Apple 2000 Annual Report Download - page 21

the total charge is the cost of the aircraft. The other half represents all other costs and taxes associated with the bonus.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income increased $116 million or 133% to $203 million during 2000 as compared to 1999. This increase is attributable to three
principal factors. First, the Company's cash, cash equivalents, and short-term investments increased $801 million or 25% during 2000. Second,
the weighted-average interest rate earned by the Company on its cash equivalents and short-term investments increased to 6.55% as of the end
of 2000 compared to 5.38% at the end of 1999. The combination of these first two factors increased interest income during 2000 by $66
million. Third, interest expense declined $26 million during 2000 as a result of the conversion of approximately $661 million of the Company's
convertible subordinated notes to common stock during the third quarter of 1999.
During 1999, the Company experienced a $59 million increase in net interest income, primarily the result of higher cash and investment
balances, and by decreased interest expense associated with the conversion of the convertible subordinated notes during the third quarter of
1999.
GAIN FROM SALE OF INVESTMENT
The Company holds a significant equity investment in ARM Holdings plc (ARM), a publicly held company in the United Kingdom involved in
the design and licensing of high performance microprocessors and related technology. As of September 30, 2000, the Company holds 34.8
million shares of ARM stock valued at $383 million.
During 2000, the Company sold a total of 45.2 million shares of ARM stock for net proceeds of approximately $372 million, recorded a gain
before taxes of approximately $367 million, and recognized related income tax of approximately $94 million. During 1999, the Company sold
a total of 163 million shares of ARM stock for net proceeds of approximately $245 million, recorded a gain before taxes of approximately $230
million, and recognized related income tax of approximately $25 million.
During 1998, ARM completed an initial public offering of its stock on the London Stock Exchange and the NASDAQ National Market. The
Company sold 18.9% of the shares it held in ARM at that time for a gain before foreign taxes of approximately $24 million. The Company also
recognized during 1998 other income of approximately $16 million to reflect its remaining 25.9% ownership interest in the increased net book
value of ARM following its initial public offering.
Further information related to the Company's investment in ARM and gains recognized related to that investment may be found in Part II, Item
8 of this Form 10-K at Note 2 of Notes to Consolidated Financial Statements, which information is hereby incorporated by reference.
PROVISION FOR INCOME TAXES
As of September 30, 2000, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of
$466 million before being offset against certain deferred tax liabilities for presentation on the Company's balance sheet. This asset is generally
realizable based on the ability to offset existing deferred tax liabilities. As of September 30, 2000, a valuation allowance of $33 million was
recorded against the deferred tax asset for the benefits of tax losses that may not be realized. The valuation allowance relates principally to the
operating loss carryforwards acquired from NeXT, the utilization of which is subject to certain limitations imposed by the Internal Revenue
Code. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the
valuation allowance. The Company's effective tax rate for 2000 was 28% compared to the higher statutory rate due primarily to the reversal of
a portion of the previously established valuation allowance and certain undistributed foreign earnings for which no U.S. taxes were provided.
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