Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report 22 125K
2: EX-10 Material Contract 15 88K
3: EX-10 Material Contract 5 22K
4: EX-10 Material Contract 5 25K
5: EX-10 Material Contract 13 74K
6: EX-10 Material Contract 7 24K
7: EX-10 Material Contract 6 23K
8: EX-10 Material Contract 20 73K
9: EX-10 Material Contract 43 135K
10: EX-10 Material Contract 4 19K
11: EX-11 Statement re: Computation of Earnings Per Share 2± 8K
12: EX-27 ƒ Financial Data Schedule (Pre-XBRL) 2 9K
___________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 29, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-10030
APPLE COMPUTER, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2404110
[State or other jurisdiction [I.R.S. Employer Identification
of incorporation or No.]
organization]
1 Infinite Loop
Cupertino California 95014
[Address of principal executive [Zip Code]
offices]
Registrant's telephone number, including area code: (408) 996-1010
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
123,716,810 shares of Common Stock Issued and Outstanding as of May 13,1996
___________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions, except per share amounts)
[Download Table]
THREE MONTHS ENDED SIX MONTHS ENDED
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
Net sales $ 2,185 $ 2,652 $ 5,333 $ 5,484
Costs and expenses:
Cost of sales 2,606 1,957 5,279 3,975
Research and development 150 143 303 275
Selling, general and administrative 404 386 845 801
Restructuring costs 207 -- 207 (17)
3,367 2,486 6,634 5,034
Operating income (loss) (1,182) 166 (1,301) 450
Interest and other income
(expense), net 7 (50) 17 (35)
Income (loss) before provision
(benefit) for income taxes (1,175) 116 (1,284) 415
Provision (benefit) for income
taxes (435) 43 (475) 154
Net income (loss) $ (740) $ 73 $ (809) $ 261
Earnings (loss) per common and
common equivalent share $ (5.99) $ .59 $(6.55) $ 2.14
Cash dividends paid per common
share $ -- $ .12 $ .12 $ .24
Common and common equivalent
shares used in the calculations
of earnings per share (in
thousands) 123,659 122,644 123,326 122,122
See accompanying notes.
2
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In millions)
[Download Table]
March 29, September 29,
1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $ 500 $ 756
Short-term investments 92 196
Accounts receivable, net of allowance for
doubtful accounts of $87 ($87 at September
29, 1995) 1,366 1,931
Inventories:
Purchased parts 535 841
Work in process 196 291
Finished goods 735 643
1,466 1,775
Deferred tax assets 479 251
Other current assets 374 315
Total current assets 4,277 5,224
Property, plant, and equipment:
Land and buildings 518 504
Machinery and equipment 647 638
Office furniture and equipment 142 145
Leasehold improvements 197 205
1,504 1,492
Accumulated depreciation and amortization (812) (781)
Net property, plant, and equipment 692 711
Other assets 265 296
$ 5,234 $ 6,231
See accompanying notes.
3
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in millions)
[Download Table]
March 29, September 29,
1996 1995
(Unaudited)
Current liabilities:
Short-term borrowings $ 352 $ 461
Accounts payable 817 1,165
Accrued compensation and employee benefits 127 131
Accrued marketing and distribution 309 206
Accrued restructuring costs 181 --
Other current liabilities 487 362
Total current liabilities 2,273 2,325
Long-term debt 303 303
Deferred tax liabilities 602 702
Shareholders' equity:
Common stock, no par value; 320,000,000
shares authorized; 123,684,863 shares issued
and outstanding at March 29, 1996
(122,921,601 shares at September 29, 1995) 420 398
Retained earnings 1,641 2,464
Accumulated translation adjustment and other (5) 39
Total shareholders' equity 2,056 2,901
$ 5,234 $6,231
See accompanying notes.
4
APPLE COMPUTER, INC.
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
[Download Table]
SIX MONTHS ENDED
March 29, March 31,
1996 1995
Cash and cash equivalents, beginning of the period $ 756 $ 1,203
Operations:
Net income (loss) (809) 261
Adjustments to reconcile net income (loss) to cash
generated by (used for) operations:
Depreciation and amortization 88 67
Changes in assets and liabilities:
Accounts receivable 565 (52)
Inventories 309 104
Deferred tax assets (228) --
Other current assets (59) (9)
Accounts payable (348) (28)
Accrued restructuring costs 181 (32)
Other current liabilities 224 30
Deferred tax liabilities (100) 118
Cash generated by (used for) operations (177) 459
Investments:
Purchase of short-term investments (244) (928)
Proceeds from sale of short-term investments 348 372
Purchase of property, plant, and equipment, net of
retirements (40) (51)
Other (42) (23)
Cash generated by (used for) investment activities 22 (630)
Financing:
Increase (decrease) in short-term borrowings (109) 335
Increase (decrease) in long-term borrowings -- (1)
Increases in common stock, net of related 22 38
tax benefits
Cash dividends (14) (29)
Cash generated by (used for) financing activities (101) 343
Total cash generated (used) (256) 172
Cash and cash equivalents, end of the period $ 500 $ 1,375
See accompanying notes.
5
APPLE COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim information is unaudited; however, in the opinion of the
Company's management, all adjustments necessary for a fair statement of
interim results have been included. All adjustments are of a normal
recurring nature unless specified in a separate note included in these
Notes to Consolidated Financial Statements. The results for interim
periods are not necessarily indicative of results to be expected for
the entire year. These financial statements and notes should be read
in conjunction with the Company's annual consolidated financial
statements and the notes thereto for the fiscal year ended September
29, 1995, included in its Annual Report on Form 10-K for the year ended
September 29, 1995 (the "1995 Form 10-K").
2. In the second quarter of 1996, the Company announced and began to
implement a restructuring plan aimed at reducing costs and restoring
profitability to the Company's operations. The restructuring plan was
necessitated by decreased demand for Company products and the Company's
adoption of a new strategic direction. The Company's restructuring
actions consist primarily of terminating approximately 2,800 full-time
employees (not including employees who will be hired by the purchaser
of one of the Company's domestic manufacturing facilities), canceling
or vacating certain facility leases as a result of these employee
terminations, writing down operating assets to be sold as a result of
downsizing operations and outsourcing various operational functions,
and canceling contracts as a result of terminating e-world(TM), Apple's
on-line service. These actions have resulted in a charge of $207 million,
including cash expenditures of $24 million and non-cash asset write-
downs of $2 million, during the second quarter. The Company expects
that the remaining $181 million accrued balance at March 29, 1996 will
result in cash expenditures of $123 million over the next 12 months and
$12 million thereafter. The Company expects that most of the
contemplated restructuring actions will be completed within the next
twelve months and will be financed through current working capital, the
sale of certain long-term assets and investments, possible future short
and long term borrowings, and possible combined debt and equity
financing.
