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The Company may also enter into non-designated foreign currency contracts to partially offset the foreign currency exchange gains and
losses generated by the re-measurement of certain assets and liabilities denominated in non-functional currencies.
The Company may enter into interest rate swaps, options, or other instruments to manage interest rate risk. These instruments may offset
a portion of changes in income or expense, or changes in fair value of the Company’s term debt or investments. The Company designates
these instruments as either cash flow or fair value hedges. The Company’s hedged interest rate transactions as of September 26, 2015
are expected to be recognized within 10 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses
associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the
related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a
component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow
hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense
is recognized. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other
income/(expense), net.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged
transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in
AOCI associated with such derivative instruments are reclassified immediately into other income/(expense), net. Any subsequent changes
in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other
transactions.
Net Investment Hedges
The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative
translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are
recognized in other income/(expense), net.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the
change in value of the underlying hedged item.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to
which the derivative relates.
The Company records all derivatives in the Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these
derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair
value as of September 26, 2015 and September 27, 2014 (in millions):
2015
Fair Value of
Derivatives Designated
as Hedge Instruments
Fair Value of
Derivatives Not Designated
as Hedge Instruments Total
Fair Value
Derivative assets (1):
Foreign exchange contracts $ 1,442 $ 109 $ 1,551
Interest rate contracts $ 394 $ 0 $ 394
Derivative liabilities (2):
Foreign exchange contracts $ 905 $ 94 $ 999
Interest rate contracts $ 13 $ 0 $ 13
Apple Inc. | 2015 Form 10-K | 51