Apple 2003 Annual Report Download - page 29

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Gains and Losses on Non-current Investments
The Company has held investments in EarthLink Inc. (EarthLink), Akamai Technologies, Inc. (Akamai), ARM Holdings plc (ARM) and
certain investments in private companies. These investments have been reflected in the consolidated balance sheets as long term assets within
other assets 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. 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 2003, the Company sold 1,875,000 shares of Akamai stock for net proceeds of approximately $9 million, and a gain before taxes of
approximately $8 million. Additionally, the Company sold its remaining investment in ARM stock, 278,000 shares, for net proceeds of
approximately $295,000, and a
34
gain before taxes of $270,000, and sold its remaining investment in EarthLink stock, 6,540,000 shares, for net proceeds of approximately
$37 million, and a gain before taxes of $2 million. The fair value of the Company's remaining investment in Akamai as of September 27, 2003,
was approximately $5 million.
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 writedown the basis of its investment in EarthLink, a $6 million charge to earnings to
writedown the basis of its investment in Akamai, and a $15 million charge to earnings to writedown 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 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.
Unrealized Loss on Convertible Securities
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. SFAS No. 133 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 decreased $29 million or 26% to $83 million during 2003. The decrease is primarily the result of declining
investment yields on the Company's cash and short
-
term investments resulting from substantially lower market interest rates. The weighted
2003
2002
2001
Gains (losses) on non
-
current investments, net
$
10
$
(42
)
$
88
Unrealized loss on convertible securities
$
—
$
—
$
(
13
)
Interest income
$
69
$
118
$
218
Interest expense
(8
)
(11
)
(16
)
Gains on sales of short term investments, net
21
7
—
Other income (expense), net
(5
)
(2
)
15
Gain on forward purchase agreement
6
—
—
Interest and other income, net
$
83
$
112
$
217
Total other income and expense
$
93
$
70
$
292