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0000320193
20021219
10-K
1,221
However, considerable trade receivables that are not covered by collateral or credit insurance are outstanding with the Company's distribution and retail channel partners.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,222
Trade receivables from a single customer, Ingram Micro, Inc., accounted for approximately 10.8% and 9.4% of net accounts receivable as of September 28, 2002, and September 29, 2001, respectively.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,223
The following table summarizes the activity in the allowance for doubtful accounts (in millions).
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,224
(a)Represent amounts written off against the allowance, net of recoveries.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,225
Non-Trade Receivables The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale by the Company of raw material components to these manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,226
The Company purchases these raw material components directly from suppliers.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,227
These non-trade receivables, which are included in the consolidated balances sheets in other current assets, totaled $142 million and $68 million as of September 28, 2002, and September 29, 2001, respectively.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,228
The Company does not recognize any profits on these sales or reflect the sale of these components in its net sales.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,229
Inventory Prepayment In April 2002, the Company made a $100 million prepayment to an Asian supplier for the purchase of components over the following nine months.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,230
In return for this deposit, the supplier agreed to supply the Company with a specified level of components in the three consecutive fiscal quarters ending December 28, 2002.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,231
If the supplier fails to supply the agreed upon level of components in any of those three fiscal quarters, the Company may cancel the arrangement and receive the amount of the prepayment not utilized plus a penalty.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,232
Approximately $53 million of this deposit remained unused as of September 28, 2002, and is reflected in the condensed consolidated balance sheets in other current assets.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,233
The amount of the prepayment not utilized by the Company on or before December 31, 2002, is refundable to the Company by January 31, 2003.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,234
Although the supplier's existing debt is unrated, its public debt pricing is consistent with other BBB rated companies.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,235
The deposit is unsecured and has no stated interest component.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,236
The Company is imputing an amount to cost of sales and interest income during each period the deposit is outstanding at an appropriate market interest rate to reflect the economics of this transaction.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,237
In light of the supplier's implied debt rating and because the Company's prepayment is unsecured, non-performance by and/or economic deterioration of the supplier could place all or some of the Company's deposit at risk.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,238
Derivative Financial Instruments The Company uses derivatives to partially offset its business exposure to foreign exchange and interest rate risk.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,239
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 revenues and cost of sales.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,240
From time to time, the Company enters into interest rate swap agreements to modify the interest rate profile of certain investments and debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,241
The Company's accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,242
The Company records all derivatives on the balance sheet at fair value.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,243
The following table shows the notional principal, net fair value, and credit risk amounts of the Company's interest rate derivative and foreign currency instruments as of September 28, 2002 and September 29, 2001 (in millions).
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,244
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,245
The credit risk amount 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 and interest rates at each respective date.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,246
The Company's exposure to credit loss and market risk will vary over time as a function of interest rates and currency exchange rates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,247
The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information as of September 28, 2002 and September 29, 2001.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,248
In certain instances where judgment is required in estimating fair value, price quotes were obtained from several of the Company's counterparty financial institutions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,249
Although the table above reflects the notional principal, fair value, and credit risk amounts of the Company's interest rate and foreign exchange instruments, it does not reflect the gains or losses associated with the exposures and transactions that the interest rate and foreign exchange instruments are intended to he...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,250
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.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,251
Foreign Exchange Risk Management The Company enters into foreign currency forward and option contracts with financial institutions primarily to protect against foreign exchange risk associated with existing assets and liabilities, certain firmly committed transactions and certain probable but not firmly committed trans...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,252
Generally, the Company's practice is to hedge a majority of its existing material foreign exchange transaction exposures.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,253
However, the Company may not hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures, or availability of appropriate hedging instruments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,254
In accordance with SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,255
133, hedges related to probable but not firmly committed transactions of an anticipatory nature are designated and documented at hedge inception as cash flow hedges and evaluated for hedge effectiveness quarterly.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,256
For currency forward contracts, hedge effectiveness is measured based on changes in the total fair value of the contract attributable to changes in the forward exchange rate.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,257
