banks at September 27, 1996, and September 29, 1995,
were approximately 1.3% and 2.2%, respectively. The Company had no U.S. dollar-denominated notes payable to banks at September 27,
1996. The weighted average interest rate for U.S. dollar-denominated notes payable to banks at September 29, 1995, was approximately 6.2%.
The carrying amount of notes payable to banks approximates their fair value due to their short-term maturities.
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