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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1994 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 No.]
of incorporation or
organization]
1 Infinite Loop
Cupertino California 95014
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference to Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $ 4,193,708,403 as of December 2, 1994, based
upon the closing price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each executive officer and director
and by each person who beneficially owns more than 5% of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of
executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.
119,891,418 shares of Common Stock Issued and Outstanding as of
December 2, 1994
DOCUMENTS INCORPORATED BY REFERENCE,
Portions of the definitive Proxy Statement dated December 9, 1994 (the
"Proxy Statement"), to be delivered to shareholders in connection with
the Annual Meeting of Shareholders to be held January 24, 1995, are
incorporated by reference into Parts I and III.
PART I
Item 1. Business
General
Apple Computer, Inc. ("Apple" or the "Company") was incorporated under the
laws of the State of California on January 3, 1977. The Company's
principal executive offices are located at 1 Infinite Loop, Cupertino,
California, 95014 and its telephone number is (408) 996-1010.
The Company designs, manufactures and markets microprocessor-based personal
computers and related personal computing products for sale primarily to
business, education, home, and government customers. Substantially all of
the Company's net sales to date have been derived from the sale of personal
computers from its Apple Macintosh line of computers and related software
and peripherals. The Company operates in one principal industry segment
across geographically diverse marketplaces.
Apple delivers a full range of information solutions to people in a wide
variety of growing markets. The Company's strategy is to maintain and
expand its market share in the personal computer industry while
developing and expanding new related businesses, such as its
businesses in on-line services, licensing of the Macintosh operating
system, client/server systems and personal interactive electronics.
Historically, the Company's principal products were built using the Motorola
68000 series of Complex Instruction Set Computing (CISC) microprocessors.
However, computer manufacturers are beginning to move from a CISC
architecture to a Reduced Instruction Set Computing (RISC) architecture.
Accordingly, during 1994, the Company began a major product transition and
introduced a new line of Macintosh computers based on the PowerPC
(registered trademark) architecture, a new RISC microprocessor jointly
developed by Apple, International Business Machines Corporation (IBM)
and Motorola, Inc. The Company believes that these PowerPC based
products will yield significant improvements in price/performance and
functionality compared with its CISC-based products. Further information
regarding this product transition may be found in Part II, Item 7 of this
Annual Report on Form 10-K (the "Form 10-K") under the subheading "Product
Introductions and Transitions" included under the heading "Factors That
May Affect Future Results and Financial Condition", which information is
hereby incorporated by reference.
Principal products
The Company offers a wide range of personal computing products, including
personal computers, related peripherals, software, and networking and
connectivity products.
Personal Computing Products
Apple Macintosh (registered trademark) personal computers were first
introduced in 1984, and are characterized by their intuitive ease of use,
innovative applications base, and built-in networking, graphics and
multimedia capabilities.
Currently, the Company uses two types of microprocessors in its line of
personal computing products. Products based on the new RISC-based
microprocessors includes the Power Macintosh(TM) family and the Macintosh
Performa (registered trademark) 6100 series of personal computers.
Products based on the Motorola series of microprocessors include the
Macintosh LC, Macintosh Performa, Macintosh Quadra (registered trademark),
and the PowerBook (registered trademark) families of computers.
Generally, products based on the Motorola series of microprocessors can
also be upgraded to take advantage of the PowerPC processor.
Power Macintosh
The Power Macintosh family of personal computers is the first Apple
computer to use PowerPC, a new RISC-based microprocessor developed by Apple,
IBM, and Motorola, Inc. This new high-performance family of personal
computers is targeted at business and professional users and is
designed to meet the speed, expansion
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and networking needs of the most demanding Macintosh user. These
Power Macintosh products not only support virtually all existing
Macintosh applications, but can also run MS-DOS and Windows applications
when using SoftWindows software from Insignia Solutions.
Macintosh LC
The LC family of personal computers offers high performance and
competitive prices in a flexible, modular design. LC personal computers
are well-suited for education and business applications such as graphics,
color presentations and spreadsheets. LC products are also capable of
running the Apple IIe applications that a large number of primary and
secondary schools have acquired over the years.
Macintosh Performa
The Performa family of personal computers is designed to appeal to first-
time personal computer users. These products feature all-in-one box
computing solutions, including software and hardware chosen specifically
with home users in mind. Performa products also include in-home service
and unlimited toll-free telephone support.
Macintosh Quadra
The Quadra family of personal computers includes the most powerful
desktop products in the Macintosh line which uses the 68000 series of
microprocessors. Quadra personal computers are targeted at business and
professional users, and include a wide variety of built-in features that
make them well-suited for activities such as color publishing, multi-user
accounting, three-dimensional modeling, computer-aided design (CAD), and
computer-aided engineering (CAE).
Macintosh PowerBook
The PowerBook family of notebook-sized personal computers is specifically
designed for mobile computing needs. All PowerBook personal computers
include the capability to connect to Macintosh desktop personal computers
and AppleTalk (registered trademark) networks and, therefore, to access
files and services that are located remotely; they also offer the
capability to transmit facsimiles.
Peripheral Products
The Company offers a full line of associated computer peripherals,
including the ImageWriter (registered trademark), StyleWriter
(registered trademark), Color StyleWriter and LaserWriter (registered
trademark) printer families, the AppleCD 150, 300, 300e Plus and 300i Plus,
the PowerCD, disk drives, the Apple OneScanner(TM) family of scanners and a
range of color and monochrome monitors.
Personal Digital-Assistant Products
The Newton (registered trademark) MessagePad(TM) 110 communications
assistant integrates Newton technology in a hand-held communications
device that intelligently assists the user in capturing, organizing and
communicating information.
Operating System Software and Application Software
The Company's operating system software, including its proprietary
Macintosh system software called Mac(TM)OS, and A/UX (registered trademark),
a version of the AT&T UNIX (registered trademark) operating system that
includes some of the Mac(TM)OS capabilities, provides Apple computers
with an easy, consistent user interface and built-in networking
capability based on its AppleTalk networking standard, as well as
other industry networking standards, and ensures integration of hardware
and software. The Company's system software business group also develops
and distributes extensions to the Macintosh system software, such as
utilities, languages, developer tools, and
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educational software. Claris Corporation, a wholly owned subsidiary
of the Company, develops, publishes, and distributes application software in
a variety of established personal productivity categories, such as
database management and graphics, for Macintosh and Windows-based
systems. Claris also publishes and distributes software developed by
independent developers through its Claris Clear Choice (TM) labeling
program. Claris products are distributed primarily through independent
software resellers.
Networking and Connectivity Products
The Company offers a full line of workgroup server systems that provide
file, print and communications services to varying size workgroups. The
Company also provides networking and communications products that connect
Apple systems to local area networks, providing access to other computers
and computing environments. These computing environments include
IBM's large and small systems and Digital Equipment Corporation's VAX,
as well as systems conforming to the Open System Interconnection (OSI)
and Transmission Control Protocol/Internet Protocol (TCP/IP) standards.
On-Line Services
The Company recently launched eWorld(TM), an on-line service which provides a
global electronic mail system together with news, information and other
services. This on-line service also includes eWorld for Macintosh and
NewtonMail (TM), eWorld's messaging service for Newton.
Marketing and distribution
The Company distributes its products principally through third-party
computer resellers. The Company is also continuing its expansion into
new distribution channels, such as mass merchandise stores, consumer
electronics outlets and computer superstores, in response to changing
industry practices and customer preferences. The Company's products are
sold primarily to business and government customers through independent
resellers, value-added resellers and systems integrators; to home
customers through independent resellers and consumer channels; and to
education customers through direct sales and independent resellers. In
order to provide products and service to its independent resellers on a
timely basis, the Company distributes its products through a number of
Apple distribution and support centers.
Business customers account for the largest portion of the Company's
revenues. Business customers are attracted to the Macintosh in
particular for a variety of reasons, including the availability of a wide
variety of application software, the reduced amount of training resulting
from the Macintosh's intuitive ease of use, and the ability of the
Macintosh to network and communicate with other computer systems and
environments.
Apple personal computers were first introduced to education customers in
the late 1970's. In the United States, the Company is one of the major
suppliers of personal computers for both elementary and secondary school
customers, as well as for college and university customers. The Company
is also a substantial supplier to institutions of higher education
outside of the United States.
In the United States, the Company's formal commitment to serve the
federal government began in 1986 with the formation of the Apple Federal
Systems Group. Although the Company has contracts with a number of U.S.
government agencies, these contracts are not currently material to the
Company's overall financial condition or results of operations.
Presently, the United States represents the Company's largest geographic
marketplace. The Apple USA organization, based in Campbell, California,
focuses on the Company's sales, marketing, and support efforts in the
United States. Products sold in the United States are primarily
manufactured in the Company's facilities in California, Colorado, and
Singapore, and distributed from facilities in California and Illinois.
Approximately 45% to 46% of the Company's revenues in recent years has
come from its international operations. The Company has two
international sales and marketing divisions, consisting of the Apple Europe
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division and the Apple Pacific division. The Apple Europe
division, based in Paris, France, focuses on opportunities in Europe as
well as in parts of Africa and in the Middle East. Products sold by the
Europe division are manufactured primarily in the Company's facility in
Cork, Ireland. The Apple Pacific division, based in Cupertino,
California, focuses on opportunities in Japan, Australia, Canada, the Far
East, and Latin America. Products sold by the Pacific division are
manufactured primarily in the Company's manufacturing and assembly
facilities in California, Colorado and Singapore.
A summary of the Company's Industry Segment and Geographic Information
may be found in Part II, Item 8 of this Form 10-K under the heading
"Industry Segment and Geographic Information", which information is
hereby incorporated by reference.
Raw materials
Although raw materials, processes, and components essential to the
Company's business are generally available from multiple sources, certain
key components are currently obtained from single sources. For example,
certain microprocessors used in many of the Company's products are
currently available only from Motorola, Inc. Any availability
limitations, interruption in supplies, or price increases relative to
these and other components could adversely affect the Company's business
and financial results. Key components and processes currently obtained
from single sources include certain of the Company's displays,
microprocessors, mouse devices, keyboards, disk drives, CD-ROM drives,
printers and printer components, ASICs and other custom chips, and
certain processes relating to construction of the plastic housing for the
Company's computers. In addition, new products introduced by the Company
often initially utilize custom components obtained from only one source,
until the Company has evaluated whether there is a need for an additional
supplier. In situations where a component or product utilizes new
technologies and processes, there may be initial capacity constraints
until such time as the suppliers' yields have matured. Materials and
components are normally acquired through purchase orders, as is common in
the industry, typically covering the Company's requirements for periods
from 90 to 180 days. However, the Company continues to evaluate the need
for a supply contract in each situation.
If the supply of a key single-sourced material, process, or component to
the Company were to be delayed or curtailed, its ability to ship the
related product utilizing such material, process, or component in desired
quantities and in a timely manner could be adversely affected. The
Company's business and financial performance could also be adversely
affected, depending on the time required to obtain sufficient quantities
from the original source, or to identify and obtain sufficient quantities
from an alternate source. The Company believes that the suppliers whose
loss to the Company could have a material adverse effect upon the
Company's business and financial position include, at this time, Canon,
Inc., General Electric Co., Hitachi, Ltd., IBM, Motorola, Inc., Sharp
Corporation, Sony Corporation, Texas Instruments, Inc., Tokyo Electric
Co., Ltd., and/or their United States affiliates, and VLSI Technology,
Inc. However, the Company helps mitigate these potential risks by
working closely with these and other key suppliers on product
introduction plans, strategic inventories, and coordinated product
introductions. The Company believes that most of its single-source
suppliers, including most of the foregoing companies, are reliable
multinational corporations. Most of these suppliers manufacture the
relevant materials, processes, or components in multiple plants. The
Company further believes that its long-standing business relationships
with these and other key suppliers are strong and mutually beneficial in
nature.
The Company has a supply agreement with Motorola, Inc. (see Exhibit
10.B.12 hereto). The agreement with Motorola continues for five years
from January 31, 1992 unless otherwise mutually agreed in writing by the
parties. The Company single-sources microprocessors from Motorola. The
supply agreement does not obligate the Company to make minimum purchase
commitments; however, the agreement does commit the vendor to supply the
Company's requirements of the particular items for the duration of the
agreement.
The Company has also from time to time experienced significant price
increases and limited availability of certain components that are
available from multiple sources, such as dynamic random-access memory
devices. Any similar occurrences in the future could have an adverse
effect on the Company's operating results.
5
Patents, trademarks, copyrights and licenses
The Company currently holds rights to patents and copyrights relating to
certain aspects of its computer and peripheral systems. In addition, the
Company has registered, and/or has applied to register, trademarks in the
United States and a number of foreign countries for "Apple", the Apple
silhouette logo, the Apple color logo, "Macintosh", Newton, the Newton
Lightbulb logo, and numerous other product trademarks. In 1986, the
Company acquired ownership of the trademark "Macintosh" for use in
connection with computer products. Although the Company believes that
the ownership of such patents, copyrights, and trademarks is an important
factor in its business and that its success does depend in part on the
ownership thereof, the Company relies primarily on the innovative skills,
technical competence, and marketing abilities of its personnel.
Because of technological changes in the computer industry, current
extensive patent coverage, and the rapid rate of issuance of new patents,
it is possible that certain components of the Company's products may
unknowingly infringe existing patents of others. The Company believes the
resolution of any claim of infringements would not have a material
adverse effect on its financial condition and results of operations as
reported in the accompanying financial statements. However, depending on
the amount and timing of an unfavorable resolution of any such claims of
infringement, it is possible that the Company's future results of
operations or cash flow could be materially affected in a particular
period. The Company has from time to time entered into cross-licensing
agreements with other companies.
The Company is engaged in certain litigation relating to its intellectual
property. A description of such litigation is set forth in
the footnote to the financial statements under the subheading "Litigation"
included under the heading entitled "Commitments and Contingencies" in Part
II, Item 8 of this Form 10-K (Microsoft/Hewlett-Packard, Lemelson
and Grant litigation), which information is hereby incorporated by reference.
Seasonal business
Although the Company does not consider its business to be highly seasonal,
it has historically experienced increased sales in its first and fourth
fiscal quarters, compared to other quarters in its fiscal year, due to
holiday demand for and calendar year-end buying of some of its products.
Warranty
The Company offers a parts and labor limited warranty on its products. The
warranty period is one year from the date of purchase by the end user. The
Company also offers a 90-day warranty for Apple service parts used to
repair Apple hardware products. In addition, consumers may purchase
extended service coverage on all Apple hardware products.
Customers
No customer of the Company accounted for 10% or more of net sales for
fiscal year 1994.
