Apple 1998 Annual Report Download - page 46

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--FINANCIAL INSTRUMENTS (CONTINUED)
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, and September 26, 1997.
The Company's cash and cash equivalent balances as of September 25, 1998, and September 26, 1997, include $56 million and $165 million,
respectively, pledged primarily as collateral to support letters of credit.
INTEREST RATE DERIVATIVES AND FOREIGN CURRENCY INSTRUMENTS
The following table shows the notional principal, fair value, and credit risk amounts of the Company's interest rate derivative and foreign
currency instruments as of September 25, 1998, and September 26, 1997 (in millions).
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 above 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 25, 1998, and September 26, 1997. 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 above reflects the notional principal, fair value,
and credit risk amounts of the Company's interest rate and foreign exchange instruments, it does not reflect the gains or losses associated with
the exposures and transactions that the interest rate and
43
NOTIONAL FAIR CREDIT RISK NOTIONAL FAIR
PRINCIPAL VALUE AMOUNTS PRINCIPAL VALUE
----------- ----- ------------- ----------- -----
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997
--------------------------------------- ------------------------
Transactions qualifying as accounting hedges:
Interest rate instruments:
Swaps................................................... $ 340 $ 7 $ 1 $ 340 $ (4)
Interest rate collars................................... $ -- $ -- $ -- $ 105 $ --
Purchased floors........................................ $ 525 $ 1 $ 1 $ 455 $ (1)
Foreign exchange instruments:
Spot/Forward contracts.................................. $ 295 $ (8) $ -- $ 741 $ 1
Purchased options....................................... $ 1,045 $ 14 $ 14 $ 890 $ 11
Transactions other than accounting hedges:
Interest rate instruments:
Swaps................................................... $ -- $ -- $ -- $ 100 $ --
Foreign exchange instruments:
Spot/forward contracts.................................. $ -- $ -- $ -- $ 89 $ --
Purchased options....................................... $ 835 $ 8 $ 8 $ 1,075 $ 8
Sold options............................................ $ 880 $ (15) $ -- $ 840 $ (11)
CREDIT RISK
AMOUNTS
---------------
Transactions qualifying as accounting hedges:
Interest rate instruments:
Swaps................................................... $ --
Interest rate collars................................... $ --
Purchased floors........................................ $ --
Foreign exchange instruments:
Spot/Forward contracts.................................. $ 7
Purchased options....................................... $ 11
Transactions other than accounting hedges:
Interest rate instruments:
Swaps................................................... $ --
Foreign exchange instruments:
Spot/forward contracts.................................. $ 1
Purchased options....................................... $ 8
Sold options............................................ $ --