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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Financial Instruments (Continued)
The following table summarizes the activity in the allowance for doubtful accounts for the three fiscal years ended September 27, 2008 (in
millions):
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 $2.3 billion and $2.4 billion as of September 27, 2008 and September 29, 2007, 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 related products are sold by the
Company, 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 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. 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.
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, 2008 and September 29, 2007 (in millions):
The notional principal amounts for derivative instruments provide one measure of the transaction volume outstanding as of year-end, and do not
represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts shown in the table above represents the
Company’s gross exposure to potential accounting loss on these transactions if all counterparties failed to perform according to the terms of the
contract, based on then-current currency exchange rates at each respective date. The Company’
s exposure to credit loss and market risk will vary
over time as a function of currency exchange rates.
67
2008
2007
2006
Beginning allowance balance
$
47
$
52
$
46
Charged to costs and expenses
3
12
17
Deductions
(3
)
(17
)
(11
)
Ending allowance balance
$
47
$
47
$
52
2008
2007
Notional
Principal
Fair
Value
Credit Risk
Amounts
Notional
Principal
Fair
Value
Credit Risk
Amounts
Foreign exchange instruments qualifying as accounting hedges:
Spot/Forward contracts
$
2,782
$
(2
)
$
43
$
570
$
(8
)
$
—
Purchased options
$
3,120
$
64
$
64
$
2,564
$
10
$
10
Sold options
$
2,668
$
(23
)
$
—
$
1,498
$
(2
)
$
—
Foreign exchange instruments other than accounting hedges:
Spot/Forward contracts
$
2,633
$
3
$
5
$
1,768
$
(2
)
$
—
Purchased options
$
235
$
3
$
3
$
161
$
1
$
1