The following table depicts the restructuring activity during the second
quarter of 1996: (In millions)
[Download Table]
Category Total Restructuring Balance at
Charge Spending March 29,1996
Payments to employees involuntarily
terminated (C) $ 115 $ 22 $ 93
Payments on canceled or vacated
facility leases (C) 26 1 25
Write-down of operating assets to be
sold (N) 48 2 46
Payments on canceled contracts (C) 18 1 17
$ 207 $ 26 $ 181
C: Cash; N: Noncash
3. Interest and other income (expense), net, consists of the following:
(In millions)
[Download Table]
Three Months Ended Six Months Ended
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
Interest income $11 $26 $28 $44
Interest expense (13) (10) (30) (17)
Foreign currency gain (loss) 10 (52) 28 (44)
Net premiums and discounts paid on
foreign exchange instruments (3) (16) (10) (17)
Other income (expense), net 2 2 1 (1)
$7 $(50) $17 $(35)
6
4. The Company's cash equivalents consist primarily of U.S. Government
securities, Euro-dollar deposits, and commercial paper with maturities
of three months or less at the date of purchase. Short-term
investments consist principally of Euro-dollar deposits and commercial
paper with maturities between three and twelve months. The Company's
marketable equity securities consist of securities issued by U.S.
corporations and are included in "Other assets" on the accompanying
balance sheet. The Company's cash equivalents, short-term investments,
and marketable equity securities are classified and accounted for as
available-for-sale, and the cash equivalents and short-term
investments are generally held until maturity. The Company's cash and
cash equivalent balance includes $90 million pledged as collateral to
support short-term borrowings.
The adjustments recorded to shareholders' equity for unrealized holding
gains (losses) on available-for-sale cash equivalents and short-term
investments were not material, either individually or in the aggregate,
at March 29, 1996. The net adjustment recorded to shareholders' equity
for unrealized holding gains (losses) related to marketable equity
securities was an unrealized gain of approximately $9 million at March
29, 1996. The realized gains (losses) recorded to earnings on sales of
available-for-sale securities, either individually or in the aggregate,
were not material for the three and six months ended March 29, 1996.
5. U.S. income taxes have not been provided on a cumulative total of $407
million of undistributed earnings of certain of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely
invested in operations outside of the United States. It is not
practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed. Except for such
indefinitely invested earnings, the Company provides for federal and
state income taxes currently on undistributed earnings of foreign
subsidiaries.
The Internal Revenue Service ("IRS") has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made
certain prepayments thereon. The Company contested the proposed
deficiencies for the years 1984 through 1988, and most of the issues in
dispute for these years have been resolved. On June 29, 1995, the IRS
issued a notice of deficiency proposing increases to the amount of the
Company's federal income taxes for the years 1989 through 1991. The
Company has filed a petition with the United States Tax Court to
contest these alleged tax deficiencies. Management believes that
adequate provision has been made for any adjustments that may result
from these tax examinations.
Deferred tax assets resulting from the net loss incurred in the first
six months of 1996 loss are realizable based on the ability to offset
existing deferred tax liabilities.
6. Earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares attributable to stock
options outstanding during the period. Loss per share is computed
using the weighted average number of common shares outstanding during
the period.
7. Certain prior year amounts on the Consolidated Statements of Cash Flows
have been reclassified to conform to the current period presentation.
8. No dividend has been declared for the second quarter of 1996, and the
Board of Directors anticipates that for the foreseeable future the
Company will retain any earnings for use in the operation of its
business.
9. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on Apple's fiscal calendar.
(Tabular information: Dollars in millions, except per share amounts)
Except for historical information contained herein, the statements set
forth in this Item 2 are forward-looking and involve risks and
uncertainties. For information regarding potential factors that could
affect the Company's financial results refer to pages 13 - 19 of this
Management Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Factors That May Affect Future Results and
Financial Condition."
Results of Operations
[Download Table]
Second Quarter Six Months
1996 1995 Change 1996 1995 Change
Net sales $2,185 $2,652 (17.6%) $5,333 $5,484 (2.8%)
Gross margin $(421) $695 (160.6%) $54 $1,509 (96.4%)
Percentage of net sales (19.3%) 26.2% 1.0% 27.5%
Operating expenses $761 $529 43.9% $1,355 $1,059 28.0%
Percentage of net sales 34.8% 19.9% 25.4% 9.3%
Restructuring costs $207 -- -- $207 $(17) NM
Percentage of net sales 9.5% -- 3.9% (0.3%)
Interest and other
income (expense), net $7 $(50) NM $17 $(35) NM
Net income (loss) $(740) $73 (1113.7%) $(809) $261 410.0%
Earnings per share $5.99 $0.59 (1115.3%) $(6.55) $2.14 406.1%
NM: Not meaningful
Overview
The Company has recently experienced a significant decline in both units
shipped and share of the personal computer market. For the quarter ended
March 29, 1996, the number of the Company's Macintosh computers shipped
worldwide declined by 14% when compared with the corresponding quarter of
1995. Moreover, according to an industry source, the Company's share of
the worldwide and U.S. personal computer markets declined to 5.8% and 7.3%,
respectively, for the quarter ended March 29, 1996. This decline in
demand, coupled with intense price competition throughout the industry, has
resulted in the Company's decision to develop and recently announce key
elements of a new strategic direction intended to improve the Company's
competitiveness and restore its profitability. The Company intends to
develop and market products and services more selectively targeted to
education, home and business segments. In moving in this new strategic
direction, the Company expects to reduce the number of new product
introductions and the number of products in certain categories within its
current product portfolio.
8
and printers. Total Macintosh computer unit sales decreased 14% in the
second quarter when compared with the corresponding quarter of 1995,
primarily as a result of a decline in worldwide demand for most product
families, primarily entry level products, due principally to customer
concerns regarding the Company's strategic direction, financial condition
and future prospects. The average aggregate revenue per Macintosh computer
unit decreased 1% in the second quarter when compared with the
corresponding quarter of 1995, primarily due to pricing actions across all
product lines in order to stimulate demand, substantially offset by
increased revenues from a shift in the mix towards the Company's newer
products and products with multi-media configurations, which have higher
average selling prices.
