Apple 2001 Annual Report Download - page 40

swaps during 2001 realizing a gain of $1.1 million.
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 29, 2001 and September 30, 2000, the carrying amount of these notes was $317 million and $300 million,
respectively, while the fair value was $295 million and $279 million, respectively. The fair value of the notes is based on their listed market
values as of September 29, 2001 and September 30, 2000.
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 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 twelve month period beginning June 1, 1999, and
at 101.2% of the principal amount, plus accrued interest, for the twelve month period beginning June 1, 2000. On April 14, 1999, the Company
called for redemption of 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
chose to convert virtually all of the outstanding debentures to common stock at a rate of $29.205 per share resulting in the issuance of
approximately 22.6 million shares of the Company's common stock.
Non-Current Debt and Equity Investments and Related Gains
The Company has held significant investments in ARM Holdings plc (ARM), Samsung Electronics Co., Ltd (Samsung), Akamai
Technologies, Inc. (Akamai) and EarthLink Network, Inc. (EarthLink). These investments have been reflected in the consolidated balance
sheets as non-current debt and equity investments and have been categorized as available-for-sale requiring that they be carried at fair value
with unrealized gains and losses, net of taxes, reported in equity as a component of accumulated other comprehensive income. All realized
gains on the sale of these investments have been included in other income. The combined fair value of these investments was $128 million and
$786 million as of September 29, 2001, and September 30, 2000, respectively. The Company believes it is likely there will continue to be
significant fluctuations in the fair value of these investments in the future.
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Occasionally, the Company uses short-term equity derivatives to manage potential dispositions of non-current debt and equity investments.
Any gains or losses associated with such derivatives are recognized currently in interest and other income.
ARM Holdings
ARM is 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 held approximately 34.8 million shares of ARM stock with a fair value of $383 million.
During 2001, the Company sold a total of approximately 29.8 million shares of ARM stock for net proceeds of approximately $176 million,
recorded a gain before taxes of approximately $174 million, and recognized related income tax expense of approximately $52 million. As of
September 29, 2001, the Company holds 5 million shares of ARM stock valued at $17 million.
During 2000, the Company sold a total of approximately 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 approximately 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 expense of approximately $25 million.
EarthLink
In January 2000, the Company invested $200 million in EarthLink, an Internet service provider (ISP). The investment is in EarthLink's
Series C Convertible Preferred Stock, which is convertible by the Company after January 4, 2001, into approximately 7.1 million shares of
EarthLink common stock. Concurrent with this investment, EarthLink and the Company entered into a multi-year agreement to deliver ISP
service to Macintosh users in the United States. Under the terms of the agreement, the Company profits from each new Mac customer that
subscribes to EarthLink's ISP service for a specified period of time, and EarthLink is the default ISP in Apple's Internet Setup Software
included with all Macintosh computers sold in the United States. As of September 30, 2000, the fair value of the Company's investment in
EarthLink was approximately $64 million.
During the second quarter of 2001, the Company determined that the decline in the fair value of its investment in EarthLink was other than
temporary requiring that its cost basis be written down to fair value as a new cost basis and the amount of the write-down be included in
earnings. As a result, the Company recognized a $114 million charge to earnings to write
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down the basis of its investment in EarthLink to