Apple 2001 Annual Report Download - page 41

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$86 million. This charge was included in gains on non-current investments, net. During the fourth quarter of 2001, the Company sold a total of
approximately 425,000 shares of EarthLink stock for net proceeds of approximately $6 million, recorded a gain before taxes of approximately
$800,000, and recognized related income tax of approximately $200,000. As of September 29, 2001, the Company holds 6.7 million shares of
EarthLink stock with a fair value of approximately $102 million.
Samsung
During the fourth quarter of 1999, the Company invested $100 million in Samsung to assist in the further expansion of Samsung's TFT-LCD
flat-panel display production capacity. The investment was in the form of three year unsecured bonds which were convertible into
approximately 550,000 shares of Samsung common stock beginning in July 2000. The bonds carried an annual coupon rate of 2% and pay a
total
52
yield to maturity of 5% if redeemed at their maturity. The fair value of the Company's investment in Samsung was approximately $123 million
as of September 30, 2000.
Prior to its sale, the Company had categorized its investment in Samsung as available-for-sale requiring that it be carried at fair value with
unrealized gains and losses, net of taxes, reported in equity as a component of accumulated other comprehensive income. The fair value of the
Company's investment in Samsung was approximately $123 million as of September 30, 2000. With the adoption of SFAS No. 133 on
October 1, 2000, the Company was required to account for the conversion option embedded in the Samsung bonds separately from the related
debt. The conversion feature was carried at fair value with any changes in fair value recognized in earnings in the period in which they occur.
Included in the $17 million gross SFAS No. 133 transition adjustment recorded in earnings during the first quarter of fiscal 2001 was a
$23 million favorable adjustment for the restatement to fair value as of October 1, 2000, of the derivative component of the Company's
2000, the Company recognized an unrealized loss of approximately $13 million during the first quarter of 2001. During the second quarter of
2001, the Company sold this investment for book value, including accrued interest, receiving net proceeds of approximately $117 million.
Akamai
In June 1999, the Company invested $12.5 million in Akamai, a global Internet content delivery service. The investment was in the form of
convertible preferred stock that converted into 4.1 million shares of Akamai common stock (adjusted for subsequent stock splits) at the time of
Akamai's initial public offering in October 1999. Beginning in the first quarter of 2000, the Company categorized its shares in Akamai as
available-for-sale. The fair value of the Company's investment in Akamai was approximately $216 million as of September 30, 2000. During
2001, the Company sold a total of approximately 1 million shares of Akamai stock for net proceeds of approximately $39 million, recorded a
gain before taxes of approximately $36 million, and recognized related income tax expense of approximately $11 million. As of September 29,
2001, the Company holds 3.1 million shares of Akamai stock valued at $9 million.
Other Strategic Investments
The Company has additional minority debt and equity investments in several privately held technology companies with a book value of
approximately $18 million and $33 million as of September 29, 2001, and September 30, 2000, respectively. These investments, which are
reflected in the consolidated balance sheets in other assets, are inherently risky because the products and/or markets of these companies are
typically not fully developed. During the second quarter of fiscal 2001, the Company determined that the decline in fair value of certain of
these investments was other than temporary and, accordingly, recognized a charge to earnings of approximately $8 million. This charge was
included in gains on non-current investments, net.
53
Note 3—Consolidated Financial Statement Details
Inventories
(in millions)
2001
2000
Purchased parts $
1
$
1
Work in process
—
2
Finished goods
10
30
Total inventories $
11
$
33