Net sales for the first six months of 1996 decreased when compared with the
first six months of 1995, resulting from a decrease in peripheral product
net sales such as displays and printers, partially offset by an increase in
Macintosh computer net sales. Total Macintosh computer unit sales did not
change in the first six months of 1996, when compared with the
corresponding periods of 1995. Unit sales increased in the first quarter
of 1996 when compared with the corresponding quarter of 1995 due to unit
sales increases within the PowerMacintosh(TM) and Performa (registered
trademark) families of desktop personal computers, and were offset by unit
sales decreases in the second quarter of 1996 when compared with the
corresponding quarter of 1995 as discussed in the preceding paragraph. The
average aggregate revenue per Macintosh computer unit increased 4% in the
first six months of 1996, when compared with the corresponding period of
1995, primarily due to increased revenues from a shift in the mix towards
the Company's newer products and products with multi-media configurations,
which have higher average selling prices, partially offset by pricing
actions across all product lines in order to stimulate demand.
International net sales decreased 11% and increased 4% in the second
quarter and first six months of 1996, respectively, when compared with the
corresponding periods of 1995. The decrease in the second quarter is
primarily attributable to a decrease in net sales in Europe due to a
decrease in total Macintosh computer unit sales, partially offset by higher
average aggregate revenue per Macintosh computer unit, and to a decrease in
net sales in Japan due to a decrease in the average aggregate revenue per
Macintosh computer unit. The increase in the first six months primarily
reflects strong net sales growth in Japan and certain countries within
Europe during the first quarter of 1996. International net sales
represented 59% and 54% of total net sales for the second quarter and first
six months of 1996, respectively, compared with 54% and 51% for the
corresponding periods of 1995. Domestic net sales decreased by
approximately 26% and 9% in the second quarter and first six months of
1996, respectively, when compared with the corresponding periods of 1995.
The Company's resellers typically purchase products on an as-needed basis.
Resellers frequently change delivery schedules and order rates depending on
changing market conditions. Unfilled orders ("backlog") can be, and often
are, canceled at will. The Company attempts to fill orders on the
requested delivery schedules. The Company's backlog increased slightly to
approximately $369 million at May 3, 1996, from approximately $365 million
at February 2, 1996. This increase in backlog relects the effect of delays
in shipments to address quality problems with respect to certain entry
level, Performa and Powerbook products, substantially offset by satisfying
product backlog in other categories. The Company estimates that product
backlog would have declined to approximately $220 million at May 3, 1996 if
the above-noted delays had not occurred.
In the Company's experience, the actual amount of product backlog at any
particular time is not necessarily a meaningful indication of its future
business prospects. In particular, backlog often increases in anticipation
of or immediately following introduction of new products because of over-
ordering by dealers anticipating shortages. Backlog often is reduced
sharply once dealers and customers believe they can obtain sufficient
supply. Because of the foregoing, as well as other factors affecting the
Company's backlog, backlog should not be considered a reliable indicator of
the Company's ability to achieve any particular level of revenue or
financial performance.
The Company believes that net sales will remain below prior years levels
through the first quarter of 1997.
9
Gross Margin
Gross margin represents the difference between the Company's net sales and
its cost of goods sold. The amount of revenue generated by the sale of
products is influenced in significant part by the price set by the Company
for its products relative to competitive products. The cost of goods sold
is based primarily on the cost of components and, to a lesser extent,
direct labor costs. Because the Company uses some components that are not
common to the rest of the personal computer industry (including certain
ASICs), its component costs may be higher than those incurred by other
manufacturers. The type and cost of components included in particular
configurations of the Company's products (such as memory and disk drives)
are often directly related to the need to market products in configurations
competitive with other manufacturers. Competition in the personal computer
industry is intense, and, in the short term, frequent changes in pricing
and product configuration are often necessary in order to remain
competitive. Accordingly, gross margin as a percentage of net sales can be
significantly influenced in the short term by actions undertaken by the
Company in response to industrywide competitive pressures.
Gross margin decreased to (19.3%) and 1.0% during the second quarter and
first six months of 1996, respectively, when compared with the
corresponding periods of 1995, primarily as a result of a $616 million
charge in the second quarter of 1996 principally for the write-down of
certain inventory, as well as the cost to cancel excess component orders,
necessitated by significantly lower than expected demand for many of the
Company's products, primarily its entry level products. Also, the Company
separately incurred a $60 million charge that reflects the estimated cost
to correct certain quality problems in certain entry level, Performa and
Powerbook products, covering both goods held in inventory and shipped
goods. In addition, gross margins were adversely affected by aggressive
pricing actions in Japan, primarily in the first quarter of 1996, in
response to extreme competitive actions by other companies attempting to
gain market share, and pricing actions in the U.S. and Europe across all
product lines in order to stimulate demand.
The decrease in gross margin levels in the second quarter and first six
months of 1996 compared with the corresponding periods of 1995 was slightly
offset by hedging gains less the effects of a stronger U.S. dollar relative
to certain foreign currencies. The Company's operating strategy and
pricing take into account changes in exchange rates over time; however, the
Company's results of operations can be significantly affected in the short
term by fluctuations in foreign currency exchange rates.
Although the Company is taking actions to improve gross margins as it
implements its new strategic plan, it is anticipated that gross margins
will continue to remain under pressure and will remain below prior years'
levels through at least the third quarter of 1996 due to a variety of
factors, including continued industrywide pricing pressures, increased
competition, compressed product life cycles, and the need to sell through
current inventory at prices reflecting the recent write-downs.
[Download Table]
Research and Development
Second Quarter Six Months
1996 1995 Change 1996 1995 Change
Research and development $150 $143 4.9% $303 $275 10.2%
Percentage of net sales 6.9% 5.4% 5.7% 5.0%
Research and development expenditures increased in the second quarter and
first six months of 1996 when compared with the corresponding periods of
1995, primarily due to higher project and headcount related spending as the
Company continues to invest in the development of new products and
technologies. The increase as a percentage of net sales in the second
quarter when compared with the corresponding quarter of 1995 was primarily
a result of the decrease in the level of net sales.