Changes in the expected future cash flows on the forecasted hedged transaction and changes in the fair value of the forward hedge are both measured from the contract rate to the forward exchange rate associated with the forward contract's maturity date.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,258
For currency option contracts, hedge effectiveness is measured based on changes in the total fair value of the option contract.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,259
Hedge effectiveness is assessed by comparing the present value of the cumulative change in expected future cash flows on the hedged transaction determined as the sum of the probability-weighted outcomes with respect to the option strike rates with the total change in fair value of the option hedge.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,260
The net gains or losses on derivative instruments qualifying as cash flow hedges are reported as components of other comprehensive income in stockholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,261
Any residual changes in fair value of these instruments are recognized in current earnings in other income and expense.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,262
To protect gross margins from fluctuations in foreign currency exchange rates, the Company's U.S. dollar functional subsidiaries hedge a portion of forecasted foreign currency revenues, and the Company's non-U.S. dollar functional subsidiaries selling in local currencies hedge a portion of forecasted inventory purchase...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,263
Other comprehensive income associated with hedges of foreign currency revenues is recognized as a component of net sales in the same period as the related sales are recognized, and other comprehensive income related to inventory purchases is recognized as a component of cost of sales in the same period as the related c...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,264
Typically, the Company hedges portions of its forecasted foreign currency exposure associated with revenues and inventory purchases over a time horizon of 3 to 9 months.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,265
The Company also enters into foreign currency forward and option contracts to offset the foreign exchange gains and losses generated by the re-measurement of certain recorded assets and liabilities in non-functional currencies.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,266
Changes in the fair value of these derivatives are recognized in current earnings in other income and expense as offsets to the changes in the fair value of the related assets or liabilities.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,267
The Company may enter into foreign currency forward contracts to offset the translation and economic exposure of a net investment position in a foreign subsidiary.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,268
Hedge effectiveness on forwards designated as net investment hedges is measured based on changes in the fair value of the contract attributable to changes in the spot exchange rate.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,269
The effective portion of the net gain or loss on a derivative instrument designated as a hedge of the net investment position in a foreign subsidiary is reported in the same manner as a foreign currency translation adjustment.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,270
Any residual changes in fair value of the forward contract, including changes in fair value based on the differential between the spot and forward exchange rates are recognized in current earnings in other income and expense.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,271
As discussed above, the Company enters into foreign currency option contracts as items that provide an offset to the re-measurement of certain recorded assets and liabilities denominated in non-functional currencies.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,272
All changes in the fair value of these derivative contracts based on changes in option time value are recorded in current earnings in other income and expense.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,273
Due to market movements, changes in option time value can lead to increased volatility in other income and expense.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,274
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable that the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent 2 month time period.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,275
Deferred gains and losses in other comprehensive income associated with such derivative instruments are immediately reclassified into earnings in other income and expense.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,276
Any subsequent changes in fair value of such derivative instruments are also reflected in current earnings unless they are re-designated as hedges of other transactions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,277
During 2002, the Company recorded net gains of $2.5 million in other income and expense related to the loss of hedge designation on discontinued cash flow hedges due to changes in the Company's forecast of future net sales and cost of sales and due to prevailing market conditions.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,278
During 2001, the Company recorded a net gain of $5.1 million in other income and expense related to the loss of hedge designation on discontinued cash flow hedges due to changes in the Company's forecast of future net sales and cost of sales.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,279
Interest Rate Risk Management The Company sometimes enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-ra...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,280
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,281
The Company does not hold or transact in such financial instruments for purposes other than risk management.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,282
As of September 30, 2000, the Company had entered into interest rate swaps with financial institutions in order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its long-term debt, and to diversify a portion of the Com...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,283
The interest rate swaps generally required the Company to pay a floating interest rate based on the three- or six-month U.S. dollar LIBOR and receive a fixed rate of interest without exchanges of the underlying notional amounts.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,284
These swaps effectively converted the Company's fixed-rate 10-year debt to floating-rate debt and converted a portion of the floating rate investments to fixed rate.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,285
The Company assumed no ineffectiveness with regard to the debt interest swaps as each debt interest rate swap met the criteria for accounting under the short-cut method defined in SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,286
