Apple 1997 Annual Report Download - page 45

carried at fair value in other current liabilities with gains and losses recorded currently in income. As of September 26, 1997, 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 rate for Japanese yen-denominated notes payable to banks as of September 26, 1997, and September 27, 1996,
was approximately 1.3%. The Company had no U.S. dollar-denominated notes payable to banks as of September 26, 1997 or September 27,
1996. The carrying amount of notes payable to banks approximates their fair value due to their less than 90-day maturities.
LONG-TERM DEBT
During 1996, the Company issued $661 million aggregate principal amount of 6% unsecured convertible subordinated notes (the "Notes") to
certain qualified parties in a private placement. The Notes were sold at 100% of par. The Notes pay interest semi-annually and mature on June
1, 2001. The Notes are convertible by their holders at any time after September 5, 1996 at a conversion price of $29.205 per share subject to
adjustments as defined in the Note agreement. No Notes had been converted as of September 26, 1997. The Notes are redeemable by the
Company at 102.4% of the principal amount, plus accrued interest, for the twelve-month period beginning June 1, 1999, and at 101.2% of the
principal amount, plus accrued interest, for the twelve-month period beginning June 1, 2000. The Notes are subordinated to all present and
future senior indebtedness of the Company as defined in the Note agreement. In addition, the Company incurred approximately $15 million of
costs associated with the issuance of the Notes. These costs are accounted for as a deduction from the face amount of the Notes and are being
amortized over the life of the Notes. In October 1996, the Company registered with the Securities and Exchange Commission ("SEC") $569
million of the aggregate principal amount of the Notes, including the related common shares issuable upon conversion of these Notes.
During 1994, the Company issued $300 million aggregate principal amount of 6.5% unsecured notes in a public offering registered with the
SEC. The notes were sold at 99.925% of par, for an effective yield to maturity of 6.51%. The notes pay interest semi-annually and mature on
February 15, 2004.
The carrying amounts and estimated fair values of the Company's long-term debt are as follows:
(1) The carrying amount of the convertible subordinated notes is prior to consideration of the related issuance costs.
The fair value of the ten-
year unsecured notes is based on their listed market values as of September 26, 1997 and September 27, 1996. The fair
value of the convertible subordinated notes is based on an estimate from a financial institution.
42
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
(IN MILLIONS)
Ten-year unsecured notes........................................... $ 300 $ 269 $ 300 $ 259
Convertible subordinated notes (1)................................. $ 661 $ 656 $ 661 $ 656
Other.............................................................. $ 3 $ 3 $ 3 $ 3