As part of the Company's restructuring plan and new strategic direction,
the Company expects to reduce the number of employees engaged in research
and development activities and to streamline its product offerings. As a
result, the Company expects that research and development expenditures will
decrease relative to historical levels. Nevertheless, the Company believes
that continued investments in research and development are critical to its
future growth and competitive position in the marketplace and are directly
related to continued, timely development of new and enhanced products. The
Company believes a greater portion of its research and development efforts
will be conducted through collaborations with third parties. In addition,
where appropriate the Company plans to acquire and license technologies
from third parties.
10
[Download Table]
Selling, General and Second Quarter Six Months
Administrative 1996 1995 Change 1996 1995 Change
Selling, general and
administrative $404 $386 4.7% $845 $801 5.5%
Percentage of net sales 18.5% 14.6% 15.8% 14.6%
Selling, general and administrative expenses increased in the second
quarter and first six months of 1996 when compared with the corresponding
periods of 1995 primarily due to increased spending related to marketing
and advertising programs. The increase as a percentage of net sales in the
second quarter when compared with the corresponding quarter of 1995 was
primarily a result of the decrease in the level of net sales.
As a result of its restructuring plan, the Company expects that selling,
general and administrative expenditures will decrease relative to
historical levels, although marketing and advertising expenses are expected
to remain high relative to historical levels during the remainder of 1996
as the Company attempts to stimulate greater demand for its products.
[Download Table]
Restructuring costs Second Quarter Six Months
1996 1995 Change 1996 1995 Change
Restructuring costs 207 -- -- $207 (17) NM
Percentage of net sales 9.5% -- 3.9% (.03%)
For information regarding the Company's restructuring actions initiated in
the second quarter of 1996, refer to Note 2 of the Notes to Consolidated
Financial Statements (Unaudited) in Part I, Item I, and to Factors That May
Affect Future Results and Financial Condition as well as Liquidity and
Capital Resources in Part I, Item II of this Quarterly Report on Form 10-Q,
which information is hereby incorporated by reference.
In the first quarter of 1995, the Company lowered its estimates of the
total remaining costs associated with its restructuring plan initiated in
the third quarter of 1993 and recorded an adjustment that increased income
by $17 million.
11
[Download Table]
Interest and Other Second Quarter Six Months
Income (Expense), Net 1995 1994 Change 1995 1994 Change
Interest and other
income (expense), net $7 $(50) NM $17 $(35) NM
Interest and other income (expense), net, increased to income from expense
in the second quarter and first six months of 1996 when compared to the
corresponding periods in 1995, primarily due to favorable variances related
to realized and unrealized foreign exchange hedging gains (losses) as a
result of less volatility in the foreign exchange markets in the second
quarter of 1996 as compared to the second quarter of 1995, offset by
unfavorable variances in interest income and expense related primarily to
higher borrowing costs, due to the downgradings of the Company's credit
ratings by external credit rating agencies, and due to the decrease in cash
and short-term investment balances during the second quarter and first six
months of 1996 as compared with the corresponding periods in 1995. The
Company's cost of funds has increased as a result of the recent
downgradings of its short-term debt to NP and C by Moody's Investor
Services and Standard and Poor's Rating Agency, respectively, and of its
long-term debt to Ba2 and B+ by Moody's Investor Services and Standard and
Poor's Rating Agency, respectively.
[Download Table]
Provision (Benefit)
for Income Taxes Second Quarter Six Months
1996 1995 Change 1996 1995 Change
Provision (benefit)for ($435) $43 1111.6% ($475) 154 408.4%
income taxes
Effective tax rate 37% 37% 37% 37%
For information regarding the Company's Income Tax Provision (Benefit),
refer to Note 5 of the Notes to Consolidated Financial Statements
(Unaudited) in Part I, Item I of this Quarterly Report on Form 10-Q, which
information is hereby incorporated by reference.
12
Factors That May Affect Future Results and Financial Condition
The Company's future operating results and financial condition are
dependent on the Company's ability to successfully develop, manufacture,
and market technologically innovative products in order to meet dynamic
customer demand patterns. Inherent in this process are a number of factors
that the Company must successfully manage in order to achieve favorable
future operating results and financial condition. Potential risks and
uncertainties that could affect the Company's future operating results and
financial condition include, without limitation: continued competitive
pressures in the marketplace; the effect any reaction to such competitive
pressures has on inventory levels and inventory valuations; the effects of
significant adverse publicity; the impact of uncertainties concerning the
Company's strategic direction and financial condition on revenue and
liquidity; the effect of continued degradation in the Company's liquidity;
and the effect of restructuring actions.
The Company expects to incur operating losses throughout at least the
remainder of 1996.
Restructuring of Operations
In the second quarter of 1996, the Company formulated a new strategic
direction and announced certain restructuring actions aimed at reducing its
cost structure, improving its competitiveness and restoring profitability.
There are several risks inherent in the Company's efforts to transition to
a new cost structure. These include the risk that the Company will not be
able to reduce expenditures quickly enough to restore profitability and
improve liquidity and the risk that cost-cutting initiatives will impair
the Company's ability to innovate and remain competitive in the computer
industry.
As part of its restructuring effort, the Company intends to implement a new
business model. Implementation of the new business model involves several
risks, including the risk that by simplifying its product line the Company
will increase its dependence on fewer products, potentially reduce overall
sales and increase its reliance on unproven products and technology.
Another risk of the new business model is that by increasing the proportion
of the Company's products to be produced under outsourcing arrangements,
the Company could lose control of the quality of the products manufactured
and lose the flexibility to make timely changes in production schedules in
order to respond to changing market conditions. In addition, the new
business model could adversely affect employee morale, thereby damaging the
Company's ability to retain and motivate employees. Also, because the new
business model contemplates that the Company will reduce its research and
development expenditures by, among other things, relying to a greater
extent on collaboration and licensing arrangements with third parties, the
Company will have less direct control over its research and development
efforts and its ability to create innovative new products may be reduced.
Finally, even if the new business model is successfully implemented, there
can be no assurance that it will effectively resolve the various issues
currently facing the Company. In addition, although the Company believes
that the action that it is taking under its restructuring plan should help
restore marketplace confidence in the Macintosh platform, there can be no
assurance that such actions will succeed.
For the foregoing reasons there can be no assurance that the current
restructuring actions will achieve their goals or that similar actions will
not be required in the future. The Company's future operating results and
financial condition could be adversely affected should it encounter
difficulty in effectively managing the transition to the new business
model and cost structure.
For more information regarding the Company's restructuring actions
initiated in the second quarter of 1996, refer to Note 2 of the Notes to
Consolidated Financial Statements (Unaudited) in Part I, Item I, and to
Liquidity and Capital Resources in Part I, Item II of this Quarterly Report
on Form 10-Q, which information is hereby incorporated by reference.
