Apple 1998 Annual Report Download - page 28

gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company's consolidated operating
results and financial position.
INTEREST RATE RISK
While the Company is exposed with respect to fluctuations in the interest rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. In this regard, changes in
U.S. interest rates affect the interest earned on the Company's cash, cash equivalents, and short-term investments as well as costs associated
with foreign currency hedges.
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investments and long-term debt
obligations and related derivative financial instruments. The Company places its investments with high credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer. The Company's general policy is to limit the risk of principal loss and ensure the safety
of invested funds by limiting market and credit risk. 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. As of September 25, 1998, there are no investments with maturities greater than 12 months.
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 semiannually 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 25, 1998. The Notes are redeemable by the
Company at 102.4% of the principal amount, plus accrued interest, for the 12 month period beginning June 1, 1999, and at 101.2% of the
principal amount, plus accrued interest, for the 12 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 shares of common stock issuable upon conversion of these Notes.
The following table presents the principal (or notional) amounts and related weighted-average interest rates for the Company's investment
portfolio and its long-term debt obligations. The long-term debt is comprised of $654 million of unsecured convertible subordinated notes
which, if not converted, mature in June of 2001 and $300 million of unsecured notes which mature in February 2004. The Company's
investments in U.S. corporate securities include commercial paper and corporate debt securities. Foreign securities include foreign commercial
paper, loan participation and certificates of deposit with foreign institutions, most of which are denominated in U.S. dollars. The Company's
cash equivalents and short-term investments have generally been held until maturity. Gross unrealized gains and losses were negligible as of
September 25, 1998.
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