Backlog
In general, the Company's resellers typically purchase products on an as-
needed basis due to the Company's distribution strategy, which is designed
to expedite the filling of orders. 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.
However, products may be in relatively short supply from time to time until
production volumes have reached a level sufficient to meet demand or if
other constraints exist. The Company's backlog of unfilled orders
remained relatively unchanged at approximately $663 million at both
December 2, 1994, and November 19, 1993. The Company expects that
substantially all of its orders in backlog at December 2, 1994 will be
either shipped or canceled during fiscal 1995.
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In the Company's experience, the actual amount of product backlog at any
particular time is not 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
future revenue or financial performance. Further information regarding
the Company's backlog may be found under Part II, Item 7 of this Form 10-K
under the heading "Factors that May Affect Future Results and Financial
Condition," which information is hereby incorporated by reference.
Competition
The market for the design, manufacture and sale of personal computers,
personal digital assistants, and related software and peripheral products
is highly competitive. It continues to be characterized by rapid
technological advances in both hardware and software development that
have substantially increased the capabilities and applications of these
products, and has resulted in the frequent introduction of new products.
The principal competitive factors in this market are product quality and
reliability, availability of software, product features, relative
price/performance, marketing and distribution capability, service and
support, availability of hardware peripherals, and corporate reputation.
Further discussion relating to the competitive conditions of the personal
computing industry and the Company's competitive position in the market
place may be found under Part II, Item 7 of this Form 10-K under the
subheading "Competition," included under the heading "Factors that may
Affect Future Results and Financial Condition," which information is hereby
incorporated by reference.
Research and development
Because the personal computer industry is characterized by rapid
technological advances, the Company's ability to compete successfully is
heavily dependent upon its ability to ensure a continuing and timely flow
of competitive products to the marketplace. The Company continues to
develop new products and technologies and to enhance existing products in
the areas of hardware and peripherals, system software, and networking and
communications. The Company's research and development expenditures totaled
$564 million, $665 million, and $602 million, in fiscal years 1994, 1993
and 1992, respectively.
Further information regarding the Company's R&D expenditures for fiscal
year 1995 is set forth in Part II, Item 7 of this Form 10-K under the
heading "Operating Expenses," and which information is hereby incorporated
by reference.
Environmental laws
Compliance with United States federal, state, and local laws enacted for
the protection of the environment has to date had no material effect upon
the Company's capital expenditures, earnings, or competitive position.
Although the Company does not anticipate any material adverse effects in
the future based on the nature of its operations and the thrust of such
laws, no assurance can be given that such laws, or any future laws enacted
for the protection of the environment, will not have a material adverse
effect on the Company.
Employees
At September 30, 1994, Apple and its subsidiaries worldwide had 11,287
regular employees, and an additional 3,305 temporary or part-time
contractors and employees.
Foreign and domestic operations and geographic data
Information regarding financial data by geographic area and the risks
associated with international operations is set forth under Part II, Item
8 of this Form 10-K under the heading "Industry Segment and Geographic
Information", and under Part II, Item 7 of this Form 10-K
under the subheading "Global Market Risks,"
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included under the heading "Factors that may Affect Future Results and
Financial Condition," which information is hereby incorporated by reference.
Margins on sales of Apple products in foreign countries, and on domestic
sales of products that include components obtained from foreign
suppliers, can be adversely affected by foreign currency exchange rate
fluctuations and by international trade regulations, including tariffs
and anti-dumping penalties.
Item 2. Properties
The Company's headquarters are located in Cupertino, California. The
Company has manufacturing facilities in Fountain, Colorado, Sacramento,
California, Cork, Ireland, and Singapore. As of September 30, 1994, the
Company leased approximately 5.2 million square feet of space, primarily in
the United States, and to a lesser extent, in Europe and the Pacific.
Leases are generally for terms of five to ten years, and usually provide
renewal options for terms of up to five additional years. Certain of these
leased facilities are subject to the Company's restructuring actions
initiated in the third quarter of both 1993 and 1991. The amount of space
leased by the Company may decline in the future as the leases for
facilities subject to restructuring actions are terminated pursuant to
agreements with landlords or expire as scheduled.
The Company owns its manufacturing facilities in Fountain, Colorado, Cork,
Ireland, and Singapore, which total approximately 920,000 square feet. The
Company also owns a 450,000 square-foot facility in Sacramento, California,
which is used as a manufacturing, service and support center. The Company
also owns the research and development facility located in Cupertino,
California, and a centralized domestic data center in Napa, California
which approximate 856,000 and 158,000 square feet, respectively. Outside
of the United States, the Company owns a facility in Apeldoorn,
Netherlands, which is used primarily for distribution, totaling
approximately 265,000 square feet, in addition to certain other
international facilities, totaling approximately 553,000 square feet.
The Company believes that its existing facilities and equipment are well
maintained and in good operating condition. The Company has invested in
additional internal capacity and external partnerships, and therefore
believes it has adequate manufacturing capacity for the foreseeable
future. The Company continues to make investments in capital equipment as
needed to meet anticipated demand for its products.
Information regarding critical business operations that are located near
major earthquake faults is set forth in Part II, Item 7 of this Form 10-K
under the heading "Factors That May Affect Future Results", which
information is hereby incorporated by reference.
Information regarding the Company's purchase of its remaining partnership
interest in Cupertino Gateway Partners, formed for the purpose of
constructing the campus-type office facility that is now wholly owned by the
Company, may be found in Part II, Item 8 of this Form 10-K under the
heading "Commitments and Contingencies", which information is hereby
incorporated by reference.
Item 3. Legal Proceedings
Information regarding legal proceedings is set forth in Part II, Item 8 of
this Form 10-K under the subheading "Litigation," included under the
heading "Commitments and Contingencies," which information is hereby
incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended September 30, 1994.
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Executive Officers of the Registrant
The following sets forth certain information regarding the executive
officers of the Company as of December 8, 1994:
Michael H. Spindler*, President and Chief Executive Officer (age 52). Mr.
Spindler joined the Company as European Marketing Manager in September
1980, was promoted to Vice President and General Manager, Europe in January
1984, was named Vice President, International in February 1985, and was
promoted to Senior Vice President, International Sales and Marketing in
November 1986. Mr. Spindler was appointed Senior Vice President,
International in January 1988, Senior Vice President, Apple Europe Division
in April 1988, and was promoted to President, Apple Europe in August 1988.
While remaining President of Apple Europe, Mr. Spindler was also named
Senior Vice President of Apple Computer, Inc. in February 1989. In January
1990, Mr. Spindler was promoted to Chief Operating Officer and Executive
Vice President of Apple Computer, Inc., and in November 1990 was elected
President. In January 1991, Mr. Spindler was elected a member of the
Company's Board of Directors. Mr. Spindler was appointed to the position
of Chief Executive Officer in June 1993.
Joseph A. Graziano, Executive Vice President and Chief Financial Officer
(age 51). Mr. Graziano joined the Company in June 1989, as Senior Vice
President and Chief Financial Officer. In November 1990, Mr. Graziano was
elected Executive Vice President, and in October 1993, Mr. Graziano was
elected a member of the Company's Board of Directors. Before joining the
Company, Mr. Graziano was employed by Sun Microsystems, Inc., a
manufacturer of high-performance engineering workstations, as Chief
Financial Officer from June 1987 to June 1989. Mr. Graziano is also a
director of IntelliCorp, Inc., and StrataCom, Inc.
Ian W. Diery*, Executive Vice President and General Manager, Personal
Computer Division (age 45). Mr. Diery joined the Company as Senior Vice
President of Apple and President, Apple Pacific Division in October 1989.
In July 1992, Mr. Diery was promoted to Executive Vice President, Worldwide
Sales and Marketing. In July 1993, Mr. Diery was promoted to Executive
Vice President and General Manager of the Personal Computer Division.
Prior to joining the Company, Mr. Diery was employed by Wang Laboratories,
Inc., a manufacturer of computer systems and related products, from August
1978 to August 1989, where he served in various senior management
positions, including Senior Vice President of USA Operations from December
1986 to December 1987, and Executive Vice President of Worldwide Operations
from June 1988 to August 1989.
James J. Buckley, Senior Vice President and President, Apple USA (age 44).
Mr. Buckley joined the Company as K-12 and Higher Education Sales Manager
in May 1985 and was promoted to Director of the same group in January 1986.
In May 1986, Mr. Buckley was named Area Director, North Central Area,
appointed Vice President, Central Operations in April 1988, was promoted to
Vice President, Northern Operations in May 1991, and was appointed Vice
President and General Manager, Higher Education Division in April 1992. Mr.
Buckley was named Senior Vice President and President, Apple USA in January
1994.
Daniel L. Eilers, Senior Vice President, Apple Computer, Inc., and
President and Chief Executive Officer, Claris Corporation (age 39). Mr.
Eilers joined the Company as a software product manager in June 1982. He
was promoted to Assistant Treasurer in 1984, Director of Strategic
Investments in 1986, Vice President, Strategic Investments in November
1987, and Vice President, Strategy and Corporate Development in 1989. In
March 1991, Mr. Eilers was named Senior Vice President, Apple Computer,
Inc., and President and Chief Executive Officer, Claris Corporation.
John Floisand, Senior Vice President and President, Apple Pacific (age 50).
Mr. Floisand joined the Company in May 1986, as Director of Sales, Apple
Computer, Ltd., United Kingdom. In October 1988, Mr. Floisand was named
Director of Sales Development, Customer Services and Operations, Apple
Pacific Division, and in February 1992 was promoted to Vice President,
Sales Development, Customer Services and Operations, Apple Pacific
Division. Mr. Floisand was named Vice President and President, Apple
Pacific in August 1992. In October 1994, Mr. Floisand was promoted to
Senior Vice President and President, Apple Pacific.
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G. Frederick Forsyth, Senior Vice President, Worldwide Operations (age 50).
Mr. Forsyth joined the Company in June 1989, as Vice President, Worldwide
Manufacturing, Apple Products Division. Mr. Forsyth was named Senior Vice
President, Worldwide Manufacturing in November 1990, and in April 1991 he
was promoted to Senior Vice President and General Manager, Macintosh
Systems Division. In June 1993, Mr. Forsyth assumed responsibility for
Worldwide Operations. Prior to joining the Company, Mr. Forsyth was
employed by Digital Equipment Corporation (DEC), a manufacturer of
networked computer systems and associated peripheral equipment, from
November 1979 to June 1989, where he served in various managerial
positions, most recently as Group Manager, Low End Systems Manufacturing
from November 1986 to June 1989.
David C. Nagel, Senior Vice President and General Manager, AppleSoft
Division (age 49). Dr. Nagel joined the Company in June 1988, as Manager
of the Applications Technology Group within the Advanced Technology Group.
Dr. Nagel was promoted to Manager of User Technologies in June 1988,
Director of User Technologies in October 1989, and finally Vice
President of the Advanced Technology Group in April 1990. In December 1991,
Dr. Nagel was promoted to Senior Vice President and General Manager, Advanced
Technology Group and named Senior Vice President and General Manager,
Macintosh Software Architecture Division in January 1993. In July 1993,
Dr. Nagel was named General Manager of the AppleSoft Division.
Kevin J. Sullivan, Senior Vice President, Human Resources (age 53). Mr.
Sullivan joined the Company in April 1987, as Vice President, Human
Resources. In October 1988, Mr. Sullivan was promoted to Senior Vice
President, Human Resources.
Robert A. Lauridsen, Vice President, Corporate Development (age 46). Mr.
Lauridsen joined the Company in August 1990, as Director, Corporate
Development. In June 1991, Mr. Lauridsen was promoted to Senior Director,
Corporate Development and Strategic Investments, and in August 1992, was
promoted to Vice President, Corporate Development. Prior to joining the
Company, Mr. Lauridsen was employed by Booz, Allen, and Hamilton, Inc., a
consulting firm, where he served most recently as Vice President, from
October 1987 to August 1990.
Jeanne Seeley, Vice President, Finance and Corporate Controller (age 45).
Ms. Seeley joined the Company in October 1981, as the Controller for the
Peripherals Division. In June 1985, Ms. Seeley was promoted to Senior
Controller for the Operations Group, was named Director of Finance in
July 1986, and was promoted to Senior Director of Finance in January 1989.
In November 1990, Ms. Seeley was promoted to Vice President, Finance.
Ms. Seeley was appointed Vice President, Finance and Corporate Controller
in May 1992.
Edward B. Stead, Vice President, General Counsel, and Secretary (age 47).
Mr. Stead joined the Company in September 1988, as Associate General
Counsel. He was named Vice President, General Counsel, and Assistant
Secretary of the Company in June 1989. In September 1993, Mr. Stead
assumed the additional position of Secretary.
*Information regarding employment agreements between certain executive
officers and the Company is set forth in the section entitled "Information
About Apple Computer, Inc. - Certain Relationships and Related
Transactions" of the Company's Proxy Statement, which information is
hereby incorporated by reference.
10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol AAPL, on the
Tokyo Stock Exchange under the symbol APPLE, and on the Frankfurt Stock
Exchange under the symbol APCD. Options are traded on the Chicago Board
Options Exchange and the American Stock Exchange. Information regarding
the Company's high and low reported closing prices for its common stock and
the number of shareholders of record is set forth in Part II, Item 8 of
this Form 10-K under the heading "Selected Quarterly Financial Information
(Unaudited)" which information is hereby incorporated by reference.
Item 6. Selected Financial Data
The following selected financial information has been derived from the
Consolidated Financial Statements that have been audited by Ernst & Young
LLP, independent auditors. The information set forth below is not
necessarily indicative of results of future operations, and should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial
statements and related notes thereto included elsewhere in this Form 10-K.
(Tabular amounts in thousands, except per share amounts)
ANNUAL
Five fiscal years ended September 30, 1994
1994 1993 1992 1991 1990
Net sales $ 9,188,748 $7,976,954 $ 7,086,542 $ 6,308,849 $5,558,435
Net income $ 310,178 $ 86,589 $ 530,373 $ 309,841 $ 474,895
Earnings per
common and
common
equivalent
share $ 2.61 $ 0.73 $ 4.33 $ 2.58 $ 3.77
Cash dividends
declared
per common
share $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.44
Common and
common
equivalent
shares used
in the
calculations
of earnings per
share 118,735 119,125 122,490 120,283 125,813
Cash, cash
equivalents,
and short-term
investments $1,257,856 $ 892,303 $1,435,500 $ 892,719 $ 997,091
Total assets $5,302,746 $5,171,412 $4,223,693 $3,493,597 $2,975,707
Long-term debt $ 304,472 $ 7,117 $ 17,740 $ 18,131 $ 5,437
Deferred tax
liabilities $ 670,668 $ 629,832 $ 610,803 $ 509,870 $ 501,832
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on the Company's fiscal calendar.