Product Introductions and Transitions
Due to the highly volatile nature of the personal computer industry, which
is characterized by dynamic customer demand patterns and rapid
technological advances, the Company frequently introduces new products and
product enhancements. The success of new product introductions is
dependent on a number of factors, including market acceptance, the
Company's ability to manage the risks associated with product transitions,
the availability of application software for new products, the effective
management of inventory levels in line with anticipated product demand, the
manufacturing of products in appropriate quantities to meet anticipated
demand, and the risk that new products may have quality or other defects in
the early stages of introduction. Accordingly, the Company cannot
determine the ultimate effect that new products will have on its sales or
results of operations. In addition, the uncertainties and risks associated
with new product introductions may be increased as a result of the
Company's new business model which will, in part, emphasize a refocusing of
product offerings and the introduction of new products for key growth
segments.
13
The rate of product shipments immediately following introduction of a new
product is not necessarily an indication of the future rate of shipments
for that product, which depends on many factors, some of which are not
under the control of the Company. These factors may include initial large
purchases by a small segment of the user population that tends to purchase
new technology prior to its acceptance by the majority of users ("early
adopters"); purchases in satisfaction of pent-up demand by users who
anticipated new technology and, as a result, deferred purchases of other
products; and over-ordering by dealers who anticipate shortages due to the
aforementioned factors. The preceding may also be offset by other factors,
such as the deferral of purchases by many users until new technology is
accepted as "proven" and for which commonly used software products are
available; and the reduction of orders by dealers once they believe they
can obtain sufficient supply of products previously in backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasingly coincident with
introduction, and then decreasing once dealers and customers believe they
can obtain sufficient supply of products.
The measurement of demand for newly introduced products is further
complicated by the availability of different product configurations, which
may include various types of built-in peripherals and software.
Configurations may also require certain localization (such as language) for
various markets and, as a result, demand in different geographic areas may
be a function of the availability of third-party software in those
localized versions. For example, the availability of European-language
versions of software products manufactured by U.S. producers may lag behind
the availability of U.S. versions by a quarter or more. This may result in
lower initial demand for the Company's new products outside the United
States, even though localized versions of the Company's products may be
available.
The greater integration of functions and complexity of operations of the
Company's products also increase the risk that latent defects or other
faults could be discovered by customers or end-users after volumes of
products have been produced or shipped. If such defects were significant,
the Company could incur material recall and replacement costs under product
warranties.
Competition
The personal computer industry is highly competitive and is characterized
by aggressive pricing practices, downward pressure on gross margins,
frequent introduction of new products, short product life cycles, continual
improvement in product price/performance characteristics, price sensitivity
on the part of consumers and a large number of competitors. In the first
six months of 1996, the Company's results of operations and financial
condition were, and in the near future are expected to be, adversely
affected by industrywide pricing pressures and downward pressures on gross
margins. The industry has also been characterized by rapid technological
advances in software functionality and hardware performance and features
based on existing or emerging industry standards. Some of the Company's
competitors have greater financial, marketing, manufacturing and
technological resources, broader product lines and larger installed
customer bases than those of the Company.
The Company's future operating results and financial condition may be
affected by overall demand for personal computers and general customer
preferences for one platform over another or one set of product features
over another.
On November 7, 1994, the Company reached an agreement with International
Business Machines Corporation ("IBM") and Motorola, Inc. on a new hardware
reference platform for the PowerPC microprocessor that is intended to
deliver a much wider range of operating system and application choices for
computer customers. As a result of this agreement, the Company is moving
forward with its efforts to make the Macintosh operating system available
on the common platform. In line with its efforts, on November 13, 1995,
the Company, IBM, and Motorola, Inc. announced the availability of the
"PowerPC Platform" specifications, which define a "unified" personal
computer architecture and combine the Power Macintosh platform and the PC
environment. Accordingly, the Company's future operating results and
financial condition may be affected by its ability to continue to implement
this agreement and to manage the risk associated with the transition to
this new hardware reference platform.
14
The Company is currently the primary maker of hardware that uses the
Macintosh operating system ("Mac OS"). The Mac OS has a minority market
share in the personal computer market, which is dominated by makers of
computers that run the MS-DOS(registered trademark) and Microsoft Windows(TM)
operating systems. The Company believes that the Mac OS, with its perceived
advantages over MS-DOS and Windows, has been a driving force behind sales
of the Company's personal computer hardware for the past several years.
Recent innovations in the Windows platform, including those introduced by
Windows 95, have added features to the Windows platform similar to those
offered by the Mac OS. The Company is currently taking and will continue
to take steps to respond to the competitive pressures being placed on its
personal computer sales as a result of the recent innovations in the Windows
platform. The company's future operating results and financial condition
may be affected by its ability to increase the installed base for the
Macintosh platform. As part of its efforts to increase the installed base
for the Macintosh platform, the Company announced the licensing of the
Mac OS to other personal computer vendors in January 1995, and several
vendors currently sell products that utilize the Macintosh operating system.
The Company believes that licensing the operating system will result in
a broader installed base on which software vendors can develop and provide
technical innovations for the Macintosh platform. However, there can be no
assurance that the installed base will be broadened by the licensing of the
operating system or that licensing will result in an increase in the
number of application software titles or the rate at which vendors will
bring to market application software based on the Mac OS. In addition, as
a result of licensing its operating system, the Company is forced to compete
with other companies producing Mac OS-based computer systems. The benefits
to the Company from licensing the Mac OS to third parties may be more than
offset by the disadvantages of being required to compete with them.
As a supplemental means of addressing the competition from MS-DOS and
Windows, the Company has devoted substantial resources toward developing
personal computer products capable of running application software designed
for the MS-DOS or Windows operating systems ("Cross-Platform Products").
These products include both the RISC-based PowerPC 601 microprocessor and
the 486 DX2/66 microprocessor, which enable users to run concurrently
applications that require the Mac OS, MS-DOS, Windows 3.1 or Windows 95
operating systems. The Company has announced that it intends to ship by
June 1996 Cross-Platform Products that include the Pentium or 586-class
chip, or in which a Pentium or 586-class microprocessor can be installed
through the use of an add-on card.
The Company plans to supply customers who purchase Cross-Platform Products
with operating system software under licensing agreements with Microsoft.