133 for fair value hedges of debt instruments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,287
Accordingly, no net gains or losses were recorded in income relative to the Company's underlying debt interest rate swaps.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,288
During fiscal 2001, the Company closed out all of its existing debt interest rate swap positions due to prevailing market interest rates realizing a gain of $17 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,289
This gain was deferred, recognized in long-term debt and is being amortized to other income and expense over the remaining life of the debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,290
The unrealized loss on the assets swaps as of September 30, 2000, of $5.7 million was deferred and then recognized in income in 2001 as part of the SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,291
133 transition adjustment effective on October 1, 2000.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,292
The Company closed out all of its existing interest rate asset swaps during 2001 realizing a gain of $1.1 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,293
As of September 28, 2002, the Company had no interest rate derivatives outstanding.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,294
Due to perceived market risk, the Company entered into interest rate swaps in early 2002.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,295
These interest rate swaps were entered into with financial institutions in order to better match the Company's floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its long-term debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,296
The interest rate swaps required the Company to pay a floating interest rate based on six-month U.S. dollar LIBOR and receive a fixed rate of interest without exchanges of the underlying notional amounts.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,297
These swaps effectively converted the Company's fixed-rate 10-year debt to floating-rate debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,298
The Company assumed no ineffectiveness with regard to the debt interest swaps as each debt interest rate swap met the criteria for accounting under the short-cut method defined in SFAS No.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,299
133 for fair value hedges of debt instruments.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,300
Accordingly, no net gains or losses were recorded in income relative to the Company's underlying debt interest rate swaps during fiscal 2002 until the Company closed out the positions in late 2002 due to prevailing market interest rates.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,301
Closing the debt interest rate swaps resulted in a realized gain of $6 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,302
This gain was deferred, recognized in long-term debt and is being amortized to other income and expense over the remaining life of the debt.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,303
Long-Term Debt During 1994, the Company issued $300 million aggregate principal amount of 6.5% unsecured notes in a public offering registered with the SEC.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,304
The notes were sold at 99.925% of par, for an effective yield to maturity of 6.51%.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,305
The notes pay interest semiannually and mature on February 15, 2004.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,306
As of September 28, 2002 and September 29, 2001, the carrying amount of these notes, including unamortized deferred gains associated with closed debt interest rate swaps, was $316 million and $317 million, respectively, while the fair value was $299 million and $295 million, respectively.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,307
The fair value of the notes is based on their listed market values as of September 28, 2002 and September 29, 2001.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,308
Non-Current Debt and Equity Investments and Related Gains and Losses The Company has held significant investments in EarthLink Network, Akamai Technologies, Inc. (Akamai), ARM Holdings plc (ARM), and Samsung Electronics Co., Ltd (Samsung).
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,309
These investments have been reflected in the consolidated balance sheets as non-current debt and equity investments, and their combined fair value was $39 million and $128 million as of September 28, 2002, and September 29, 2001, respectively.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,310
EarthLink In January 2000, the Company invested $200 million in EarthLink, an Internet service provider (ISP).
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,311
The investment is in EarthLink's Series C Convertible Preferred Stock, which is convertible by the Company after January 4, 2001, into approximately 7.1 million shares of EarthLink common stock.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,312
Concurrent with this investment, EarthLink and the Company entered into a multi-year agreement to deliver ISP service to Macintosh users in the United States.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,313
Under the terms of the agreement, the Company profits from each new Mac customer that subscribes to EarthLink's ISP service for a specified period of time, and EarthLink is the default ISP in the Company's Internet Setup Software included with all Macintosh computers sold in the United States.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,314
During the second quarter of 2001, the Company determined that the then current decline in the fair value of its investment in EarthLink was other-than-temporary requiring that its cost basis be written down to fair value as a new cost basis and the amount of the write-down be included in earnings.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,315
As a result, the Company recognized a $114 million charge to earnings to write-down the basis of its investment in EarthLink to $86 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,316
This charge was included in gains (losses) on non-current investments, net.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,317
During the fourth quarter of 2001, the Company sold a total of approximately 425,000 shares of EarthLink stock for net proceeds of approximately $6 million and recorded a gain before taxes of approximately $800,000.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,318
As of September 29, 2001, the Company held 6.7 million shares of EarthLink stock with a fair value of approximately $102 million.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,319
During the first quarter of 2002, the Company sold 117,000 shares of EarthLink stock for net proceeds of $2 million and a gain before taxes of $223,000.
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
1,320
No sales of EarthLink were made in any of the subsequent quarters of fiscal 2002.
0001047469-02-007674/full-submission.txt