Apple 2003 Annual Report Download - page 56

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(a)
Beginning allowance balance
$
51
$
51
$
64
Charged to costs and expenses
4
10
7
Deductions (a)
(6
)
(10
)
(20
)
Ending allowance balance
$
49
$
51
$
51
Represents amounts written off against the allowance, net of recoveries.
Non
-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of raw material components to these
manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these raw
material components directly from suppliers. These non-trade receivables, which are included in the consolidated balance sheets in other
current assets, totaled $184 million and $142 million as of September 27, 2003, and September 28, 2002, respectively. The Company does not
recognize any profits on these sales or reflect the sale of these components in its net sales.
Inventory Prepayment
In April 2002, the Company made a $100 million prepayment to an Asian supplier for the purchase of components over the following nine
months. In return for this deposit, the supplier agreed to supply the Company with a specified level of components during the three consecutive
fiscal quarters ended December 28, 2002. Approximately $53 million of this deposit remained unused as of September 28, 2002 and was
reflected in the consolidated balance sheets in other current assets. During the first six months of 2003, the remainder of the deposit balance
was fully utilized for the purchase of components. The deposit was unsecured and had no stated interest component. The Company imputed an
amount to cost of sales and interest income during each period the deposit was outstanding at a 3.25% interest rate to reflect the economics of
this transaction.
Derivative Financial Instruments
The Company uses derivatives to partially offset its business exposure to foreign exchange and interest rate risk. Foreign currency forward and
option contracts are used to offset the foreign exchange risk on certain existing assets and liabilities and to hedge the foreign exchange risk on
expected future cash flows on certain forecasted revenues and cost of sales. From time to time, the Company enters into interest rate swap
agreements to modify the interest rate profile of certain investments and debt. The Company's
70
accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments. The
Company records all derivatives on the balance sheet at fair value.
The following table shows the notional principal, net fair value, and credit risk amounts of the Company's foreign currency instruments as of
September 27, 2003 and September 28, 2002 (in millions):
The notional principal amounts for derivative instruments provide one measure of the transaction volume outstanding as of year
-
end, and do
September 27, 2003
September 28, 2002
Notional
Principal
Fair
Value
Credit Risk
Amounts
Notional
Principal
Fair
Value
Credit Risk
Amounts
Foreign exchange instruments qualifying as accounting
hedges:
Spot/Forward contracts
$
464
$
(21
)
$
—
$
462
$
1
$
1
Purchased options
$
512
$
3
$
3
$
196
$
—
$
—
Sold options
$
645
$
(8
)
$
—
$
392
$
(4
)
$
—
Foreign exchange instruments other than accounting
hedges:
Spot/Forward contracts
$
445
$
3
$
3
$
302
$
—
$
—
Purchased options
$
8
$
—
$
—
$
—
$
—
$
—
Sold options
$
5
$
—
$
—
$
—
$
—
$
—