Apple 2000 Annual Report Download - page 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--FINANCIAL INSTRUMENTS (CONTINUED)
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 losses on such contracts totaled approximately $1 million as of September 30, 2000 and $5 million as of
September 25, 1999.
The foreign exchange forward contracts not accounted for as hedges are carried at fair value in other current liabilities with the gains and losses
recorded currently in income as a component of interest and other income (expense), net. The foreign exchange forward contracts that are
designated and effective as hedges are also carried at fair value in other current assets and liabilities with gains and losses recorded currently in
income as a component of interest and other income (expense), net, against the losses and gains on the hedged transactions. As of September
30, 2000, maturity dates for foreign exchange forward contracts held by the Company ranged from one to five months.
If the option contract is designated and effective as a hedge of a firmly committed transaction, or a probable but not firmly committed
transaction, then any gain or loss is deferred until the occurrence of the hedged transaction. Deferred gains and losses on such contracts were
not significant as of September 30, 2000, and September 25, 1999. If the option contract is used to hedge an asset or liability, then the option is
carried at fair value in other current liabilities with the gains and losses recorded currently in income as a component of interest and other
income (expense), net, against the losses and gains on the hedged transaction. As of September 30, 2000, maturity dates for purchased foreign
exchange option contracts and sold option contracts ranged from one to five months.
The counterparties to the agreements relating to the Company's investments and foreign exchange and interest rate instruments consist of a
number of major international financial institutions. To date, no such counterparty has failed to meet its financial obligations to the Company.
The Company does not believe there is significant risk of nonperformance by these counterparties because the Company continually monitors
its positions and the credit ratings of such counterparties, and limits the financial exposure and the number of agreements and contracts it enters
into with any one party. The Company generally does not require collateral from counterparties, except for margin agreements associated with
the ten-year interest rate swaps on the Company's ten-year unsecured notes. To mitigate the credit risk associated with these ten-year swap
transactions, which mature in 2004, the Company entered into margining agreements with its third-
party bank counterparties. These agreements
require the Company or the counterparty to post margin only if certain credit risk thresholds are exceeded. The amounts held in margin
accounts were not significant as of September 30, 2000.
LONG-TERM DEBT
UNSECURED NOTES
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. As of September 30, 2000 and September 25, 1999, the carrying amount of these notes was $300 million, while the fair
value was $279 million and $280 million, respectively. The fair value of the notes is based on their listed market values as of September 30,
2000 and September 25, 1999.
CONVERTIBLE NOTES
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, paid interest semiannually, and matured on June 1, 2001 if
not converted earlier. The Notes
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