(Tabular information: Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS 1994 Change 1993 Change 1992
Net sales $ 9,189 15% $ 7,977 13% $ 7,087
Gross margin $ 2,344 -14% $ 2,728 -12% $ 3,095
Percentage of net sales 25.5% 34.2% 43.7%
Operating expenses (excluding
restructuring costs) $ 1,948 -15% $ 2,297 -- $ 2,289
Percentage of net sales 21.2% 28.8% 32.3%
Restructuring costs $ (127) -140% $ 321 -- --
Percentage of net sales (1.4%) 4.0% --
Net income $ 310 258% $ 87 -84% $ 530
Earnings per share $ 2.61 258% $ 0.73 -83% $ 4.33
Net Sales
Net sales increased $1,212 million, or 15% in fiscal 1994, compared with an
increase of $890 million, or 13%, in fiscal 1993. The net sales growth in
1994 over 1993 was primarily due to two factors: unit sales growth and, to
a lesser extent, an increase in the average aggregate revenue per Macintosh
computer unit. Total Macintosh computer unit sales increased 16% over the
prior year. This growth resulted principally from strong sales of the
Company's new Power Macintosh products, first introduced on March 14,
1994, and from sales of newer product offerings within the Macintosh
Performa line of desktop personal computers and, to a lesser extent,
within the PowerBook family of notebook personal computers. This growth
was partially offset by declining unit sales in certain of the Company's
more established products and older product versions. The average
aggregate revenue per Macintosh unit increased slightly, primarily due to
fluctuations in product mix throughout the year, despite pricing actions
undertaken by the Company in response to continuing industrywide pricing
pressures.
Total Macintosh computer unit sales increased 32% from 1992 to 1993,
reflecting strong unit sales of the Company's newer product offerings
within the Macintosh Quadra, LC and Performa lines of desktop personal
computers and within the PowerBook family of notebook personal computers.
This growth was partially offset by declining unit sales of certain of the
Company's more established products and older product versions. The
average aggregate revenue per unit declined 15% in 1993 compared with 1992,
primarily as a result of pricing actions undertaken by the Company in
response to continuing industrywide pricing pressures.
In 1994, domestic net sales increased 14% over the prior year, compared
with an increase of 13% in 1993 over 1992. International net sales grew
17% from 1993 to 1994, compared with 12% growth from 1992 to 1993,
primarily as a result of strong sales growth in the Pacific region,
particularly in Japan. International net sales represented 46% of net
sales in 1994 compared with 45% of net sales in both 1993 and 1992.
Gross Margin
Gross margin in 1994 continued to decline as a percentage of net sales from
1993 and 1992 levels. The gross margin percentage declined to 25.5% in
1994 from 34.2% in 1993. The downward trend in gross margin as a
percentage of net sales was primarily a result of pricing and promotional
actions undertaken by the Company in response to industrywide competitive
pricing pressures.
12
Gross margin was also affected somewhat adversely by changes in foreign
currency exchange rates as a result of a stronger U.S. dollar relative to
certain foreign currencies in 1994 compared with 1993. Results from the
Company's ongoing foreign currency hedging activities offset a portion of
this adverse foreign currency impact on gross margin. Although the
Company's results of operations can be significantly affected in the short
term by fluctuations in foreign currency exchange rates, the Company's
operating strategy and pricing take into account changes in exchange rates
over time.
The decline in gross margin as a percentage of net sales from 43.7% in 1992
to 34.2% in 1993 was primarily the result of industrywide competitive
pressures and associated pricing and promotional actions. Inventory
valuation reserves recorded against certain products also contributed to
the decline in gross margin as a percentage of net sales. The Company's
results of operations were minimally affected by changes in foreign
currency exchange rates in 1993 compared with 1992.
Although the Company's gross margin percentage was 27.2% for the fourth
quarter of 1994, resulting primarily from strong sales of Power
Macintosh computers and the PowerBook 500 series of notebook personal
computers, it is anticipated that gross margins will remain under pressure
and could fall below prior years' levels worldwide due to a variety of
factors, including continued industrywide pricing pressures, increased
competition, and compressed product life cycles.
Operating Expenses 1994 Change 1993 Change 1992
Research and development $ 564 -15% $ 665 10% $ 602
Percentage of net sales 6.1% 8.3% 8.5%
Research and development expenditures decreased in amount during 1994
compared with 1993 and 1992. This decrease reflected the results of the
Company's restructuring actions aimed at reducing costs, including product
development expenditures. The increase in research and development
expenditures from 1992 to 1993 reflected net additions to the Company's
engineering staff and related costs. Research and development
expenditures, as a percentage of net sales, decreased since 1992 as a
result of revenue growth during 1993 and 1994, coupled with the Company's
continuing efforts to focus its research and development project spending.
The Company believes that continued investment in research and development
is critical to its future growth and competitive position in the
marketplace, and is directly related to continued, timely development of
new and enhanced products. Although the Company continues to manage
operating expense growth relative to gross margin levels, it anticipates
that research and development expenditures in 1995 will increase slightly
in amount.
1994 Change 1993 Change 1992
Selling, general and administrative $1,384 -15% $1,632 -3% $1,687
Percentage of net sales 15.1% 20.5% 23.8%
Selling, general and administrative expenses decreased in amount and as a
percentage of net sales in 1994 and 1993 compared with 1993 and 1992,
respectively. These decreases reflect the Company's ongoing efforts to
manage operating expense growth relative to gross margin levels.
In 1994, selling, general and administrative expenses decreased in amount
and as a percentage of net sales compared with 1993, primarily because of
lower employee-related and facilities costs resulting from the
restructuring actions taken in the third quarter of 1993. In addition,
revenue growth in 1994 contributed to the decrease in selling, general and
administrative expenses as a percentage of net sales.
13
General and administrative expenses decreased in 1993 compared with 1992,
primarily because of reduced employee-related expenses resulting from the
restructuring actions taken in the third quarter of 1993. This decrease in
general and administrative expenses was offset slightly by an increase in
sales and marketing expenses as a result of increases in costs for product
marketing and advertising programs related to new product introductions and
efforts to increase product demand.
The Company will continue to face the challenge of managing growth in
selling, general and administrative expenses relative to gross margin
levels, particularly in light of the Company's expectation of continued
pressure on gross margins and continued competitive pressures worldwide.
The Company anticipates an increase in selling, general and administrative
expenses in 1995 from current levels, primarily resulting from marketing
and advertising expenditures.
1994 Change 1993 Change 1992
Restructuring costs $(127) -140% $ 321 -- --
Percentage of net sales (1.4%) 4.0% --
For information regarding the Company's restructuring actions, refer to
pages 33-34 of the Notes to Consolidated Financial Statements.
Interest and Other Income
(Expense), Net 1994 Change 1993 Change 1992
Interest and other income (expense),
net $ (22) -175% $ 29 -41% $ 50
Interest and other income (expense), net, decreased by $51 million, to $22
million in expense in 1994 compared with $29 million of income in 1993.
Higher interest rates and larger average borrowing balances used to fund
working capital needs served to significantly increase interest expense,
and accounted for $28 million of the $51 million increase in expenses
during 1994. Other factors contributing to this variance include interest
income, which was higher in 1993 than in 1994 primarily due to a $15
million interest payment received on a non-recurring income tax refund from
the Internal Revenue Service in 1993, and interest income from the
Company's interest rate risk management program, which contributed $6
million in 1993, and reduced interest income by $7 million in 1994.
Interest and other income (expense), net, decreased in amount in 1993
compared with 1992 because of lower interest rates, lower cash balances,
expenses associated with certain financing transactions, lower gains on the
sale of certain of the Company's venture capital investments, an increase
in the cost of hedging certain foreign currency exposures, and an increase
in interest expense due to higher commercial paper borrowing levels. This
decrease was partially offset by interest earned on an income tax refund
from the Internal Revenue Service and gains realized on the Company's
ongoing foreign exchange risk management programs.
For more information regarding the Company's strategy and accounting for
financial and other derivative instruments, refer to pages 28-31 of
the Notes to Consolidated Financial Statements.
Provision for Income Taxes 1994 Change 1993 Change 1992
Provision for income taxes $190 258% $53 -84% $325
Effective tax rate 38% 38% 38%
The Company's effective tax rate remained unchanged in 1994, 1993 and
1992. For additional information regarding income taxes, refer to pages
35-36 of the Notes to Consolidated Financial Statements.
14
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.
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 effective management of inventory levels in line with
anticipated product demand, and the manufacturing of products in
appropriate quantities to meet anticipated demand. Accordingly, the
Company cannot determine the ultimate effect that new products will have
on its sales or results of operations.
On March 14, 1994, the Company introduced Power Macintosh, a new line of
Macintosh computers based on a new PowerPC family of RISC
microprocessors. The Company's results of operations and financial
condition may be adversely affected if it is unable to successfully
complete the transition of its lines of personal computers and servers
from the Motorola 68000 series of microprocessors to the PowerPC
microprocessor. The success of this ongoing transition will depend on
the Company's ability to continue to sell products based on the Motorola
68000 series of microprocessors while gaining market acceptance of the
new PowerPC processor-based products, to successfully manage inventory
levels of both product lines simultaneously, and to continue to
coordinate the timely development and distribution by independent
software vendors of new "native" software applications specifically
designed for the PowerPC processor-based products.
The rate of product shipments immediately following introduction of a new
product is not necessarily an indication of the anticipated 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 overordering 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
product previously in backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasing sharply coincident with
introduction, and then reducing sharply once dealers and customers
believe they can obtain sufficient supply of product.
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, although localized versions of the products may be
available.
15
Competition
The personal computer industry is highly competitive and continues to be
characterized by consolidations in the hardware and software industries,
aggressive pricing practices, and downward pressure on gross margins.
The Company's results of operations and financial condition could be
adversely affected should the Company be unable to effectively manage the
impact of industrywide pricing pressures and continue to realize the
anticipated cost -reduction benefits associated with the restructuring
plan initiated in the third quarter of 1993.
The Company's future operating results and financial condition may also
be affected by the Company's ability to offer customers competitive
technologies while effectively managing the impact on inventory levels
and the potential for customer confusion created by product
proliferation.
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
intends to port the Macintosh operating system to the common platform.
Accordingly, the Company's future operating results and financial
condition may be affected by its ability to implement this and certain
other collaboration agreements entered into, and to manage the associated
competitive risk.
The Company's future operating results and financial condition may also
be affected by the Company's ability to increase market share in its
personal computer business. Currently, the Company is the only maker of
hardware that uses the Macintosh operating system, and it 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. Certain of the Company's
personal computer products are capable of running software designed for
the MS-DOS or Windows operating system, through software emulation of
Intel microprocessor chips (except for one product, which does so by
means of a coprocessor card). Optimal performance of the Company's products
is obtained by use of software specifically designed for the Company's
products, either those based on the Motorola 68000 series of
microprocessors or those based on the PowerPC microprocessor. However,
as a result of the collaboration agreement noted in the preceding
paragraph, the Company will have the opportunity to increase its market
share in the personal computer business as the Macintosh operating system
becomes available on computers based on the new hardware reference platform.
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 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 relative market share of the Company's products, the
anticipated potential revenue that may be earned, and the costs of
developing such software products.
In an effort to increase overall market share, the Company plans to
license the Macintosh operating system to other personal computer vendors
beginning in 1995. The Company anticipates that the licensing activities
will result in a variety of these vendors bringing to market personal
computers that will run application software based on the Macintosh
operating system. The Company also believes that licensing will offer
software vendors a broader installed base on which they can develop and
provide technical innovations for the Macintosh platform. At this time,
the Company cannot determine the ultimate effect that licensing of the
Macintosh operating system will have on its sales or results of
operations.
Microsoft Corporation is the developer of the MS-DOS and Windows
operating systems, which are the principal competing operating systems to
the Company's Macintosh operating system. Microsoft is also 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 an operating system vendor.
16
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
new PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors which 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 the
Intel microprocessors as well as on the PowerPC microprocessor, and is
also the developer of OS/2, a competing operating system to the Company's
Macintosh operating system. Accordingly, IBM's interest in supplying the
Company with improved versions of 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.
The Company's future operating results and financial condition may also
be affected by the Company's ability to successfully expand its new
businesses and product offerings into other markets, such as the markets
for on-line 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 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 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 each
balance sheet date for changes in exchange rates.
While the Company is exposed with respect to 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, swaption, and
option transactions in order to extend the effective duration of a
portion of its cash, cash equivalent, and short-term investment
portfolios. These swaps may extend the Company's cash investment
horizon up to a maximum effective duration of three years.
17
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, swaption, 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.
As such, the Company's operating results and financial position may
be adversely affected.
Inventory
The Company's products include certain components, such as specific
microprocessors manufactured by Motorola, Inc., that are currently
available only from single sources. Any availability limitations,
interruptions in supplies, or price increases of these and other
components could adversely affect the Company's business and financial
results. The Company's future operating results and financial condition
may also be adversely affected by the Company's ability to manage
inventory levels and lead times required to obtain components in order to
be more responsive to short-term shifts in customer demand patterns. In
addition, if anticipated unit sales growth for new and current product
offerings is not realized, inventory valuation reserves may be necessary
that would adversely affect the Company's results of operations and
financial condition.
Marketing and Distribution
A number of uncertainties exist regarding the marketing and distribution
of the Company's products. Currently, the Company's primary means of
distribution is through third-party computer resellers. However, in
response to changing industry practices and customer preferences, the
Company is continuing its expansion into various consumer channels, such
as mass-merchandise stores (for example, Sears and Wal-Mart), consumer
electronics outlets, and computer superstores. The Company's business
and financial results could be adversely affected if the financial
condition of these sellers weakens or if sellers within consumer channels
decide not to continue to distribute the Company's products.
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.
The Company plans to replace its current transaction systems (which
include order management, distribution, manufacturing, 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 by its ability 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.
18
Liquidity and Capital Resources 1994 1993 1992
Cash, cash equivalents, and short-term
investments, net of short-term borrowings $ 966 $ 69 $ 1,251
Working capital $ 2,532 $ 1,830 $ 2,151
Cash generated by (used for) operations $ 737 $ (651) $ 921
Cash used for investment activities, excluding
short-term investments $ 163 $ 228 $ 264
Cash generated by (used for) financing
activities $ (208) $ 336 $ (114)
The Company's financial position with respect to cash, cash equivalents,
and short-term investments, net of short-term borrowings, increased to
$966 million at September 30, 1994, from $69 million at September 24,
1993. This increase reflects a $300 million issuance of ten-year
unsecured notes, the proceeds of which replaced a portion of the
Company's short-term financing. The improvement in the Company's
financial condition was also attributable to the Company's continued
efforts to increase profit levels and to manage working capital,
particularly in the area of inventory management.
