Apple 1999 Annual Report Download - page 29

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Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to
anticipate results or trends in future periods. In addition, the Company's participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
ITEM 7A. DISCLOSURES ABOUT MARKET RISK
INTEREST RATE AND FOREIGN CURRENCY RISK MANAGEMENT
To ensure the adequacy and effectiveness of the Company's foreign exchange and interest rate hedge positions, as well as to monitor the risks
and opportunities of the nonhedge portfolios, the Company continually monitors its foreign exchange forward and option positions, and its
interest rate swap, option and floor positions both on a stand-alone basis and in conjunction with its underlying foreign currency and interest
rate related exposures, respectively, from both an accounting and an economic perspective. However, given the effective horizons of the
Company's risk management activities and the anticipatory nature of the exposures intended to hedge, there can be no assurance the
aforementioned programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either
foreign exchange or interest rates. In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market
instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and,
therefore, may adversely affect the Company's operating results and financial position.
INTEREST RATE RISK
While the Company is exposed with respect to interest rate fluctuations in 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, 1999, substantially all of the Company's investments have maturities less 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 paid interest semiannually and matured, if not
converted earlier, on June 1, 2001. The Notes were 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
were 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. In addition, the Company
incurred approximately $15 million of costs associated with the issuance of the Notes. These costs were accounted for as a deduction from the
face amount of the Notes and were being amortized over the life of the Notes.
On April 14, 1999, the Company called for redemption the Notes. Not including approximately $7 million of unamortized debt issuance costs,
debentures in an aggregate principal amount outstanding totaled approximately $661 million as of March 27, 1999. During the third quarter of
1999, debenture holders
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