Quantitative and Qualitative Disclosures About Market Risk
−Removed: Interest Rate and Foreign Currency Risk Management
−Removed: The Company regularly reviews its foreign exchange forward and option positions and interest rate swaps, both on a stand-alone basis and in conjunction with its underlying foreign currency and interest rate exposures.
−Removed: Given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance these positions will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates.
−Removed: Further, the recognition of the gains and losses related to these instruments may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s financial condition and operating results.
+Added: The Company is exposed to economic risk from interest rates and foreign exchange rates.
+Added: The Company uses various strategies to manage these risks;
+Added: however, they may still impact the Company’s consolidated financial statements.
Interest Rate Risk
−Removed: The Company’s exposure to changes in interest rates relates primarily to the Company’s investment portfolio and outstanding debt.
−Removed: While the Company is exposed to global interest rate fluctuations, it is most affected by fluctuations in U.S.
−Removed: interest rates.
−Removed: Changes in U.S.
−Removed: interest rates affect the interest earned on the Company’s cash, cash equivalents and marketable securities and the fair value of those securities, as well as costs associated with hedging and interest paid on the Company’s debt.
−Removed: The Company’s investment policy and strategy are focused on the preservation of capital and supporting the Company’s liquidity requirements.
−Removed: The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives.
−Removed: The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.
−Removed: The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.
−Removed: To provide a meaningful assessment of the interest rate risk associated with the Company’s investment portfolio, the Company performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in the yield curve.
−Removed: Based on investment positions as of September 24, 2022 and September 25, 2021, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $4.0 billion and $4.1 billion incremental decline in the fair market value of the portfolio, respectively.
−Removed: Such losses would only be realized if the Company sold the investments prior to maturity.
−Removed: As of September 24, 2022, the Company had outstanding fixed-rate notes and as of September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate carrying amount of $110.1 billion and $118.7 billion, respectively.
−Removed: The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on its outstanding term debt.
−Removed: Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments.
−Removed: Gains and losses on term debt are generally offset by the corresponding losses and gains on the related hedging instrument.
−Removed: A 100 basis point increase in market interest rates would cause interest expense on the Company’s debt as of September 24, 2022 and September 25, 2021 to increase by $201 million and $186 million on an annualized basis, respectively.
−Removed: Foreign Currency Risk
−Removed: In general, the Company is a net receiver of currencies other than the U.S.
−Removed: Accordingly, changes in exchange rates, and in particular a strengthening of the U.S.
+Added: The Company is primarily exposed to fluctuations in U.S.
+Added: interest rates and their impact on the Company’s investment portfolio and term debt.
+Added: Increases in interest rates will negatively affect the fair value of the Company’s investment portfolio and increase the interest expense on the Company’s term debt.
+Added: To protect against interest rate risk, the Company may use derivative instruments, offset interest rate–sensitive assets and liabilities, or control duration of the investment and term debt portfolios.
+Added: The following table sets forth potential impacts on the Company’s investment portfolio and term debt, including the effects of any associated derivatives, that would result from a hypothetical increase in relevant interest rates as of September 30, 2023 and September 24, 2022 (dollars in millions):
+Added: Interest Rate
+Added: Sensitive Instrument
+Added: Hypothetical Interest
+Added: Rate Increase
+Added: Potential Impact
+Added: Investment portfolio
+Added: 100 basis points, all tenors
+Added: Decline in fair value
+Added: $ 3,089 $ 4,022
+Added: 100 basis points, all tenors
+Added: Increase in annual interest expense
+Added: Foreign Exchange Rate Risk
+Added: The Company’s exposure to foreign exchange rate risk relates primarily to the Company being a net receiver of currencies other than the U.S.
+Added: Changes in exchange rates, and in particular a strengthening of the U.S.
dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S.
−Removed: There is a risk that the Company will have to adjust local currency pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
−Removed: The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries.
−Removed: In addition, the Company has entered, and in the future may enter, into foreign currency contracts to partially offset the foreign currency exchange gains and losses on its foreign currency–denominated debt issuances.
−Removed: The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
−Removed: However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including accounting considerations or the prohibitive economic cost of hedging particular exposures.
−Removed: | 2022 Form 10-K | 26
−Removed: To provide an assessment of the foreign currency risk associated with certain of the Company’s foreign currency derivative positions, the Company performed a sensitivity analysis using a value-at-risk (“VAR”) model to assess the potential impact of fluctuations in exchange rates.
−Removed: The VAR model consisted of using a Monte Carlo simulation to generate thousands of random market price paths assuming normal market conditions.
+Added: Fluctuations in exchange rates may also affect the fair values of certain of the Company’s assets and liabilities.
+Added: To protect against foreign exchange rate risk, the Company may use derivative instruments, offset exposures, or adjust local currency pricing of its products and services.
+Added: However, the Company may choose to not hedge certain foreign currency exposures for a variety of reasons, including accounting considerations or prohibitive cost.
+Added: The Company applied a value-at-risk (“VAR”) model to its foreign currency derivative positions to assess the potential impact of fluctuations in exchange rates.
+Added: The VAR model used a Monte Carlo simulation.
The VAR is the maximum expected loss in fair value, for a given confidence interval, to the Company’s foreign currency derivative positions due to adverse movements in rates.
−Removed: The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool.
−Removed: Forecasted transactions, firm commitments and assets and liabilities denominated in foreign currencies were excluded from the model.
−Removed: Based on the results of the model, the Company estimates with 95% confidence, a maximum one-day loss in fair value of $1.0 billion as of September 24, 2022, compared to a maximum one-day loss in fair value of $550 million as of September 25, 2021.
−Removed: Because the Company uses foreign currency instruments for hedging purposes, the losses in fair value incurred on those instruments are generally offset by increases in the fair value of the underlying exposures.
−Removed: Actual future gains and losses associated with the Company’s investment portfolio, debt and derivative positions may differ materially from the sensitivity analyses performed as of September 24, 2022 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchange rates and the Company’s actual exposures and positions.
+Added: Based on the results of the model, the Company estimates, with 95% confidence, a maximum one-day loss in fair value of $669 million and $1.0 billion as of September 30, 2023 and September 24, 2022, respectively.
+Added: Changes in the Company’s underlying foreign currency exposures, which were excluded from the assessment, generally offset changes in the fair values of the Company’s foreign currency derivatives.
| 2023 Form 10-K | 26
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.