More cash was generated by operations in 1994 compared with 1993,
primarily because of a significant decrease in inventory levels, as well
as increased sales levels. The significant decrease in inventory levels
during 1994 resulted from improved inventory management, higher 1994
sales levels attributable to various pricing and promotional actions, and
strong sales of new product inventory which had been built up in
preparation for the introduction of Power Macintosh. Profit levels
improved as operating expenses decreased due to the Company's
implementation of restructuring actions initiated in the third quarter of
1993.
Cash generated by operations in 1994 was partially offset by cash used
for restructuring and an increase in accounts receivable. The increase
in accounts receivable reflected an increase in sales levels achieved
during 1994. The balance of accrued restructuring costs decreased as the
restructuring actions initiated in the third quarter of 1993 continued to
be implemented. In addition, in the third quarter of 1994, the Company
lowered its estimate of the costs associated with the restructuring and
recorded an adjustment that increased income by $127 million ($79
million, or $0.66 per share, after taxes). This adjustment primarily
reflected the modification or cancelation of certain elements of the
Company's original restructuring plan because of changing business and
economic conditions that made certain elements of the restructuring plan
financially less attractive than originally anticipated.
More cash was used for operations in 1993 compared with 1992, primarily
because of a significant increase in inventory levels; decreases in net
income, income taxes payable, and other current liabilities; and an
increase in accounts receivable levels. Cash used for operations was
offset slightly by increases in accrued restructuring costs and accounts
payable.
Inventory increased substantially during 1993 as a result of higher
levels of purchased parts, work in process, and finished goods inventory
in support of an expanded product line and distribution channels and
anticipated higher sales volumes. The decrease in net income resulted
primarily from a reduction in gross margins and the restructuring charge
included in operating expenses for the third quarter. The reduction in
earnings also contributed to the decrease in income taxes payable. Other
current liabilities decreased as the Company continued to manage
operating expense levels. The increase in accounts receivable
corresponded to the higher sales levels achieved in 1993 compared with
1992, coupled with slower collections resulting from economic pressures
in the reseller industry, and the Company's expansion into consumer
channels, where payment terms are generally longer. These uses of cash
were offset slightly by increases in accrued restructuring costs as a
result of the Company's plan to restructure its operations worldwide and
increases in accounts payable, reflecting the higher level of inventory
purchases.
Excluding short-term investments, net cash used for investments declined
in 1994 compared with 1993 and 1992 levels. Net cash used for the
purchase of property, plant, and equipment totaled $160 million in 1994,
19
and was primarily made up of increases in land, buildings, machinery, and
equipment. The Company anticipates that capital expenditures in 1995
will be slightly above 1994 expenditures.
The Company leases the majority of its facilities and certain of its
equipment under noncancelable operating leases. In 1994, rent expense
under all operating leases was approximately $122 million. The Company's
future lease commitments are discussed on page 38 of the Notes to
Consolidated Financial Statements.
The Company's balance of long-term debt increased during 1994 due to the
issuance of $300 million aggregate principal amount of 6.5% unsecured
notes under an omnibus shelf registration statement filed with the
Securities and Exchange Commission. 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 6.51% fixed-rate was
subsequently effectively converted to a floating-rate through ten-year
interest rate swaps based on the six-month U.S. dollar London Interbank
Offered Rate (LIBOR). The impact of the swaps during 1994 was to reduce
the 6.51% fixed-rate yield to a 5.62% yield. To mitigate the credit risk
associated with these ten-year swap transactions, the Company entered
into margining agreements with its third-party bank counterparties.
Margining under these agreements generally does not start until 1997.
Furthermore, these agreements would require the Company to post margin
only if certain credit risk thresholds were exceeded. It is anticipated
that any margin the Company may be required to post in the future would
not have a material adverse effect on the Company's liquidity position.
Short-term borrowings at September 30, 1994, were approximately $531
million lower than at September 24, 1993, as the proceeds from the
issuance of $300 million in long-term debt were used to pay down the
balance of short-term borrowings. The Company's short-term borrowings
reflect borrowings made under its commercial paper program and short-term
uncommitted bid-line arrangements with certain commercial banks. In
particular, Apple Japan, Inc., a wholly owned subsidiary of the Company,
incurred short-term yen-denominated borrowings from several Japanese
banks during 1994, the balance of which aggregated the U.S. dollar
equivalent of approximately $202 million at September 30, 1994. During
the first quarter of 1994, the Company also entered into a 364-day $500
million committed revolving credit facility which terminated on December
8, 1994, with a syndicate of banks primarily in support of its commercial
paper program. No borrowings were made under this facility.
The Company expects that it will continue to incur short- and long-term
borrowings from time to time to finance U.S. working capital needs and
capital expenditures, because a substantial portion of the Company's
cash, cash equivalents, and short-term investments is held by foreign
subsidiaries, generally in U.S. dollar-denominated holdings. Amounts
held by foreign subsidiaries would be subject to U.S. income taxation
upon repatriation to the United States; the Company's financial
statements fully provide for any related tax liability on amounts that
may be repatriated. Refer to the Income Taxes footnote on pages 35-36 of
the Notes to Consolidated Financial Statements for further discussion.
The Company believes that its balances of cash, cash equivalents, and
short-term investments, together with funds generated from operations and
short- and long-term borrowing capabilities, will be sufficient to meet
its operating cash requirements on a short- and long-term basis.
20
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 22
Consolidated Balance Sheets at September 30, 1994 and
September 24, 1993 23
Consolidated Statements of Income for the three fiscal years
ended September 30, 1994 24
Consolidated Statements of Shareholders' Equity for the
three fiscal years ended September 30, 1994 25
Consolidated Statements of Cash Flows for the three fiscal
years ended September 30, 1994 26
Notes to Consolidated Financial Statements 27
Selected Quarterly Financial Information (Unaudited) 41
Financial Statement Schedules:
For the three fiscal years ended September 30, 1994
Schedule II - Amounts receivable from related parties and
underwriters, promoters and employees
other than related parties S-1
Schedule VIII - Valuation and qualifying accounts and
reserves S-3
Schedule IX - Short-term borrowings S-4
Schedule X - Supplementary income statement information S-5
All other schedules have been omitted, since the required information is
not present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
Consolidated Financial Statements and Notes thereto.
21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors of Apple Computer, Inc.
We have audited the accompanying consolidated balance sheets of Apple
Computer, Inc. as of September 30, 1994 and September 24, 1993, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1994.
Our audits also included the financial statement schedules listed in the
Index to Consolidated Financial Statements. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Apple Computer, Inc. at September 30, 1994 and September 24,
1993, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended September 30, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
October 17, 1994
22
Consolidated Balance Sheets
(Dollars in thousands)
September 30, 1994, and September 24, 1993 1994 1993
Assets:
Current assets:
Cash and cash equivalents $ 1,203,488 $ 676,413
Short-term investments 54,368 215,890
Accounts receivable, net of allowance for
doubtful accounts of $90,992 ($83,776 in 1993) 1,581,347 1,381,946
Inventories 1,088,434 1,506,638
Deferred tax assets 293,048 268,085
Other current assets 255,767 289,383
Total current assets 4,476,452 4,338,355
Property, plant, and equipment:
Land and buildings 484,592 404,688
Machinery and equipment 572,728 578,272
Office furniture and equipment 158,160 167,905
Leasehold improvements 236,708 261,792
1,452,188 1,412,657
Accumulated depreciation and amortization (785,088) (753,111)
Net property, plant, and equipment 667,100 659,546
Other assets 159,194 173,511
$ 5,302,746 $ 5,171,412
Liabilities and Shareholders' Equity:
Current liabilities:
Short-term borrowings $ 292,200 $ 823,182
Accounts payable 881,717 742,622
Accrued compensation and employee benefits 136,895 144,779
Accrued marketing and distribution 178,294 174,547
Accrued restructuring costs 58,238 307,932
Other current liabilities 396,961 315,023
Total current liabilities 1,944,305 2,508,085
Long-term debt 304,472 7,117
Deferred tax liabilities 670,668 629,832
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 320,000,000 shares
authorized; 119,542,527 shares issued and
outstanding in 1994 (116,147,035 shares in
1993) 297,929 203,613
Retained earnings 2,096,206 1,842,600
Accumulated translation adjustment (10,834) (19,835)
Total shareholders' equity 2,383,301 2,026,378
$ 5,302,746 $ 5,171,412
See accompanying notes.
23
Consolidated Statements of Income
(In thousands, except per share amounts)
Three fiscal years ended 1994 1993 1992
September 30, 1994
Net sales $ 9,188,748 $ 7,976,954 $ 7,086,542
Costs and expenses:
Cost of sales 6,844,915 5,248,834 3,991,337
Research and development 564,303 664,564 602,135
Selling, general and
administrative 1,384,111 1,632,362 1,687,262
Restructuring costs (126,855) 320,856 --
8,666,474 7,866,616 6,280,734
Operating income 522,274 110,338 805,808
Interest and other income
(expense), net (21,988) 29,321 49,634
Income before income taxes 500,286 139,659 855,442
Provision for income taxes 190,108 53,070 325,069
Net income $ 310,178 $ 86,589 $ 530,373
Earnings per common and common
equivalent share $ 2.61 $ .73 $ 4.33
Common and common equivalent
shares used in the calculations
of earnings per share 118,735 119,125 122,490
See accompanying notes.
24
Consolidated Statements of Shareholders' Equity
(In thousands, except per share amounts)
Accu-
mulated Notes
Trans- Receivable Total
lation from Share-
Common Stock Retained Adjust- Share- holders'
Shares Amount Earnings ment holders Equity
Balance at
September 27,
1991 118,386 $ 278,865 $1,492,024 $ (2,377) $ (1,836) $1,766,676
Common stock
issued under
stock option
and purchase
plans, including
related
tax benefits 4,093 155,388 -- -- -- 155,388
Repurchase of
common stock (4,000) (151,943) (60,682) -- -- (212,625)
Repayment of notes
receivable from
shareholders -- -- -- -- 1,836 1,836
Cash dividends of
$.48 per common
share -- -- (57,196) -- -- (57,196)
Accumulated
translation
adjustment -- -- -- 2,918 -- 2,918
Net income -- -- 530,373 -- -- 530,373
Balance at
September 25,
1992 118,479 282,310 1,904,519 541 -- 2,187,370
Common stock
issued under
stock option
and purchase
plans, including
related
tax benefits 2,693 101,842 -- -- -- 101,842
Repurchase of
common stock (5,025) (180,539) (92,915) -- -- (273,454)
Cash dividends of
$.48 per common
share -- -- (55,593) -- -- (55,593)
Accumulated
translation
adjustment -- -- -- (20,376) -- (20,376)
Net income -- -- 86,589 -- -- 86,589
Balance at
September 24,
1993 116,147 203,613 1,842,600 (19,835) -- 2,026,378
Common stock
issued under
stock option
and purchase
plans, including
related
tax benefits 3,396 94,316 -- -- -- 94,316
Cash dividends of
$.48 per common
share -- -- (56,572) -- -- (56,572)
Accumulated
translation
adjustment -- -- -- 9,001 -- 9,001
Net income -- -- 310,178 -- -- 310,178
Balance at
September 30,
1994 119,543 $ 297,929 $2,096,206 $ (10,834) $ -- $2,383,301
See accompanying notes.
25
Consolidated Statements of Cash Flows
(In thousands)
Three fiscal years ended 1994 1993 1992
September 30, 1994
Cash and cash equivalents,
beginning of the period $ 676,413 $ 498,557 $ 604,147
Operations:
Net income 310,178 86,589 530,373
Adjustments to reconcile net
income to cash generated by
(used for) operations:
Depreciation and amortization 167,958 166,113 217,182
Net book value of property,
plant, and equipment retirements 11,130 13,145 14,687
Changes in assets and liabilities:
Accounts receivable (199,401) (294,761) (180,026)
Inventories 418,204 (926,541) 91,558
Deferred tax assets (24,963) (68,946) 23,841
Other current assets 33,616 (96,314) (87,376)
Accounts payable 139,095 315,686 69,852
Income taxes payable 50,045 (54,724) 100,361
Accrued restructuring costs (249,694) 202,894 (57,327)
Other current liabilities 39,991 (13,383) 96,915
Deferred tax liabilities 40,836 19,029 100,933
Cash generated by (used
for) operations 736,995 (651,213) 920,973
Investments:
Purchase of short-term
investments (312,073) (1,431,998) (2,121,341)
Proceeds from sale of short-term
investments 473,595 2,153,051 1,472,970
Purchase of property, plant, and
equipment (159,587) (213,118) (194,853)
Other (3,737) (15,169) (69,410)
Cash generated by (used
for) investment activities (1,802) 492,766 (912,634)
Financing:
Increase (decrease) in short-term
borrowings (530,982) 638,721 35,895
Increase (decrease) in long-term
borrowings 297,355 (10,624) (391)
Increases in common stock, net of
related tax benefits and changes
in notes receivable from
shareholders 82,081 85,289 120,388
Repurchase of common stock -- (273,454) (212,625)
Cash dividends (56,572) (55,593) (57,196)
Other -- (48,036) --
Cash generated by (used
for) financing activities (208,118) 336,303 (113,929)
Total cash generated (used) 527,075 177,856 (105,590)
Cash and cash equivalents, end of
the period $ 1,203,488 $ 676,413 $ 498,557
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $ 34,387 $ 11,748 $ 8,778
Income taxes, net $ 45,692 $ 226,080 $ 97,667
Schedule of non-cash transactions:
Tax benefit from stock options $ 12,235 $ 16,553 $ 36,836
See accompanying notes.
26
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
_________________________________________________________________________
Basis of Presentation
The consolidated financial statements include the accounts of Apple
Computer, Inc. and its wholly owned subsidiaries (the Company).
Intercompany accounts and transactions have been eliminated. The
Company's fiscal year-end is the last Friday in September.
Revenue Recognition
The Company recognizes revenue at the time products are shipped.
Provisions are made currently for estimated product returns and price
protection that may occur under Company programs. Historically, actual
amounts recorded for product returns and price protection have not varied
significantly from estimated amounts.
Warranty Expense
The Company provides currently for the estimated cost that may be
incurred under product warranties when products are shipped.
Foreign Currency
Gains and losses resulting from foreign currency translation are
accumulated as a separate component of shareholders' equity until the
foreign entity is sold or liquidated. Gains and losses resulting from
foreign currency transactions are included in the consolidated
statements of income.
Financial Instruments
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents; investments
with maturities between three and twelve months are considered to be
short-term investments. A substantial portion of the Company's cash,
cash equivalents, and short-term investments is held by foreign
subsidiaries and is generally based in U.S. dollar-denominated holdings.
