Apple 2004 Annual Report Download - page 43

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Gains and Losses on Non-current Investments
Over the course of the last three years, the Company has held investments that were classified as available-for-sale in EarthLink Inc.
(EarthLink), Akamai Technologies, Inc. (Akamai), ARM Holdings plc (ARM) and certain investments in private companies. 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 2004, the Company sold its remaining 986,000 shares of Akamai stock. The transaction generated proceeds of approximately $5 million
and a gain before taxes of approximately $4 million. As of September 25, 2004, the Company does not have any non-current public company
investments reflected in its consolidated balance sheet.
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 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.
During 2002, the Company determined that declines in the fair value of certain 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.
Interest and Other Income, Net
Total interest and other income, net decreased $30 million or 36% to $53 million during fiscal 2004 compared to $83 million in 2003 and
$112 million in 2002. These decreases are attributable primarily to declining investment yields on the Company's cash and short-term
investments resulting from lower market interest and a shortening of the average maturity of the Company's investment portfolio, as well as
lower gains on sales of short-term investments in fiscal 2004. The weighted average interest rate earned by the Company on its cash, cash
equivalents and short-
term investments fell to 1.38% in 2004 compared to the 1.89% and 2.85% rates earned during 2003 and 2002, respectively.
The Company occasionally sells short-term investments prior to their stated maturities. As a result of such sales, the Company recognized net
gains of $1 million, $21 million and $7 million during fiscal 2004, 2003 and 2002, respectively. The decrease in total interest and other income,
net during fiscal 2003 was also offset by the $6 million gain related to the forward purchase agreement during the fourth quarter of 2003 which is
further discussed below under the heading "Cumulative Effects of Accounting Changes."
Interest expense consisted primarily of interest on the Company's $300 million aggregate principal amount unsecured notes, which were repaid
upon their maturity in February 2004, partially offset by amortization of deferred gains realized in 2002 and 2001 that resulted from the closure
of swap positions associated with the unsecured notes. The unsecured notes were sold at 99.925% of par for an effective yield to maturity of
6.51%. Total deferred gain resulting from the closure of debt swaps of approximately $23 million was fully amortized as of the notes' maturity in
February 2004.
Provision for Income Taxes
The Company's effective tax rate for the year ended September 25, 2004 was approximately 28%. The Company's effective rate differs from the
statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because
such earnings are intended to
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