Apple 1998 Annual Report Download - page 29

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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 semiannually and mature on
February 15, 2004.
Purchased floors are options which 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 purchased floors are generally designated and effective as hedges against interest rate risk on the Company's securities classified
as available-for-sale and are carried at fair value in other current liabilities with the unrealized gains and losses recorded as a component of
shareholders' equity. Purchased floors outstanding as of September 25, 1998, provide the Company with the option of a weighted-average
interest rate of 5.15% on the notional amount of $525 million. Gains and losses are recognized in income as a component of interest and other
income (expense), net in the same period as the hedged transaction. Unrealized gains and losses on such contracts were immaterial during fiscal
1998.
The Company also enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in
order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest
expense on its long-term debt, and/or to diversify a portion of the Company's exposure away from fluctuations in short-term U.S. interest rates.
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program. The
Company does not hold or transact in such financial instruments for purposes other than risk management.
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 10 year debt to floating-
rate debt and generally qualify for hedge accounting treatment. The
notional amount of such interest rate swaps was approximately $340 million as of September 25, 1998. The maturity date for these swaps is in
February 2001. As of September 25, 1998, interest rate swaps classified as receive-fixed swaps had a weighted-average receive rate of 6.04%.
Weighted-average pay rates on these swaps were 5.73% as of September 25, 1998. The unrealized gains and losses on these swaps are deferred
and recognized in income as a component of interest and other income (expense), net in the same period as the hedged transaction. Deferred
gains on such contracts totaled approximately $7 million as of September 25, 1998.
27
AVERAGE
CARRYING INTEREST
In millions, except average interest rates AMOUNT RATE
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Assets:
Cash Equivalents:
U.S. Treasury securities....................................... $ 10 5.45%
U.S. corporate securities...................................... 785 5.55%
Foreign securities............................................. 613 5.55%
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Total cash equivalents....................................... 1,408 5.55%
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Short-term investments:
U.S. corporate securities...................................... 163 5.56%
Foreign securities............................................. 656 5.54%
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Total short-term investments................................. 819 5.54%
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Total investment securities.................................... $ 2,227 5.55%
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Debt:
Fixed rate..................................................... $ 954 6.07%
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