Amounts held by foreign subsidiaries would be subject to U.S. income
taxation upon repatriation to the United States; the Company's financial
statements fully provide for any related tax liability on amounts that
may be repatriated, aside from undistributed earnings that are intended
to be indefinitely invested.
The Company has not elected early adoption of Financial Accounting
Standard No. 115 (FAS 115), "Accounting for Certain Investments in Debt
and Equity Securities". FAS 115 becomes effective beginning with the
Company's first quarter of fiscal year 1995. The principal impact of
the new statement is to replace the historical cost accounting approach
for certain investments in debt and equity securities with one based on
fair value. The Company does not expect adoption of FAS 115 to have a
material effect on its financial position or results of operations.
For further information regarding the Company's accounting treatment of
other financial and derivative instruments, refer to pages 28-31 of
the Notes to Consolidated Financial Statements.
Income Taxes
Effective September 25, 1993, the Company adopted Financial Accounting
Standard No. 109 (FAS 109), "Accounting for Income Taxes," which changes
the method of accounting for income taxes from the deferred method to the
liability method. This change in accounting principle has been adopted
on a prospective basis, and the financial statements of years ended prior
to September 25, 1993, have not been restated. The cumulative effect of
the change was not material. Under FAS 109, deferred tax assets and
liabilities reflect the future income tax effects of temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates that apply to
taxable income in the years in which those temporary differences are
27
expected to be recovered or settled. Under FAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Prior to 1994, the Company accounted for income taxes under the
provisions of APB Opinion No. 11, which recognized deferred taxes for the
effect of timing differences between pretax accounting income and taxable
income. Under the deferred method of APB Opinion No. 11, deferred taxes
were not adjusted for subsequent changes in tax rates.
U.S. income taxes have not been provided on a cumulative total of $335
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 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 federal and state income taxes currently
on undistributed earnings of foreign subsidiaries.
Earnings per Share
Earnings per share are 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.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. If the cost of the inventories exceeds their market value,
provisions are made currently for the difference between the cost and the
market value.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation and
amortization is computed by use of the declining balance and straight-
line methods over the estimated useful lives of the assets.
Reclassifications
Certain prior year amounts on the Consolidated Balance Sheets,
Consolidated Statements of Cash Flows, Industry Segment and Geographic
Information, and Income Taxes footnotes have been reclassified to conform
to the current year presentation.
Financial Instruments
___________________________________________________________________________
Financial Instruments With Off-Balance-Sheet Risk
In the ordinary course of business and as part of the Company's asset and
liability management, the Company enters into various types of
transactions that involve contracts and financial instruments with off-
balance-sheet risk. These instruments are entered into in order to
manage financial market risk, including interest rate and foreign
exchange risk. The Company enters into these financial instruments with
major international financial institutions utilizing over-the-counter as
opposed to exchange traded instruments.
Interest Rate Derivatives
The Company enters into interest rate derivatives, including interest
rate swaps, swaptions, and options, with financial institutions in order
to better match the Company's floating-rate interest income on its cash
equivalents and short-term investments with the fixed-rate interest
expense of its long-term debt. These instruments are also used to extend
the effective duration of a portion of the Company's short-term
investment portfolio up to a maximum duration of three years, and to
diversify a portion of its exposure away from changes in U.S. interest
rates.
28
Foreign Currency Instruments
The Company enters into foreign exchange forward and option contracts
with financial institutions primarily to protect against currency
exchange risks associated with certain firmly committed and certain other
probable, but not firmly committed transactions. The Company's foreign
exchange risk management policy requires it to hedge substantially all of
its material foreign exchange transaction exposures. However, the
Company does not hedge certain foreign exchange transaction exposures
that are immaterial either in terms of their minimal U.S dollar value or
in terms of their high correlation with the U.S. dollar.
Anticipated transactions comprise sales of the Company's products in
currencies other than the U.S. dollar. A majority of these non-U.S.
dollar-based sales are made through the Company's subsidiaries in Europe,
Asia (particularly Japan), Canada, and Australia. The duration of these
anticipated hedging transactions does not exceed one year. The Company
also sells foreign exchange option contracts, in order to partially
finance the purchase of foreign exchange option contracts used to hedge
both firmly committed and certain other probable, but not firmly
committed transactions. The Company enters into other foreign exchange
transactions, which are intended to reduce the costs associated with its
foreign exchange risk management programs.
Fair Value, Notional Principal, and Credit Risk Amounts
The table below shows the notional principal, fair value, and credit risk
amounts of the Company's interest rate derivative and foreign currency
instruments as of September 30, 1994. The notional principal amounts for
off-balance-sheet 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. The credit risk amount
shown in the table below 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.
The Company's exposure to credit loss and market risk will vary over time
as a function of interest rates and currency exchange rates.
The estimates of fair value are based on applicable and commonly used
pricing models using prevailing financial market information as of
September 30, 1994. In certain instances where judgment is required in
estimating fair value, price quotes were obtained from several of the
Company's counterparty financial institutions. Although the table below
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 hedge. The amounts ultimately realized upon settlement of
these financial instruments, together with the gains and losses on the
underlying exposures, will depend on actual market conditions during
the remaining life of the instruments.
29
(in millions)
1994 1993(A)
Credit Credit
Notional Fair Risk Notional Fair Risk
Principal Value Amount Principal Value Amount
Transactions Qualifying as Accounting Hedges
Interest rate instruments
Swaps $ 699 $ (40) -- -- -- --
Foreign exchange instruments
Spot / Forward contracts $2,385 $ (23) $ 15 $ 2,114 $ 6 $ 19
Purchased options $1,510 $ 17 $ 21 $ 1,637 $ 28 $ 33
Sold options $ 302 $ (1) -- $ 765 --(B) --
Transactions Other Than Accounting Hedges
Interest rate instruments
Swaps -- -- -- $ 112 --(B) --
Sold options $ 148 --(B) -- $ 67 --(B) --
Foreign exchange instruments
Spot / Forward contracts $ 300 --(B) --(B) $ 574 $ 2 $ 10
Purchased options $1,600 $ 32 $ 32 $ 1,608 $ 24 $ 24
Sold options $5,511 $ (45) -- $ 5,282 $(39) --
(A) Adjusted to conform with current year presentation.
(B) Fair value is less than $0.5 million.
The interest rate swaps shown above generally require the Company to pay
a floating interest rate based on three- or six-month U.S. dollar LIBOR
and receive a fixed rate of interest based on two-, three-, and ten-year
swap rates without exchanges of the underlying notional amounts.
Maturity dates for interest rate swaps currently range from one to ten
years. Interest rate option contracts require the Company to make
payments should certain interest rates either fall below or rise above
predetermined levels. All interest rate option contracts outstanding at
September 30, 1994, expire within 18 months.
Interest rate contracts not accounted for as hedges are carried at fair
value with gains and losses recorded currently in income. Unrealized
gains and losses on interest rate contracts that are designated and
effective as hedges are deferred and recognized in income in the same
period as the hedged transaction. Unrealized losses on such agreements
totaled approximately $40 million at September 30, 1994, primarily
reflecting the net present value of unrealized losses on the ten-year
swap contracts, which effectively convert the Company's fixed-rate ten-
year debt to floating-rate debt. There were no deferred gains and losses
on interest rate contracts as of September 24, 1993.
The foreign exchange forward contracts not accounted for as hedges are
carried at fair value and are adjusted each balance sheet date for
changes in exchange rates. Unrealized gains and losses on foreign
exchange forward contracts that are designated and effective as hedges
are deferred and recognized in income in the same period as the hedged
transactions. Deferred gains and losses on such agreements at September
30, 1994, and at September 24, 1993, were immaterial. All foreign
exchange forward contracts expire within one year.
Purchased and sold foreign exchange option contracts that qualify for
hedge accounting treatment are reported on the balance sheet at the
premium cost, which is amortized over the life of the option. Unrealized
gains and losses on these option contracts are deferred until the
occurrence of the hedged transaction and recognized as a
30
component of the hedged transaction. Deferred gains and losses on such
agreements were immaterial at September 30, 1994, and at September 24,
1993. Maturity dates for purchased foreign exchange option contracts
range from one to twelve months.
Purchased and sold foreign exchange option contracts that do not qualify
for hedge accounting treatment are carried at fair value and, as such,
are adjusted each balance sheet date for changes in exchange rates.
Gains and losses associated with these financial instruments are recorded
currently in income. As of September 30, 1994, maturity dates for these
sold option contracts ranged from one to six months.
The Company monitors its interest rate and foreign exchange positions
daily based upon applicable and commonly used pricing models. The
correlation between the changes in the fair value of hedging
instruments and the changes in the underlying hedged items is assessed
periodically over the life of the hedged instrument. In the event that
it is determined that a hedge is ineffective, the Company recognizes in
income the change in market value of the instrument beginning on the date
it was no longer an effective hedge.
Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
(in millions)
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 1,203 $ 1,203 $ 676 $ 676
Short-term investments $ 54 $ 54 $ 216 $ 216
Short-term borrowings $ 292 $ 292 $ 823 $ 823
Long-term debt:
Ten-year unsecured notes $ 300 $ 259 -- --
Other $ 4 $ 4 $ 7 $ 7
Short-term investments are carried at cost plus accrued interest, which
approximates fair value. The carrying amount of short-term borrowings
approximates their fair value due to their short-term maturities. The
fair value of the ten-year unsecured notes is based on their listed
market value as of September 30, 1994.
Concentrations of Credit Risk
_________________________________________________________________________
The Company distributes its products principally through third-party
computer resellers and various education and consumer channels.
Concentrations of credit risk with respect to trade receivables are
limited because of flooring arrangements for selected customers with
third-party financing companies and because the Company's customer base
consists of large numbers of geographically diverse customers dispersed
across several industries. As such, the Company generally does not
require collateral from its customers.
The counterparties to the agreements relating to the Company's
investments and foreign exchange and interest rate instruments consist of
a number of major international financial institutions. To date, no such
counterparty has failed to meet its financial obligations to the Company.
The Company does not believe that there is significant risk of
nonperformance by these counterparties because the Company continually
monitors its positions and the credit ratings of such counterparties, and
limits the financial exposure and the amount of agreements and contracts
it enters into with any one party. The Company generally does not
require collateral from counterparties, except for margin agreements
associated with the ten-year interest rate swaps on the Company's long-
term debt. To mitigate the credit risk associated with these ten-year
swap transactions, the Company entered into margining agreements with its
third-party bank counterparties. Margining under these agreements
generally does not start until 1997. Furthermore, these agreements would
require the Company or the counterparty to post margin only if certain
credit risk thresholds were exceeded.
31
Inventories
Inventories consist of the following: (In thousands)
1994 1993
Purchased parts $ 469,420 $ 504,201
Work in process 206,654 284,440
Finished goods 412,360 717,997
$1,088,434 $1,506,638
Borrowings
_________________________________________________________________________
(In thousands)
Short-Term Borrowings
1994 1993
Commercial paper $ 89,817 $ 823,182
Notes payable to banks 202,383 --
$ 292,200 $ 823,182
The weighted average interest rates for commercial paper borrowings at
September 30, 1994, and September 24, 1993, were approximately 5.0% and
3.3%, respectively. The weighted average interest rate for the Japanese
yen-denominated notes payable to banks at September 30, 1994, was
approximately 2.6%. Interest expense on short-term borrowings was $24.9
million, $8.9 million, and $6.5 million for 1994, 1993, and 1992,
respectively.
On December 9, 1993, the Company entered into a 364-day $500 million
committed revolving-credit facility with a syndicate of banks primarily
in support of its commercial paper program. This facility terminated on
December 8, 1994. No borrowings were made under this facility.
The cost of this facility was immaterial.
Long-Term Debt
On February 10, 1994, the Company issued $300 million aggregate principal
amount of 6.5% unsecured notes under the Company's $500 million omnibus
shelf registration statement filed with the Securities and Exchange
Commission. 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. Interest expense on the ten-year unsecured
notes for the year ended September 30, 1994, was approximately $12
million. Other long-term debt of approximately $4 million and $7
million at September 30, 1994, and September 24, 1993, respectively, and
the related interest expense in each of the three years ended September
30, 1994, was immaterial.
For information regarding the Company's estimated fair value of short-
and long-term debt, refer to page 31 of the Notes to Consolidated
Financial Statements.
32
Restructuring of Operations
________________________________________________________________________
In the third quarter of 1993, the Company initiated a plan to restructure
its operations worldwide in order to address the competitive conditions in
the personal computer industry, including the increased market demand for
lower-priced products. In connection with this plan, the Company recorded
a $321 million charge to operating expenses ($199 million, or $1.72 per
share, after taxes). The restructuring costs included $162 million of
estimated employee-related expenses and $159 million of estimated
facilities, equipment, and other expenses associated with the consolidation
of operations and the relocation and termination of certain operations and
employees. The restructuring plan originally contemplated the termination
or relocation of approximately 4,150 employees worldwide and the reduction
in worldwide office space, which primarily consisted of approximately 1.6
million square feet of office space in the San Francisco Bay Area, within
one year from the date the restructuring was initiated.
In the third quarter of 1994, the Company lowered its estimate of the total
costs associated with the restructuring and recorded an adjustment that
increased income by $127 million ($79 million, or $0.66 per share, after
taxes). This adjustment primarily reflected the modification or
cancelation of certain elements of the Company's original restructuring
plan because of changing business and economic conditions that made certain
elements of the restructuring plan financially less attractive than
originally anticipated. In addition, some actions were completed at a
lower cost than originally estimated.
The most significant element of the adjustment was associated with $61
million in costs accrued to terminate or move a number of employees from
the San Francisco Bay Area to a lower-cost location. This element of the
Company's restructuring plan was expected to result in the
termination or relocation of approximately 2,000 employees and the closure
of certain leased facilities, at a cost of $39 million and $22 million,
respectively. However, the expected benefits of this move were reduced
since the plan's inception because of changes to the cost differential
between the Company's current and alternative locations. For example, the
Company favorably renegotiated the lease terms of certain facilities in its
current locations, the salary growth rate differentials between the Bay
Area and alternative locations were reduced, and recent changes to the
California income tax laws made it more attractive for companies to do
business in California. The Company canceled this action in the third
quarter of 1994, when management decided that the extended estimated pay-
back period no longer justified the initial cash investment and the
unquantifiable cost of business disruption that such a move would
precipitate.
At the end of fiscal year 1994, approximately 1,760 employees had been
terminated and approximately 80 had been relocated, and the Company had
reduced its use of office space in the Bay Area by approximately 867,000
square feet.
