Apple 2002 Annual Report Download - page 26

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Other income and expense for the three fiscal years ended September 28, 2002 are as follows (in millions):
Gains and Losses on Non-current Investments
Investments categorized as non-current debt and equity investments on the consolidated balance sheet are in equity and debt instruments of
public companies. The Company's non-current debt and equity investments, and certain investments in private companies carried in other
assets, 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. However, the Company recognizes an impairment charge to
earnings in the event a decline in fair value below the cost basis of one of these investments is determined to be other-than-temporary. The
Company includes recognized gains and losses resulting from the sale or from other-than-
temporary declines in fair value associated with these
investments in other income and expense. Further information related to the Company's non-current debt and equity investments may be found
in Part II, Item 8 of this Form 10-K at Note 2 of Notes to Consolidated Financial Statements.
During 2002, the Company determined that declines in the fair value of certain of these investments were other-than-
temporary. As a result, the
Company recognized a $44 million charge to earnings to write-down the basis of its investment in EarthLink, Inc. (EarthLink), a $6 million
charge to earnings to write-down the basis of its investment in Akamai Technologies, Inc. (Akamai), and a $15 million charge to earnings to
write-
down the basis of its investment in a private company investment. These losses in 2002 were partially offset by the sale of 117,000 shares
of EarthLink stock for net proceeds of $2 million and a gain before taxes of $223,000, the sale of 250,000 shares of Akamai stock for net
proceeds of $2 million and a gain before taxes of $710,000, and the sale of approximately 4.7 million shares of ARM Holdings plc (ARM)
stock for both net proceeds and a gain before taxes of $21 million.
During 2001, the Company sold a total of approximately 1 million shares of Akamai stock for net proceeds of $39 million and recorded a gain
before taxes of $36 million, and sold a total of approximately 29.8 million shares of ARM stock for net proceeds of $176 million and recorded
a gain before taxes of $174 million. These gains during 2001 were partially offset by a $114 million charge to earnings that reflected an other-
than-temporary decline in the fair value of the Company's investment in EarthLink and an $8 million charge that reflected an other-than-
temporary decline in the fair value of certain private company investments. During 2000, the Company sold a total of approximately
45.2 million shares of ARM stock for net proceeds of $372 million and a gain before taxes of $367 million.
The combined carrying value of the Company's investments in EarthLink, Akamai, and ARM as of September 28, 2002, was $39 million. The
Company believes it is likely there will continue to be significant fluctuations in the fair value of these investments in the future.
31
Accounting for Derivatives and Cumulative Effect of Accounting Change
On October 1, 2000, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities
. SFAS No. 133 established accounting and reporting standards for derivative instruments, hedging
activities, and exposure definition. Net of the related income tax effect of approximately $5 million, adoption of SFAS No. 133 resulted in a
favorable cumulative-effect-type adjustment to net income of approximately $12 million for the first quarter of 2001. The $17 million gross
transition adjustment was comprised of a $23 million favorable adjustment for the restatement to fair value of the derivative component of the
Company's investment in Samsung Electronics Co., Ltd. (Samsung), partially offset by the unfavorable adjustments to certain foreign currency
and interest rate derivatives. SFAS No. 133 also required the Company to adjust the carrying value of the derivative component of its
investment in Samsung to earnings during the first quarter of 2001, the before tax effect of which was an unrealized loss of approximately
$13 million.
Interest and Other Income, Net
Net interest and other income was $112 million in fiscal 2002, compared to $217 million in fiscal 2001. This $105 million or 48% decrease is
2002
2001
2000
Gains (losses) on non
-
current investments, net
$
(42
)
$
88
$
367
Unrealized loss on convertible securities
$
—
(
13
)
$
—
Interest income
$
118
$
218
$
210
Interest expense
(11
)
(16
)
(21
)
Miscellaneous other income and expense
5
15
14
Interest and other income, net $
112
$
217
$
203
Total other income and expense
$
70
$
292
$
570