The Company's prior licensing agreement with Microsoft expired on December
31, 1995. The Company recently entered into new licensing agreements with
Microsoft that will permit the Company to distribute MS-DOS and permit the
Company to acquire the rights to distribute certain Windows operating
systems, including Windows 95. In order to distribute Windows operating
systems, the Company will need to enter into one or more agreements with
certain Microsoft distributors.
Decisions by customers to purchase the Company's personal computers, as
opposed to MS-DOS or Windows-based systems, are often based on the
availability of third-party software for particular applications. The
Company believes that the availability of third-party application software
for the Company's hardware products depends in part on the third-party
developers' perception and analysis of the relative benefits of developing,
maintaining and upgrading such software for the Company's products versus
software for the larger MS-DOS and Windows market. This analysis is based
on factors such as the perceived strength of the Company and its products,
the anticipated potential revenue that may be earned, and the costs of
developing such software products. To the extent the Company's recent
financial losses have caused software developers to question the Company's
position in the personal computer market, they could be less inclined to
develop new application software or upgrade existing software for the
Company's products and more inclined to devote their resources toward
developing and upgrading software for the larger MS-DOS and Windows market.
Microsoft Corporation is an important developer of application software for
the Company's products. Accordingly, Microsoft's interest in producing
application software for the Company's products may be influenced by
Microsoft's perception of its interests as the vendor of the Windows
operating systems.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors that produce superior
price/performance results compared with those supplied to the Company's
competitors by Intel Corporation, the developer and producer of the
microprocessors used by most personal computers using the MS-DOS and
Windows operating systems. IBM produces personal computers based on Intel
microprocessors as well as workstations based on the PowerPC
microprocessor, and is also the developer of OS/2, a competing operating
system to the Company's Mac OS. Accordingly, IBM's interest in supplying
the Company with microprocessors for the Company's products may be
influenced by IBM's perception of its interests as a competing manufacturer
of personal computers and as a competing operating system vendor.
15
Recently, several competitors of the Company, including Compaq, IBM and
Microsoft, have either targeted or announced their intention to target
certain of the Company's key market segments, including education and
publishing. Some of these companies have greater financial, marketing,
manufacturing and technological resources than the Company.
The Company's future operating results and financial condition may also be
affected by the Company's ability to successfully expand and capitalize on
its investments in other markets, such as the markets for Internet services
and personal digital assistant (PDA) products.
Global Market Risks
A large portion of the Company's revenue is derived from its international
operations. As a result, the Company's operations and financial results
could be significantly affected by international factors, such as changes
in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. When the
U.S. dollar strengthens against other currencies, the U.S. dollar value of
non-U.S. dollar-based sales decreases. When the U.S. dollar weakens, the
U.S. dollar value of non-U.S. dollar-based sales increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs
increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall, the Company is a net receiver of currencies other
than the U.S. dollar and, as such, benefits from a weaker dollar and is
adversely affected by a stronger dollar relative to major currencies
worldwide. Accordingly, changes in exchange rates, and in particular a
strengthening of the U.S. dollar, may negatively affect the Company's
consolidated sales and gross margins (as expressed in U.S. dollars).
To mitigate the short-term impact of fluctuating currency exchange rates on
the Company's non-U.S. dollar-based sales, product procurement, and
operating expenses, the Company regularly hedges its non-U.S. dollar-based
exposures. Specifically, the Company enters into foreign exchange forward
and option contracts to hedge firmly committed transactions. Currently,
hedges of firmly committed transactions do not extend beyond one year. The
Company also purchases foreign exchange option contracts to hedge certain
other probable, but not firmly committed transactions. Hedges of probable,
but not firmly committed transactions currently do not extend beyond one
year. To reduce the costs associated with these ongoing foreign exchange
hedging programs, the Company also regularly sells foreign exchange option
contracts and enters into certain other foreign exchange transactions. All
foreign
exchange forward and option contracts not accounted for as hedges,
including all transactions intended to reduce the costs associated with the
Company's foreign exchange hedging programs, are carried at fair value and
are adjusted on each balance sheet date for
changes in exchange rates.
While the Company is exposed with respect to fluctuations in the interest
rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash, cash
equivalents, and short-term investments as well as interest paid on its
short-term borrowings and long-term debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company has entered into interest
rate swap and option transactions. Certain of these swaps are intended to
better match the Company's floating-rate interest income on its cash, cash
equivalents, and short-term investments with the fixed-rate interest
expense on its long-term debt. The Company also enters into interest rate
swap and option transactions in order to diversify a portion of the
Company's exposure away from fluctuations in short-term U.S. interest
rates. These instruments may extend the Company's cash investment horizon
up to a maximum effective duration of three years.
To ensure the adequacy and effectiveness of the Company's foreign exchange
and interest rate hedge positions, as well as to monitor the risks and
opportunities of the nonhedge portfolios, the Company continually monitors
its foreign exchange forward and option positions, and its interest rate
swap and option positions on a stand-alone basis and in conjunction with
its underlying foreign currency- and interest rate-related exposures,
respectively, from both an accounting and an economic perspective.
However, given the effective horizons of the Company's risk management
activities, there can be no assurance that the aforementioned programs will
offset more than a portion of the adverse financial impact resulting from
unfavorable movements in either foreign exchange or interest rates. In
addition, the timing of the accounting for recognition of gains and losses
related to mark-to-market instruments for any given period may not coincide
with the timing of gains and losses related to the underlying economic
exposures, and as such, may adversely affect the Company's operating
results and financial position. The Company generally does not engage in
leveraged hedging.
16
The Company's current financial condition may have an impact on the costs
of its hedging transactions, as well as the willingness of its trading
partners to enter into hedging transactions with the Company.
Inventory and Supply
In line with the Company's efforts to redesign its business model, the
Company intends to streamline its product offerings in its key usage areas
in education, business and the home. This simplification of product lines
has resulted in inventory reserves. Cancellation fees related to custom
component inventory purchased for anticipated product introductions that
have been canceled have also been paid or incurred. The Company has also
separately provided for the estimated cost to correct certain quality
problems on certain entry level, Performa and Powerbook products. Although
the Company believes its inventory and related reserves are adequate, no
assurance can be given that the Company will not incur additional inventory
charges.
The Company must order components for its products and build inventory well
in advance of product shipments. Because the Company's markets are
volatile and subject to rapid technology and price changes, there is a risk
that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. The Company's operating
results and financial condition have been and may in the future be
materially adversely affected by the Company's ability to manage its
inventory levels and respond to short-term shifts in customer demand
patterns.