At the time the restructuring was announced, management had publicly set a
goal of reducing operating costs below $500 million per quarter and
increasing sales significantly to achieve acceptable profitability. These
goals were met by the end of the third quarter of fiscal 1994. The Company
continues to search for ways to permanently reduce its cost structure.
Although the Company has achieved a lower level of operating expenses
without fully implementing all of the restructuring actions as originally
planned, there can be no assurance that this level of operating expenses will
be maintained in the future. For example, operating expenses (excluding
restructure) in 1994 were reduced by $349 million, or 15%, compared
with 1993, despite an increase in net sales of 15%.
As of September 30, 1994, the Company had $58 million of accrued
restructuring costs for actions that are currently under way and expected
to be completed during 1995. Approximately $52 million of this accrual
represents cash charges primarily for estimated facilities, equipment, and
other expenses, the majority of which are expected to be incurred during
1995. Cash spending beyond one year primarily relates to approximately $6
million of recurring payments under certain noncancelable operating leases.
33
The following table depicts a roll-forward reconciliation of the activity
in the restructuring accrual balance from September 24, 1993, to September
30, 1994:
(in thousands)
Balance at Balance at
Sept. 24, Adjust- Sept. 30,
Category 1993 Spending ments 1994
Employee termination payments(C) $ 84,062 $ 42,376 $ 30,933 $ 10,753
Other costs relating to terminated
employees (B) 4,282 3,227 1,055 --
Provisions relating to employees
who will not be terminated (C) 41,818 8,536 28,603 4,679
Termination payments for leases and
other contracts (C) 92,736 32,907 39,728 20,101
Write-down of operating assets to
be sold (N) 16,864 9,748 5,925 1,191
Provisions for litigation (C) 3,600 -- 1,856 1,744
R&D project cancelations (C) 14,858 7,043 1,624 6,191
Other provisions and write-downs (B) 31,863 10,254 8,875 12,734
1991 accrued restructuring costs (B) 17,849 8,748 8,256 845
$ 307,932 $ 122,839 $ 126,855 $ 58,238
(C): Cash; (N): Noncash; (B): Both cash and noncash
Interest and Other Income (Expense), Net
___________________________________________________________________________
Interest and other income (expense), net, consists of the following:
(In thousands)
1994 1993 1992
Interest income $ 43,284 $ 70,225 $ 71,686
Interest expense (39,653) (11,800) (8,708)
Discount on foreign
exchange instruments (34,304) (31,803) (27,062)
Other income (expense), net 8,685 2,699 13,718
$ (21,988) $ 29,321 $ 49,634
34
Income Taxes
The provision for income taxes consists of the following:
(In thousands)
FAS 109 Method APB 11 Method
1994 1993 1992
Federal:
Current $ 60,757 $ 13,637 $ 108,512
Deferred 19,673 (23,757) 100,355
80,430 (10,120) 208,867
State:
Current 5,769 3,144 26,935
Deferred 20,352 633 13,891
26,121 3,777 40,826
Foreign:
Current 71,095 39,512 65,144
Deferred 12,462 19,901 10,232
83,557 59,413 75,376
Provision for income taxes $ 190,108 $ 53,070 $ 325,069
The foreign provision for income taxes is based on foreign pretax
earnings of approximately $474 million, $416 million, and $611 million in
1994, 1993, and 1992, respectively. The tax benefit credited directly to
common stock as a result of compensation expense attributable to
employee stock option and purchase plans recognized differently for
financial reporting and tax purposes was $11 million in 1994.
As discussed in the Summary of Significant Accounting Policies, the
Company adopted FAS 109 effective as of the beginning of the fiscal year
ended September 30, 1994. Prior to 1994, the Company accounted for
income taxes under the provisions of APB Opinion No. 11. Under FAS 109,
deferred tax assets and liabilities reflect the future income tax effects
of temporary differences between the financial statement carrying amounts
of assets and liabilities and their respective tax bases.
At September 30, 1994, the significant components of the Company's
deferred tax assets and liabilities were as follows:
(In thousands)
September 30, 1994
Deferred tax assets:
Accounts receivable and inventory reserves $ 140,842
Accrued liabilities and other reserves 125,402
Basis of capital assets and investments 66,256
Total deferred tax assets 332,500
Less: Valuation allowance 10,948
Net deferred tax assets 321,552
Deferred tax liabilities:
Unremitted earnings of subsidiaries 656,806
Other 28,791
Total deferred tax liabilities 685,597
Net deferred tax liability $ 364,045
The net change in the total valuation allowance for the year ended
September 30, 1994, was an increase of $11 million.
35
Under APB Opinion No. 11, deferred income taxes result from timing
differences between years in the recognition of certain revenue and expense
items for financial and tax reporting purposes. The sources of timing
differences and the related tax effects for 1993 and 1992 are as follows:
(In thousands)
1993 1992
Income of foreign subsidiaries not
taxable in current year $ 53,150 $ 71,429
Warranty, bad debt, and other expenses (80,126) 35,494
Depreciation (3,796) (3,398)
Inventory valuation (16,835) (1,940)
State income taxes 2,607 (10,959)
Other individually immaterial items 41,777 33,852
Total deferred taxes $ (3,223) $ 124,478
A reconciliation of the provision for income taxes, with the amount
computed by applying the statutory federal income tax rate (35.00% in
1994, 34.75% in 1993, and 34.00% in 1992) to income before income taxes,
is as follows:
FAS 109 Method APB 11 Method
1994 1993 1992
Computed expected tax $ 175,100 $ 48,532 $ 290,850
State taxes, net of federal benefit 16,978 2,465 26,945
Research and development tax credit (1,000) (8,000) (7,000)
Indefinitely invested earnings of
foreign subsidiaries (49,350) (21,083) (31,280)
Valuation allowance 9,016 -- --
Other individually immaterial items 39,364 31,156 45,554
Provision for income taxes $ 190,108 $ 53,070 $ 325,069
Effective tax rate 38% 38% 38%
The Internal Revenue Service has proposed federal income tax deficiencies
for the years 1984 through 1988, and the Company has made prepayments
thereon. The Company has contested these alleged deficiencies and is
pursuing administrative and judicial remedies. Management believes that
adequate provision has been made for any adjustments that may result from
these tax examinations.
Common Stock
_________________________________________________________________________
Shareholder Rights Plan
In May 1989, the Company adopted a shareholder rights plan and
distributed a dividend of one right to purchase one share of common stock
(a Right) for each outstanding share of common stock of the Company. The
Rights become exercisable in certain limited circumstances involving a
potential business combination transaction of the Company and are initially
exercisable at a price of $200 per share. Following certain other
events after the Rights have become exercisable, each Right entitles its
holder to purchase for $200 an amount of common stock of the Company, or,
in certain circumstances, securities of the acquiror, having a then-current
market value of two times the exercise price of the Right. The Rights are
redeemable and may be amended at the Company's option before they become
exercisable. Until a Right is exercised, the holder of a Right, as such,
has no rights as a shareholder of the Company. The Rights expire on
April 19, 1999.
36
Stock Option Plans
The Company has in effect a 1990 Stock Option Plan (the 1990 Plan) and a
1987 Executive Long Term Stock Option Plan (the 1987 Plan). The 1981
Stock Option Plan terminated in October 1990. Options granted before
that date remain outstanding in accordance with their terms. Options may
be granted under the 1990 Plan to employees, including officers and
directors who are employees, at not less than the fair market value on
the date of grant. These options generally become exercisable over
varying periods, based on continued employment, and generally expire ten
years after the grant date. The 1990 Plan permits the granting of
incentive stock options, nonstatutory stock options, and stock
appreciation rights.
The 1987 Plan permits the granting of nonstatutory options to certain
officers of the Company to purchase Apple common stock at prices not less
than 75% of the fair market value on the date of grant. Options under the
1987 Plan are generally not exercisable for 18 months after the date of
grant, and then become exercisable at varying rates over the subsequent
seven years, based on continued service to the Company.
Summarized information regarding the Company's stock option plans as of
September 30, 1994, is as follows:
(In thousands, except per share amounts)
Number of Price Per
Shares Share
Outstanding at September 24, 1993 13,096 $ 7.50- $ 68.00
Granted 4,705
Exercised (2,223) $ 23.50-$ 38.25
Expired or canceled (2,167)
Outstanding at September 30, 1994 13,411 $ 7.50- $ 68.00
Exercisable 5,475
Reserved for issuance 19,286
Available for future grant 5,879
Restricted Stock Plan
On April 1, 1993, the Company's Board of Directors approved a Restricted
Stock Plan for officers of the Company (the RSP), which became effective
July 1, 1993. The RSP was subsequently ratified by the shareholders on
January 26, 1994. The RSP is designed to provide an incentive for
officers to continue to own shares of the Company's common stock acquired
upon exercise of options under any of the Company's Stock Option Plans,
thus more closely aligning officers' financial interests with those of
the shareholders. The RSP provides that officers who exercise stock
options and continue to hold the exercised shares for at least three
years will receive up to three Awards of shares of restricted stock.
Each such Award is for one-third the number of shares held for the
requisite retention period. Each restricted stock Award granted pursuant
to the plan becomes fully vested three years after the grant date,
provided that the officer maintains continuous employment with the
Company and that other vesting requirements are met.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (the Purchase Plan) under
which substantially all employees may purchase common stock through
payroll deductions at a price equal to 85% of the lower of the fair
market values as of the beginning or end of the offering period. Stock
purchases under the Purchase Plan are limited to 10% of an employee's
compensation, up to a maximum of $25,000 in any calendar year. As of
September 30, 1994, approximately 1 million shares were reserved for
future issuance under the Purchase Plan.
Stock Repurchase Programs
In November 1992, the Board of Directors authorized the purchase of up to
10 million shares of the Company's common stock in the open market. No
shares were repurchased under this authorization in 1994, while
approximately 3.4 million shares were repurchased under this
authorization in 1993. In September 1990, the Board of Directors
authorized the purchase of up to 10 million shares of the Company's
common stock in the open market. During 1993 and 1992, the Company
repurchased the remaining shares under this authorization, which
approximated to 1.6 million and 4.0 million shares, respectively.
37
Savings Plan
The Company has an employee savings plan (the Savings Plan) that
qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code. Under the Savings Plan, participating U.S.
employees may defer a portion of their pretax earnings, up to the
Internal Revenue Service annual contribution limit ($9,240 for calendar
year 1994). Effective July 1, 1994, the Company matches 30% to 70% of
each employee's contributions, depending on length of service, up to a
maximum 6% of the employee's earnings. Prior to July 1, 1994, the
Company matched 30% to 50% of each employee's contributions, depending on
length of service, up to a maximum 6% of the employee's earnings. The
Company's matching contributions to the Savings Plan were approximately
$10.7 million in 1994 and $11.1 million in each of 1993 and 1992.
Preferred Stock
_________________________________________________________________________
Five million shares of preferred stock have been authorized for issuance
in one or more series. The Board of Directors is authorized to fix the
number and designation of any such series and to determine the rights,
preferences, privileges, and restrictions granted to or imposed on any
such series.
Commitments and Contingencies
___________________________________________________________________________
Lease Commitments
The Company leases various facilities and equipment under noncancelable
operating lease arrangements. The major facilities leases are for terms of
five to ten years and generally provide renewal options for terms of up to
five additional years. Rent expense under all operating leases was
approximately $122 million, $170 million, and $160 million in 1994, 1993,
and 1992, respectively. Future minimum lease payments under these
noncancelable operating leases having remaining terms in excess of one year
as of September 30, 1994, are as follows:
(In thousands)
1995 $ 85,090
1996 60,127
1997 38,025
1998 16,928
1999 6,908
Later years 24,256
Total minimum lease payments $ 231,334
Leases for facilities that were subject to the Company's restructuring
actions initiated in the third quarter of 1991 and in the third quarter of
1993 are included in the preceding table. Future lease payments
associated with these facilities were provided for in the Company's
restructuring reserves recorded in 1993 and 1991, and therefore do not
represent future operating expenses. Minimum lease payments may decline in
the future, as the leases for facilities subject to restructuring actions
are terminated or otherwise completed. For additional information
regarding restructuring of operations, refer to pages 33-34 of the Notes to
Consolidated Financial Statements.
In January 1994, a wholly owned subsidiary of the Company exercised its
option to purchase, for $51.9 million, the remaining partnership interest
in the Cupertino Gateway Partners partnership, a general partnership, which
owns the Company's campus-type office facilities located in Cupertino,
California (the "Campus"). As a result of this purchase, the Company's
wholly owned subsidiary now owns 100% of the right, title, and interest in
the Campus, as opposed to a 50.001% investment in the partnership held in
the prior year. Because of this purchase, future minimum lease payments to
the partnership of approximately $162 million have been excluded from the
preceding table.
38
Litigation
Apple v. Microsoft Corporation and Hewlett-Packard Company
In March 1988, the Company filed suit in the U.S. District Court for the
Northern District of California (the Court) against Microsoft Corporation
(Microsoft) and Hewlett-Packard Company (HP), alleging that their
Microsoft Windows and HP NewWave computer programs infringe the Company's
audiovisual copyrights protecting the Macintosh user interface. On
August 24, 1993, the district court entered final judgment for Microsoft
and HP, dismissing the Company's action.
On September 21, 1993, the Court denied defendants' motions for an award
of full defense costs and attorneys' fees under 17 U.S.C. Section 505,
but allowed defendants to renew their motions should the Supreme Court
alter the standard for the award of attorneys' fees in copyright cases in
the case of Fogerty v. Fantasy, Inc., 114 S. Ct. 1023 (1994).
------------------
On September 20, 1993, the Company appealed the case to the U.S. Court of
Appeals for the Ninth Circuit. On September 24, 1994, the Court of
Appeals issued its decision affirming the district court judgment on the
merits but remanding the case on the issue of attorney's fees in light of
the Fogerty decision. The Company plans to file a petition for a writ of
------- -------
certiorari in the Supreme Court of the United States.
- ----------
In re Apple Securities Litigation (1993)
In 1993, a number of civil class action complaints relating to the June
1993 drop in price of Apple stock were filed in U.S. District Court
against the Company and certain of its officers and directors, alleging
violations of federal securities laws for alleged material
misrepresentations and omissions of fact concerning the Company's
business. The cases were subsequently consolidated into In re Apple
-------------
Securities Litigation, Civ. No. C-93-20521-RPA(EAI). These suits were
- ----------------------
filed on behalf of the named plaintiffs and all others who purchased the
Company's common stock between October 15, 1992, and July 15, 1993.
Plaintiffs seek an award of damages according to proof, with interest.
