Apple 2001 Annual Report Download - page 26

condition.
The Company's stock price may be volatile.
The Company's stock has experienced substantial price volatility as a result of variations between its actual and anticipated financial results and
as a result of announcements by the Company and its competitors. In addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many technology companies in ways that have been unrelated to the operating performance
of these companies. These factors, as well as general economic and political conditions, may materially adversely affect the market price of the
Company's common stock in the future.
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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 non-hedge portfolios, the Company continually monitors its foreign exchange forward and option positions, and its
interest rate swap and option 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. The Company adopted Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as of October 1, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, hedging activities, and exposure definition. Management does not believe that ongoing application of
SFAS No. 133 will significantly alter the Company's hedging strategies. However, its application may increase the volatility of other income
and expense and other comprehensive income.
Interest Rate Risk
While the Company is exposed 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 investment portfolio and long-
term debt
obligations and related derivative financial instruments. The Company places its short-term investments in highly liquid securities issued by
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 maturities of
three months or less are classified as cash equivalents; highly liquid investments with maturities greater than three months are classified as
short-term investments. As of September 29, 2001, approximately $313 million of the Company's investment portfolio classified as short-term
investments was in U.S. agency securities with underlying maturities ranging from 1 to 4 years. The remainder all had underlying maturities
between 3 and 12 months. As of September 30, 2000, substantially all of the Company's investment portfolio classified as short-term
investments had maturities of between 3 and 12 months.
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.
The following table presents the principal (or notional) amounts and related weighted-average interest rates for the Company's short-term
investment portfolio and its long-term debt obligations. The long-term debt is comprised of $300 million of unsecured notes described above,
which mature in February 2004. The Company's U.S. corporate securities include commercial paper, loan participations, certificates of deposit,
time deposits and corporate debt securities. Foreign securities include foreign commercial paper, loan participation, certificates of deposit and
time deposits with foreign institutions, most of which are denominated in U.S. dollars. Net unrealized gains on the Company's investment
portfolio were $11 million as of September 29, 2001 and were negligible as of September 30, 2000.
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September 29, 2001 September 30, 2000
Carrying Weighted-Average Interest Carrying Weighted-Average Interest