Apple 1997 Annual Report Download - page 43

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The Company's cash and cash equivalent balances as of September 26, 1997 and September 27, 1996, include $165 million and $177 million,
respectively, pledged primarily as collateral to support letters of credit.
INTEREST RATE DERIVATIVES AND FOREIGN CURRENCY INSTRUMENTS
The table below shows the notional principal, fair value, and credit risk amounts of the Company's interest rate derivative and foreign currency
instruments as of September 26, 1997, and September 27, 1996. 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 26, 1997, and September 27, 1996. 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 sforeign 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.
The interest rate swaps which qualify as accounting hedges 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
40
1997 1996
--------------------------------------- ------------------------
NOTIONAL CREDIT RISK NOTIONAL
PRINCIPAL FAIR VALUE AMOUNT PRINCIPAL FAIR VALUE
----------- ----- ------------- ----------- -----
(IN MILLIONS)
Transactions Qualifying as Accounting Hedges
Interest rate instruments
Swaps.......................................... $ 340 $ (4) $ -- $ 315 $ (13)
Interest rate collars.......................... $ 105 $ -- $ -- $ 80 $ --
Purchased floors............................... $ 455 $ (1) $ -- $ 475 $ 1
Foreign exchange instruments
Spot/Forward contracts......................... $ 741 $ 1 $ 7 $ 2,035 $ 9
Purchased options.............................. $ 890 $ 11 $ 11 $ 1,475 $ 9
Transactions Other Than Accounting Hedges
Interest rate instruments
Swaps.......................................... $ 100 $ -- $ -- $ -- $ --
Foreign exchange instruments
Spot/Forward contracts......................... $ 89 $ -- $ 1 $ 182 $ --
Purchased options.............................. $ 1,075 $ 8 $ 8 $ 606 $ 8
Sold options................................... $ 840 $ (11) $ -- $ 506 $ (6)
CREDIT RISK
AMOUNT
-------------
Transactions Qualifying as Accounting Hedges
Interest rate instruments
Swaps.......................................... $ --
Interest rate collars.......................... $ --
Purchased floors............................... $ 1
Foreign exchange instruments
Spot/Forward contracts......................... $ 16
Purchased options.............................. $ 9
Transactions Other Than Accounting Hedges
Interest rate instruments
Swaps.......................................... $ --
Foreign exchange instruments
Spot/Forward contracts......................... $ --
Purchased options.............................. $ 8
Sold options................................... $ --