1993 State Court Shareholders Action
In 1993, certain derivative class action complaints relating to the June
1993 drop in price of Apple stock were filed against the Company, as
nominal defendant, and certain of its officers and directors. The suits
allege violations of California law. On September 28, 1993, all parties
entered into a stipulation that consolidated the derivative actions and
stayed them in their entirety until the conclusion of the 1993 class
action litigation.
Lemelson v. Apple
On September 25, 1992, Jerome Lemelson filed a complaint against the
Company in the U.S. District Court, District of Nevada, which complaint
was amended on April 8, 1993, alleging infringement of two patents
relating to information storage and retrieval systems. Mr. Lemelson seeks
injunctive relief, damages in an unspecified amount, and an award of
attorneys' fees and costs. The case is set for trial in January 1995.
Grant v. Apple
On February 11, 1993, Richard B. Grant filed a complaint against the
Company in the U.S. District Court for the Central District of California
alleging infringement of a natural-language patent. This matter has been
resolved.
The Company believes the suits cited above to be without merit and
intends to vigorously defend against these actions. The Company believes
the resolution of all of these matters will not have a material adverse
effect on its financial condition and results of operations as reported
in the accompanying financial statements. However, depending on the
amount and timing of an unfavorable resolution of these lawsuits, it is
possible that the Company's future results of operations or cash flow
could be materially affected in a particular period.
39
Industry Segment and Geographic Information
The Company operates in one principal industry segment: the design,
manufacture, and sale of personal computing products. The Company's
products are sold primarily to the business, education, home, and
government markets.
Geographic financial information is as follows:
(In thousands)
1994 1993 1992
Net sales to unaffiliated
customers:
United States $ 4,982,298 $ 4,387,674 $ 3,885,042
Europe 2,096,257 2,001,593 2,017,840
Pacific 1,581,571 1,075,711 716,517
Other countries 528,622 511,976 467,143
Total net sales $ 9,188,748 $ 7,976,954 $ 7,086,542
Transfers between geographic
areas (eliminated in
consolidation):
United States $ 408,635 $ 420,323 $ 458,167
Europe 234,011 262,554 246,745
Pacific 1,633,413 1,772,440 1,156,433
Other countries -- 2,160 1,237
Total transfers $ 2,276,059 $ 2,457,477 $ 1,862,582
Operating income (loss):
United States $ 45,292 $ (253,499) $ 245,810
Europe 263,190 79,440 301,865
Pacific 197,318 262,426 227,183
Other countries 22,876 24,146 18,998
Eliminations (6,402) (2,175) 11,952
Corporate income (expense), net (21,988) 29,321 49,634
Income before income taxes $ 500,286 $ 139,659 $ 855,442
Identifiable assets:
United States $ 2,317,192 $ 2,534,545 $ 1,536,705
Europe 814,670 973,741 767,765
Pacific 796,803 637,857 341,200
Other countries 165,193 161,332 115,272
Eliminations (58,372) (49,838) (43,716)
Corporate assets 1,267,260 913,775 1,506,467
Total assets $ 5,302,746 $ 5,171,412 $ 4,223,693
"Other countries" consists of Canada and Australia. Prior year amounts
have been restated to conform to the current year presentation.
Net sales to unaffiliated customers is based on the location of the
customers. Transfers between geographic areas are recorded at amounts
generally above cost and in accordance with the rules and regulations of
the respective governing tax authorities. Operating income (loss) by
geographic area consists of total net sales less operating expenses, and
does not include an allocation of general corporate expenses. The
restructuring charge and adjustment recorded in 1993 and 1994,
respectively, are included in the calculation of operating income (loss)
for each geographic area. Identifiable assets of geographic areas are
those assets used in the Company's operations in each area. Corporate
assets include cash and cash equivalents, joint venture investments, and
short-term investments.
40
Selected Quarterly Financial Information (Unaudited)
(Tabular amounts in thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
1994
Net sales $2,493,286 $2,149,908 $2,076,700 $2,468,854
Gross margin $ 678,873 $ 573,872 $ 499,064 $ 592,024
Net income $ 114,655 $ 138,101 $ 17,404 $ 40,018
Earnings per
common and common
equivalent share $ 0.95 $ 1.16 $ 0.15 $ 0.34
Cash dividends
declared per
common share $ 0.12 $ 0.12 $ 0.12 $ 0.12
Price range per
common share $36 3/8-$26 1/8 $33 1/2-$25 1/8 $38 1/8-$29 1/4 $34-$22 1/2
1993
Net sales $2,140,789 $1,861,979 $1,973,894 $2,000,292
Gross margin $ 550,428 $ 606,004 $ 760,763 $ 810,925
Net income (loss) $ 2,664 $(188,316) $ 110,900 $ 161,341
Earnings (loss) per
common and common
equivalent share $ 0.02 $ (1.63) $ 0.92 $ 1.33
Cash dividends
declared per
common share $ 0.12 $ 0.12 $ 0.12 $ 0.12
Price range per
common share $40 1/8-$24 1/4 $58 3/4-$39 5/8 $65-$52 3/4 $60 5/8-$43 3/8
At September 30, 1994, there were 32,219 shareholders of record.
The Company began declaring quarterly cash dividends on its common stock
in April 1987. The dividend policy is determined quarterly by the Board
of Directors and is dependent on the Company's earnings, capital
requirements, financial condition, and other factors.
The price range per common share represents the highest and lowest
closing prices for the Company's common stock on the Nasdaq National
Market during each quarter.
Net income for the third quarter of 1994 includes a restructuring
adjustment that increased income by $127 million ($79 million, or $0.66
per share, after taxes). Net loss for the third quarter of 1993 includes
a restructuring charge of $321 million ($199 million, or $ 1.72 per
share, after taxes).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
41
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors of the Registrant is set forth in the
Proxy Statement under the heading "Information About Apple Computer, Inc.
- - Directors" and under the heading "Election of Directors", which
information is hereby incorporated by reference. Information regarding
executive officers of the Company found under the caption "Executive
Officers of the Registrant" in Part I hereof is also incorporated by
reference into this Item 10.
Item 11. Executive Compensation
Information regarding executive compensation is set forth in the Proxy
Statement under the heading "Information About Apple Computer, Inc. -
Director Compensation", "Information About Apple Computer, Inc. - Certain
Relationships and Related Transactions", "Report of the Compensation
Committee and Stock Option Committee of the Board of Directors on
Executive Compensation", and "Information Regarding Executive
Compensation", which information is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading
"Information About Apple Computer, Inc. - Security Ownership of Certain
Beneficial Owners and Management", which information is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
set forth in the Proxy Statement under the heading "Information About
Apple Computer, Inc. - Director Compensation ", "Information About Apple
Computer, Inc. - Certain Relationships and Related Transactions", and
"Report of the Compensation Committee and Stock Option Committee of the
Board of Directors on Executive Compensation - Compensation Committee
Interlocks and Insider Participation", which information is hereby
incorporated by reference.
42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Items Filed as Part of Report:
1. Financial Statements
The financial statements of the Company as set forth in the Index
to Consolidated Financial Statements under Part II, Item 8 of this
Form 10-K are hereby incorporated by reference.
2. Financial Statement Schedules
The financial statement schedules of the Company as set forth in
the Index to Consolidated Financial Statements under Part II, Item 8
of this Form 10-K are hereby incorporated by reference.
3. Exhibits
The exhibits listed under Item 14(c) are filed as part of this Form
10-K.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by Apple with the
Securities and Exchange Commission during the fourth quarter of
fiscal 1994.
(c) Exhibits
Exhibit
Number Notes* Description
3.1 88-S3 Restated Articles of Incorporation, filed with the
Secretary of State of the State of California on
January 27, 1988.
3.2 90-2Q Amendment to Restated Articles of Incorporation,
filed with the Secretary of State of the State of
California on February 5, 1990.
3.3 94/3Q By-Laws of the Company, as amended through April 20,
1994.
4.1 89-8A Common Shares Rights Agreement dated as of May 15,
1989 between the Company and the First National Bank
of Boston, as Rights Agent.
4.2 94/2Q Indenture dated as of February 1, 1994, between the
Company and Morgan Guaranty Trust Company of New York
(the "Indenture").
4.3 94/2Q Supplemental Indenture dated as of February 1, 1994,
among the Company, Morgan Guaranty Trust Company of
New York, as resigning trustee, and Citibank, N.A., as
successor trustee.
4.4 94/2Q Officers' Certificate, without exhibits, pursuant to
Section 301 of the Indenture, establishing the terms
of the Company's 6 1/2% Notes due 2004.
4.5 94/2Q Form of the Company's 6 1/2% Note due 2004.
10.1 94/1Q Credit Agreement between the Registrant and certain
lenders dated as of December 9, 1993.
* Footnotes appear on pages 47-48.
** Represents a management contract or compensatory plan or arrangement.
43
(c) Exhibits (continued)
10.A.1 93/3Q ** 1981 Stock Option Plan, as amended.
10.A.2 91K ** 1987 Executive Long Term Stock Option Plan.
10.A.3 91K ** Apple Computer, Inc. Savings and Investment Plan, as
amended and restated effective as of October 1, 1990.
10.A.3-1 92K ** Amendment of Apple Computer, Inc. Savings and
Investment Plan dated March 1, 1992.
10.A.4 88K** Form of Director Warrant
10.A.5 94/2Q ** 1990 Stock Option Plan, as amended through January
26, 1994.
10.A.6 91K ** Apple Computer, Inc. Employee Stock Purchase Plan,
as amended.
10.A.7 ** 1994 Senior / Executive Bonus Plan.
10.A.8 91K ** Form of Indemnification Agreement between the
Registrant and each officer of the Registrant.
10.A.9 90K ** Employment Agreement dated September 14, 1989
between the Registrant and Ian Diery.
10.A.10 91K ** Employment Agreement dated May 18, 1989 between the
Registrant and Fred Forsyth.
10.A.11 90K-10.A.10 ** Employment Agreement dated June 14, 1989 between
the Registrant and Joseph A. Graziano.
10.A.13 91K ** Employment Agreement dated February 21, 1991 between
the Registrant and Soren Olsson.
10.A.14 91K ** Employment Agreement dated June 25, 1990 between the
Registrant and Robert Puette.
10.A.15 91K ** Agreement dated April 12, 1991 between the
Registrant and Michael H. Spindler.
10.A.15-1 93K-10.A.15 ** 1993 Executive Restricted Stock Plan
10.A.16 93K ** Separation Agreement dated October 14, 1993 between
the Registrant and John Sculley.
10.A.17 93K ** Separation Agreement dated November 19, 1993 between
the Registrant and Albert A. Eisenstat.
10.A.18 93K ** Separation Agreement and Consulting Services
Agreement dated October 15, 1993 and December 3,
1993, respectively, between the Registrant and Robert
Puette.
* Footnotes appear on pages 47-48.
** Represents a management contract or compensatory plan or arrangement.
44
(c) Exhibits (continued)
10.A.19 94/2Q ** Executive Severance Plan as amended and restated
effective as of July 1, 1993.
10.B.1 88K-10.1 Master OEM Agreement dated as of January 26, 1988
between the Company and Tokyo Electric Co. Ltd.
10.B.2 91-8K-2 Stock Purchase and Stockholder Agreement dated as of
September 30, 1991 among MDCA Corporation (later
renamed to be "Taligent, Inc."), the Registrant and
IBM.
10.B.3 91-8K-3 Stock Purchase and Stockholder Agreement dated as of
September 30, 1991 among MDCB Corporation (later
renamed to be "Kaleida Labs, Inc."), the Registrant
and IBM.
10.B.4 91-8K-4 Agreement for Licensing of IBM Compilers and Tools
dated as of September 30, 1991 between IBM and the
Registrant for the Mac AIX Compiler.
10.B.5 91-8K-5 Development and License Agreement dated as of
September 30, 1991 between IBM and the Registrant
for Mac-on-AIX.
10.B.6 91-8K-6 Agreement for Development and Licensing of AIX and
AIXwindows dated as of September 30, 1991 between
IBM and the Registrant.
10.B.7 91-8K-7 Know-how and Copyright License Agreement (Power PC
Architecture) dated as of September 30, 1991 between
IBM and the Registrant.
10.B.8 91-8K-8 Participation in the Customer Design Center by the
Registrant dated as of September 30, 1991 between
IBM and the Registrant.
10.B.9 91-8K-9 Agreement for Purchase of IBM Products (Original
Equipment Manufacturer) dated as of September 30,
1991 between IBM and the Registrant.
10.B.10 91-8K-10 Enterprise Interoperability Master Task Agreement
dated as of September 30, 1991 between the Registrant
and IBM.
10.B.11 91K Agreement dated October 9, 1991 between Apple Corps
Limited and the Registrant.
10.B.12 92K Microprocessor Requirements Agreement dated January
31, 1992 between the Registrant and Motorola, Inc.
10.D.1 90/1Q Lease Agreement dated November 15, 1988 between TGL
Associates and the Registrant, as amended by a
Modification of Lease Agreement dated March 1, 1989.
10.D.2 92K Amended and Restated General Partnership Agreement
dated July 12, 1991 between ACI Real Properties, Inc.
and Sobrato Development Company #910.
* Footnotes appear on pages 47-48.
** Represents a management contract or compensatory plan or arrangement.
45
(c) Exhibits (continued)
10.D.2-1 92K Agreement amending Cupertino Gateway Partners
General Partnership Agreement dated November 11, 1992.
10.D.3 91/3Q Lease Agreement (Building 1) dated July 12, 1991
between Cupertino Partners and the Registrant.
10.D.3-1 92K First Amendment of Lease (Building 1) dated November
11, 1992.
10.D.4 (1) Lease Agreement (Building 2) dated July 12, 1991
between Cupertino Gateway Partners and the Registrant.
10.D.4-1 (2) First Amendment of Lease (Building 2) dated November
11, 1992.
10.D.5 (1) Lease Agreement (Building 3) dated July 12, 1991
between Cupertino Gateway Partners and the Registrant.
10.D.5-1 (2) First Amendment of Lease (Building 3) dated November
11, 1992.
10.D.6 (1) Lease Agreement (Building 4) dated July 12, 1991
between Cupertino Gateway Partners and the Registrant.
10.D.6-1 (2) First Amendment of Lease (Building 4) dated November
11, 1992.
10.D.7 (1) Lease Agreement (Building 5) dated July 12, 1991
between Cupertino Gateway Partners and the Registrant.
10.D.7-1 (2) First Amendment of Lease (Building 5) dated November
11, 1992.
10.D.8 (1) Lease Agreement (Building 6) dated July 12, 1991
between Cupertino Gateway Partners and the Registrant.
10.D.8-1 (2) First Amendment of Lease (Building 6) dated November
11, 1992.
11 Computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
24 Power of Attorney.
27 Financial Data Schedule
* Footnotes appear on pages 47-48.