Certain of the Company's products are manufactured in whole or in part by
third-party manufacturers, either pursuant to design specifications of the
Company or otherwise. As a result of the Company's restructuring plan,
which includes the sale of the Company's Fountain, Colorado manufacturing
facility to SCI Systems, Inc. ("SCI") and a related manufacturing
outsourcing agreement with SCI, the proportion of its products produced
under outsourcing arrangements will increase. While outsourcing
arrangements may lower the fixed cost of operations, they may also reduce
the direct control the Company currently has over production. It is
uncertain what effect such lessened control will have on the quality of the
products manufactured or the flexibility of the Company to respond to
changing market conditions. Furthermore, any efforts by the Company to
manage its inventory under outsourcing arrangements could subject the
Company to liquidated damages or cancellation of the arrangement.
Moreover, although arrangements with such manufacturers may contain
provisions for warranty expense reimbursement, the Company remains at least
initially responsible to the ultimate consumer for warranty service.
Accordingly, in the event of product defects or warranty liability, the
Company may remain primarily liable. Any unanticipated product defect or
warranty liability, whether pursuant to arrangements with contract
manufacturers or otherwise, could adversely affect the Company's future
operating results and financial condition.
The Company's ability to satisfy demand for its products may be limited by
the availability of key components. The Company believes that the
availability from suppliers to the personal computer industry of
microprocessors and ASICs presents the most significant potential for
constraining the Company's ability to produce products. Specific
microprocessors manufactured by Motorola, Inc. and IBM are currently
available only from single sources, while some advanced microprocessors are
currently in the early stages of ramp-up for production and thus have
limited availability. The Company and other producers in the personal
computer industry also compete for other semiconductor products with other
industries that have experienced increased demand for such products, due to
either increased consumer demand or increased use of semiconductors in
their products (such as the cellular phone and automotive industries).
Finally, the Company uses some components that are not common to the rest
of the personal computer industry (including certain ASICs). Continued
availability of these components may be affected if producers were to
decide to concentrate on the production of common components instead of
components customized to meet the Company's requirements. Such product
supply constraints and corresponding increased costs could decrease the
Company's market share and adversely affect the Company's future operating
results and financial condition.
17
Marketing and Distribution
A number of uncertainties may affect the marketing and distribution of the
Company's products. Currently, the Company's primary means of distribution
is through third-party computer resellers. The Company also distributes
product through consumer channels such as mass-merchandise stores, consumer
electronics outlets, and computer superstores. The Company's business and
financial results could be adversely affected if the financial condition of
these resellers weakens or if resellers within consumer channels decide not
to continue to distribute the Company's products.
Uncertainty over the demand for the Company's products may cause resellers
to reduce the ordering and marketing of the Company's products. Under the
Company's arrangements with its resellers, resellers have the option to
reduce or eliminate unfilled orders previously placed, in most instances
without financial penalty. Resellers also have the option to return
products to the Company without penalty within certain limits, beyond which
they may be assessed fees. In the second quarter of 1996, the Company
experienced a reduction in ordering from historical levels by resellers due
to uncertainty concerning the Company's condition.
Other Factors
The majority of the Company's research and development activities, its
corporate headquarters, and other critical business operations are located
near major seismic faults. The Company's operating results and financial
condition could be materially adversely affected in the event of a major
earthquake.
Production and marketing of products in certain states and countries may
subject the Company to environmental and other regulations which include,
in some instances, the requirement that the Company provide consumers with
the ability to return to the Company product at the end of its useful life,
and leave responsibility for environmentally safe disposal or recycling
with the Company. It is unclear what the effect of such regulation will
have on the Company's future operating results and financial condition.
The Company is currently in the process of replacing its existing
transaction systems (which include order management, distribution, and
finance) with a single integrated system as part of its ongoing effort to
increase operational efficiency. The Company's future operating results
and financial condition could be adversely affected if the Company is
unable to implement and effectively manage the transition to this new
integrated system.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
Liquidity and Capital Resources
The Company's financial position with respect to cash, cash equivalents,
and short-term investments, net of short-term borrowings, decreased to $240
million at March 29, 1996, from $491 million at September 29, 1995. The
Company's financial position with respect to cash, cash equivalents, and
short-term investments decreased to $592 million at March 29, 1996, from
$952 million at September 29, 1995. The Company's cash and cash equivalent
balance at March 29, 1996 and September 29, 1995 includes $90 million
pledged as collateral to support short-term borrowings.
Cash used for operations during the first six months of 1996 totaled $177
million, primarily due to the net loss. Also contributing to cash used for
operations were lower accounts payable levels, due to a substantial
reduction in inventory purchases. Cash used for operations was partially
offset by a decrease in accounts receivable.
Net cash used for the purchase of property, plant, and equipment totaled
$40 million in the first six months of 1996, and consisted primarily of
increases in manufacturing machinery and equipment and buildings. The
Company expects that capital expenditures in 1996 will decline relative to
1995 expenditure levels.
18
Short-term borrowings at March 29, 1996, were approximately $109 million
lower than at September 29, 1995. The issuance of commercial paper has
been discontinued and short-term borrowings have largely ceased. On March
29, 1996, Apple Japan, Inc., a subsidiary of the Company, entered into loan
agreements in the aggregate amount of $146 million with certain banks,
which extended or replaced approximately $146 million of existing
borrowings. Also on this date, Apple Japan, Inc. repaid approximately $54
million of existing borrowings. The current loans have maturity dates
ranging from June 28, 1996 to September 30, 1996. Two of these loans are
guaranteed by the Company. On April 2, 1996, Apple Computer B.V., a
subsidiary of the Company, entered into an agreement to extend its existing
$200 million secured credit facility. The amount currently outstanding is
approximately $190 million. The facility matures on June 28, 1996 and is
guaranteed by the Company. In connection with this facility, the Company
has agreed to maintain a minimum cash balance.
The Company's balance of long-term debt remained relatively constant during
the first six months of 1996. Substantially the entire amount of long-term
borrowings represents $300 million aggregate principal amount of 6.5%
unsecured notes issued under an omnibus shelf registration statement filed
with the Securities and Exchange Commission in 1994. This shelf
registration was for the registration of debt and other securities for an
aggregate offering amount of $500 million. The notes were sold at 99.925%
of par, for an effective yield to maturity of 6.51%. The notes pay
interest semi-annually and mature on February 15, 2004.
