Apple 2014 Annual Report Download - page 61

The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts
associated with outstanding or unsettled derivative instruments as of September 27, 2014 and September 28, 2013 (in
millions):
2014 2013
Notional
Amount Credit Risk Amounts Notional Amount Credit Risk Amounts
Instruments designated as accounting hedges:
Foreign exchange contracts $42,945 $1,333 $35,013 $159
Interest rate contracts $12,000 $ 89 $ 3,000 $ 44
Instruments not designated as accounting hedges:
Foreign exchange contracts $38,510 $ 222 $16,131 $ 25
The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and
do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the
Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all
counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each
respective date. The Company’s gross exposure on these transactions may be further mitigated by collateral received from
certain counterparties. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates
change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does
not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The
amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying
exposures, will depend on actual market conditions during the remaining life of the instruments.
The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net
settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral
security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments
fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their
gross fair values in its Consolidated Balance Sheets. As of September 27, 2014, the Company received $2.1 billion of cash
collateral related to the derivative instruments under its collateral security arrangements, which were recorded as accrued
expenses in the Consolidated Balance Sheet. As of September 28, 2013, the Company posted cash collateral related to the
derivative instruments under its collateral security arrangements of $164 million, which were recorded as other current assets in
the Consolidated Balance Sheet. The Company did not have any derivative instruments with credit-risk related contingent
features that would require it to post additional collateral as of September 27, 2014 or September 28, 2013.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is
allowed to net settle transactions with a single net amount payable by one party to the other. As of September 27, 2014 and
September 28, 2013, the potential effects of these rights of set-off associated with the Company’s derivative contracts,
including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $1.6 billion and $333
million, respectively, resulting in net derivative liabilities of $549 million and $57 million, respectively.
Apple Inc. | 2014 Form 10-K | 59