Apple 2005 Annual Report Download - page 76

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Financial Instruments (Continued)
are not covered by collateral, third-party flooring arrangements, or credit insurance are outstanding with the Company’s distribution and retail
channel partners. No customer accounted for more than 10% of trade receivables as of September 24, 2005 or September 25, 2004.
The following table summarizes the activity in the allowance for doubtful accounts (in millions):
(a)
Represents amounts written off against the allowance, net of recoveries.
Vendor 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 $417 million and $276 million as of September 24, 2005 and September 25, 2004, respectively. The Company does not
reflect the sale of these components in net sales and does not recognize any profits on these sales until the products are sold through to the end
customer at which time the profit is recognized as a reduction of cost of sales.
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 revenue and cost of sales. From time to time, the Company enters into interest rate derivative
agreements to modify the interest rate profile of certain investments and debt. The Company’s 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.
74
September 24,
2005
September 25,
2004
September 27,
2003
Beginning allowance balance
$
47
$
49
$
51
Charged to costs and expenses
8
3
4
Deductions (a)
(9
)
(5
)
(6
)
Ending allowance balance
$
46
$
47
$
49