The Internal Revenue Service has proposed federal income tax deficiencies
for the years 1984 through 1991, and the Company has made certain
prepayments thereon. The Company contested the proposed deficiencies for
the years 1984 through 1988, and most of the issues in dispute for these
years have been resolved. On June 29, 1995, the IRS issued a notice of
deficiency proposing increases to the amount of the Company's federal
income taxes for the years 1989 through 1991. The Company has filed a
petition with the United States Tax Court to contest these alleged tax
deficiencies. Management believes that adequate provision has been made
for any adjustments that may result from these tax examinations.
It will be necessary for the Company to borrow in the near term to finance
its working capital needs, because the Company does not expect that it will
generate cash from operations in this time frame. In addition, in
connection with the restructuring actions, referred to on page 6 in Note 2
of the Notes to the Consolidated Financial Statements, the Company had $24
million of cash expenditures in the second quarter of 1996 and expects to
incur $123 million of cash expenditures over the next 12 months. These
cash expenditures are expected to be financed through current working
capital, the sale of certain assets and other investments, possible future
short and long-term borrowings, and possible combined debt and equity
financing.
As noted on page 12 under the subheading "Interest and other income
(expense), net", the Company's cost of funds has increased as a result of
the recent downgradings of its short-term debt to NP and C by Moody's
Investor Services and Standard and Poor's Rating Agency, respectively, and
of its long-term debt to Ba2 and B+ by Moody's Investor Services and
Standard and Poor's Rating Agency, respectively. In addition, the Company
may be required to pledge additional collateral with respect to certain of
its borrowings and to agree to more stringent covenants than in the past.
The Company is seeking alternative sources of liquidity and is discussing
various alternatives with several financial institutions. Although the
Company believes it will be able to arrange short- and long-term financing
that will cover its needs, it currently does not have commitments from
lenders to provide such funding. The Company believes that its balances of
cash, cash equivalents, and short-term investments, together with possible
short- and long-term borrowings and possible combined debt and equity
financing that the Company believes it will be able to obtain, will be
sufficient to meet its operating cash requirements, including the impact of
planned restructuring actions, on a short- and long-term basis. No
assurance can be given that the necessary financing will be obtained, or
that any additional financing that may be required if the restructuring
plan takes longer to implement than anticipated or is not successful can be
obtained. If the Company is unable to obtain adequate financing, its
liquidity, results of operations and financial condition will be materially
adversely affected.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Management is not aware of any pending legal proceedings to which the
Company is a party that are likely to have a material adverse effect on the
Company's financial condition and results of operations as reported in the
accompanying financial statements.
Reference is made to Item 1 of Part II of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 29, 1995 for a discussion
of certain purported shareholder class action suits filed in January 1996.
In February 1996, the complaint in the action styled Abraham and Evelyn
Kostick Trust v. Peter Crisp, et al. was amended to add additional parties
and to add purported class and derivative claims based on theories such as
breach of fiduciary duty, misrepresentation and insider trading. In March
1996, a purported shareholder class action styled Derek Pritchard v.
Michael Spindler, et al., was filed in the California Superior Court for
Santa Clara County, alleging that the defendants breached their fiduciary
duty by allegedly rejecting an offer from a computer company (not named in
the complaint) to acquire the Company at a price in excess of $50 per
share.
The Company has been named as a defendant in numerous lawsuits (fewer than
100) in each of which the complaint alleges that the plaintiff incurred so-
called "repetitive stress injuries" to the upper extremities as a result of
using keyboards and/or mouse input devices sold by the Company. All of
these cases are in various stages of pre-trial activity.
The Company believes that all of the actions cited above are without merit.
Item 4. Submission of Matters to a Vote of Security Holders
a)The annual meeting of shareholders was held on January 23, 1996
b)The following directors were elected at the meeting to serve two-
year terms as Class II directors:
Peter O. Crisp
Bernard Goldstein
Delano E. Lewis
A. C. Markkula, Jr.
The following directors are continuing to serve their two-year terms
as Class I directors which will expire at the next annual meeting:
Gilbert F. Amelio
B. Jurgen Hintz
Katherine M. Hudson
c)The other matters voted upon at the meeting and results of those
votes were as follows:
For Against Abstained Broker Non-Vote
(1) Approval of an amendment to
the Employee Stock Purchase
Plan to increase the number
of shares of Common Stock
reserved for issuance
thereunder by 1,500,000
shares. 96,611,437 5,912,418 675,715 1,298,826 --
(2) Approval of an amendment
to the 1990 Stock Option
Plan to increase the number
of shares of Common Stock
reserved for issuance
thereunder by 4,200,000
shares. 80,523,883 21,968,201 707,486 1,298,826 --
20
(3) Ratification of Ernst &
Young LLP as the Company's
independent auditors for
fiscal year 1996. 101,624,080 2,465,556 408,760 -- --
The foregoing matters are described in detail in the Registrant's definitive
proxy statement dated December 19, 1995, for the Annual Meeting of
Shareholders held on January 23, 1996.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
10.A.26 Employment Agreement dated February 28, 1996, between
Registrant and Gilbert F. Amelio.
10.A.27 Employment Agreement dated February 26, 1996, between
Registrant and George M. Scalise.
10.A.28 Employment Agreement dated March 4, 1996, between
Registrant and Fred D. Anderson, Jr.
10.A.29 Retention Agreement dated March 4, 1996, between
Registrant and Fred D. Anderson, Jr.
10.A.30 Employment Agreement dated April 2, 1996, between
Registrant and John Floisand.
10.A.31 Employment Agreement dated April 3, 1996, between
Apple Japan, Inc. and John Floisand.
10.B.13 Restructuring Agreement dated December 14, 1995,
among Registrant, Taligent, Inc. and International
Business Machines Corporation.
10.B.14 Stock Purchase Agreement dated April 4, 1996 between
Registrant and SCI Systems, Inc.
11 Computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
A Current Report on Form 8-K dated April 10, 1996 was filed by Apple
with the Securities and Exchange Commission to report under Item 5
thereof the press release issued to the public on March 27, 1996 and
the extension or replacement of short-term borrowings of Apple Japan,
Inc. and Apple Computer B.V., subsidiaries of the registrant.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLE COMPUTER, INC.
(Registrant)
DATE: May 13, 1996 BY /s/ Fred D. Anderson
Fred D. Anderson
Executive Vice President and
Chief Financial Officer
22
Dates Referenced Herein and Documents Incorporated by Reference
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