** Represents a management contract or compensatory plan or arrangement.
46
NOTES
(1) Copies of these lease agreements have been omitted because
they are substantially identical in all material respects to
the Lease Agreement filed as Exhibit 10.D.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1991 except as set forth in Schedule I attached to such
Exhibit 10.D.6.
(2) Copies of these amendments have been omitted because they
are substantially identical in all material respects to the
First Amendment to Lease Agreement filed as Exhibit 10.D.3-
1.
88K Incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1988 (the "1988 Form 10-K").
88-S3 Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (file no. 33-23317) filed
July 27, 1988.
88K-10.1 Incorporated by reference to Exhibit 10.1 to the 1988 Form
10-K. Confidential treatment as to certain portions of
these agreements has been granted.
89-8A Incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on May 26, 1989.
90/1Q Incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
29, 1989.
90/2Q Incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
30, 1990.
90K Incorporated by reference to the exhibit of that number in
the Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1990 (the "1990 Form 10-K").
90K-10.A.10 Incorporated by reference to Exhibit 10.A.10 of the 1990
Form 10-K.
91/3Q Incorporated by reference to Exhibit 10.D.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1991.
91K Incorporated by reference to the exhibit of that number in
the Company's Annual Report on Form 10-K for the fiscal year
ended September 27, 1991 (the "1991 Form 10-K").
91-8K-2 Incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated October 15, 1991 (the
"October 1991 Form 8-K").
91-8K-3 Incorporated by reference to Exhibit 3 to the October 1991
Form 8-K.
91-8K-4 Incorporated by reference to Exhibit 4 to the October 1991
Form 8-K.
91-8K-5 Incorporated by reference to Exhibit 5 to the October 1991
Form 8-K.
91-8K-6 Incorporated by reference to Exhibit 6 to the October 1991
Form 8-K.
91-8K-7 Incorporated by reference to Exhibit 7 to the October 1991
Form 8-K.
91-8K-8 Incorporated by reference to Exhibit 8 to the October 1991
Form 8-K.
91-8K-9 Incorporated by reference to Exhibit 9 to the October 1991
Form 8-K.
47
NOTES (continued)
91-8K-10 Incorporated by reference to Exhibit 10 to the October 1991
Form 8-K.
92K Incorporated by reference to the exhibit of that number in
the Company's Annual Report on Form 10-K for the fiscal year
ended September 25, 1992 (the "1992 Form 10-K").
93K Incorporated by reference to the exhibit of that number in
the Company's Annual Report on Form 10-K for the fiscal year
ended September 24,1993 (the "1993 Form 10-K").
93K-10.A.15 Incorporated by reference to Exhibit 10.A.15 to the 1993
Form 10-K.
93/3Q Incorporated by reference to Exhibit 10.A.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 25,
1993.
94/1Q Incorporated by reference to Exhibit 10.1 to the Company's
quarterly Report on Form 10-Q for the quarter ended December
31, 1993.
94/2Q Incorporated by reference to the exhibit of that number in
the Company's Quarterly Report on Form 10-Q for the quarter
ended April 1, 1994.
94/3Q Incorporated by reference to Exhibit 3.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 1,
1994.
(d) Financial Statement Schedules
See Item 14(a)(2) of this Form 10-K.
48
(Exhibit 23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 2-70449, 2-77563, 2-85095, 33-866, 33-23650, 33-
31075, 33-40877, 33-47596, 33-57092 and 33-57080) pertaining to the 1981
and 1990 Stock Option Plans, the Employee Stock Purchase Plan, the 1980
Key Employee Stock Purchase Plan, the 1986 Employee Incentive Stock
Option Plan, the 1987 Executive Long Term Stock Option Plan, and the Form
of Director Warrant of Apple Computer, Inc. and Form S-3 No. 33-62310 and
in the related Prospectuses of our report dated October 17, 1994 with
respect to the consolidated financial statements and schedules of Apple
Computer, Inc. included in this Annual Report (Form 10-K) for the year
ended September 30, 1994.
s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
December 8, 1994
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ MICHAEL H. SPINDLER
MICHAEL H. SPINDLER
President and Chief Executive Officer
December 8, 1994
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael H. Spindler, Joseph A.
Graziano, and Edward B. Stead, jointly and severally, his or her
attorneys-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any amendments to this Report on Form 10-
K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ MICHAEL H. SPINDLER /s/ JOSEPH A. GRAZIANO
MICHAEL H. SPINDLER JOSEPH A. GRAZIANO
President and Executive Vice President
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer), (Principal Financial Officer),
and Director and Director
December 8, 1994 December 8, 1994
/s/ JEANNE SEELEY /s/ ARMAS C. MARKKULA, JR.
JEANNE SEELEY ARMAS C. MARKKULA, JR.
Vice President, Finance, and Chairman of the Board
Corporate Controller and Director
December 8, 1994 December 8, 1994
/s/ PETER O. CRISP /s/ BERNARD GOLDSTEIN
PETER O. CRISP BERNARD GOLDSTEIN
Director Director
December 8, 1994 December 8, 1994
/s/ B. JURGEN HINTZ /s/ KATHERINE HUDSON
B. JURGEN HINTZ KATHERINE HUDSON
Director Director
December 8, 1994 December 8, 1994
50
SCHEDULE II
APPLE COMPUTER, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
NOTES RECEIVABLE FROM SHAREHOLDERS
(In thousands)
Balance at Balance
Beginning at End
Name of Debtor of Period Additions Collections of Period Notes*
Year Ended
September 30,
1994 $ -- $ -- $ -- $ --
Year Ended
September 24,
1993 $ -- $ -- $ -- $ --
Year Ended
September 25,
1992
John Sculley $ 1,836 $ 775 $ 2,611 $ -- (1)(2)
The above Notes Receivable from Shareholders are presented as a deduction
from shareholders' equity since they are related to the sale of Common
Stock by the Company to officers, directors, and employees under stock
option and purchase plans. Notes Receivable from Shareholders does not
include accrued interest. The notes receivable are secured by a pledge of
the shares issued, less the pro rata release by the Company of pledged
shares based on the percentage of the principal amount of the notes paid.
The notes bear interest at 6% per annum.
*Footnotes appear on page S-2.
S-1
SCHEDULE II
(continued)
OTHER ACCOUNTS RECEIVABLE
(In thousands)
Balance at Amounts Balance
Beginning Written at End
of Period Additions Collections Off of Period Notes*
Year Ended
September 30,
1994 $ -- $ -- $ -- $ -- $ --
Year Ended
September 24,
1993
Donald Casey $ 4 $ -- $ -- $ 4 $ --
Paul Gavarini 129 -- -- 129 --
James Mullen 61 -- 61 -- --
$ 194 $ -- $ 61 $ 133 $ --
Year Ended
September 25,
1992
Donald Casey $ 4 $ -- $ -- $ -- $ 4
Paul Gavarini 129 -- -- -- 129
James Mullen 123 -- 62 -- 61
John Sculley 2,412 962 3,374 -- -- (1)(2)
$ 2,668 $ 962 $ 3,436 $ -- $ 194
The above Other Accounts Receivable bore interest from 6% to 10% and were
payable on various dates through April 1, 1994.
NOTES
(1) Director of the Company at the end of the period indicated.
(2) Executive Officer of the Company at the end of the period indicated.
S-2
SCHEDULE VIII
APPLE COMPUTER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Charged to
Allowance for Beginning Costs and Ending
Doubtful Accounts: Balance Expenses Deductions(1) Balance
Year Ended
September 30,1994 $ 83,776 $ 25,654 $ 18,438 $ 90,992
Year Ended
September 24, 1993 $ 83,048 $ 26,292 $ 25,564 $ 83,776
Year Ended
September 25, 1992 $ 53,993 $ 37,805 $ 8,750 $ 83,048
____________
(1) Represents amounts written off against the allowance, net of
recoveries.
S-3
SCHEDULE IX
APPLE COMPUTER, INC.
SHORT-TERM BORROWINGS
(In thousands)
Weighted
Maximum Average Average
Category of Weighted Amount Amount Interest
Aggregate Average Outstanding Outstanding Rate
Short-term Year-end Interest During the During the During the
Borrowings(1) Balance Rate Year Year (2) Year (3)
Year Ended September 30, 1994:
Short-term Borrowings $ 292,200 5.0% $1,178,000 $ 717,000 3.4%
Year Ended September 24, 1993:
Short-term Borrowings $ 823,182 3.3% $ 999,567 $ 291,681 3.2%
Year Ended September 25, 1992:
Short-term Borrowings $ 184,461 3.5% $ 245,000 $ 157,309 3.9%
__________
(1) Short-term represent borrowings under various borrowing
arrangements, including bank borrowings and unsecured commercial
paper borrowings.
(2) The average amount outstanding during the period was computed by
dividing the sum of the daily balances of the period by the number
of days in the period.
(3) The weighted average interest rate during the period was computed by
dividing interest expense related to the borrowings by the average
amount outstanding during the year.
S-4
SCHEDULE X
APPLE COMPUTER, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Fiscal Year Ended
September 30, September 24, September 25,
1994 1993 1992
Advertising $ 158,175 $ 153,382 $ 134,128
Advertising includes all direct costs of advertising in various media and
outside advertising agencies.
Maintenance and repairs, taxes other than payroll and income taxes,
amortization of intangible assets, and royalties are not reported as none
of such items exceeded 1% of total net sales as shown in the related
consolidated statements of income.
S-5
INDEX TO EXHIBITS
Exhibit
Index
Number Notes Description Page
3.1 (1) Restated Articles of Incorporation, filed
with the Secretary of State of the State 43
of California on January 27, 1988.
3.2 (1) Amendment to Restated Articles of
Incorporation, filed with the Secretary of
State of the State of California on 43
February 5, 1990.
3.3 (1) By-Laws of the Company, as amended through 43
April 20, 1994.
4.1 (1) Common Shares Rights Agreement dated as of
May 15, 1989 between the Company and the
First National Bank of Boston, as Rights 43
Agent.
4.2 (1) Indenture dated as of February 1, 1994,
between the Company and Morgan Guaranty
Trust Company of New York (the 43
"Indenture").
4.3 (1) Supplemental Indenture dated as of
February 1, 1994, among the Company,
Morgan Guaranty Trust Company of New York, 43
as resigning trustee, and Citibank, N.A.,
as successor trustee.
4.4 (1) Officers' Certificate, without exhibits,
pursuant to Section 301 of the Indenture,
establishing the terms of the Company's 6 43
1/2% Notes due 2004.
4.5 (1) Form of the Company's 6 1/2% Note due 43
2004.
10.1 (1) Credit Agreement between the Registrant
and certain lenders dated as of December 43
9, 1993.
10.A.1 (1) 1981 Stock Option Plan, as 44
amended.
10.A.2 (1) 1987 Executive Long Term Stock Option 44
Plan.
10.A.3 (1) Apple Computer, Inc. Savings and
Investment Plan, as amended and restated 44
effective as of October 1, 1990.
10.A.3-1 (1) Amendment of Apple Computer, Inc. Savings
and Investment Plan dated March 1, 1992. 44
10.A.4 (1) Form of Director Warrant 44
10.A.5 (1) 1990 Stock Option Plan, as amended through 44
January 26, 1994.
10.A.6 (1) Apple Computer, Inc. Employee Stock
Purchase Plan, as amended. 44
10.A.7 1994 Senior / Executive Bonus Plan. 60
(1) Incorporated by reference at page indicated.
56
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.A.8 (1) Form of Indemnification Agreement between
the Registrant and each officer of the 44
Registrant.
10.A.9 (1) Employment Agreement dated September 14,
1989 between the Registrant and Ian Diery. 44
10.A.10 (1) Employment Agreement dated May 18, 1989
between the Registrant and Fred Forsyth. 44
10.A.11 (1) Employment Agreement dated June 14, 1989
between the Registrant and Joseph A. 44
Graziano.
10.A.13 (1) Employment Agreement dated February 21,
1991 between the Registrant and Soren 44
Olsson.
10.A.14 (1) Employment Agreement dated June 25, 1990
between the Registrant and Robert Puette. 44
10.A.15 (1) Agreement dated April 12, 1991 between the
Registrant and Michael H. Spindler. 44
10.A.15- (1) 1993 Executive Restricted 44
1 Stock Plan
10.A.16 (1) Separation Agreement dated October 14,
1993 between the Registrant and John 44
Sculley.
10.A.17 (1) Separation Agreement dated November 19,
1993 between the Registrant and Albert A. 44
Eisenstat.
10.A.18 (1) Separation Agreement and Consulting
Services Agreement dated October 15, 1993
and December 3, 1993, respectively, 44
between the Registrant and Robert Puette.
10.A.19 (1) Executive Severance Plan as amended and
restated effective as of July 1, 1993. 45
10.B.1 (1) Master OEM Agreement dated as of January
26, 1988 between the Company and Tokyo 45
Electric Co. Ltd.
10.B.2 (1) Stock Purchase and Stockholder Agreement
dated as of September 30, 1991 among MDCA
Corporation (later renamed to be 45
"Taligent, Inc."), the Registrant and IBM.
10.B.3 (1) Stock Purchase and Stockholder Agreement
dated as of September 30, 1991 among MDCB
Corporation (later renamed to be "Kaleida 45
Labs, Inc."), the Registrant and IBM.
(1) Incorporated by reference at page indicated.
57
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.B.4 (1) Agreement for Licensing of IBM Compilers
and Tools dated as of September 30, 1991
between IBM and the Registrant for the Mac 45
AIX Compiler.
10.B.5 (1) Development and License Agreement dated as
of September 30, 1991 between IBM and the 45
Registrant for Mac-on-AIX.
10.B.6 (1) Agreement for Development and Licensing of
AIX and AIXwindows dated as of September
30, 1991 between IBM and the Registrant. 45
10.B.7 (1) Know-how and Copyright License Agreement
(Power PC Architecture) dated as of
September 30, 1991 between IBM and the 45
Registrant.
10.B.8 (1) Participation in the Customer Design
Center by the Registrant dated as of
September 30, 1991 between IBM and the 45
Registrant.
10.B.9 (1) Agreement for Purchase of IBM Products
(Original Equipment Manufacturer) dated as
of September 30, 1991 between IBM and the 45
Registrant.
10.B.10 (1) Enterprise Interoperability Master Task
Agreement dated as of September 30, 1991 45
between the Registrant and IBM.
10.B.11 (1) Agreement dated October 9, 1991 between
Apple Corps Limited and the Registrant. 45
10.B.12 (1) Microprocessor Requirements Agreement
dated January 31, 1992 between the 45
Registrant and Motorola, Inc.
10.D.1 (1) Lease Agreement dated November 15, 1988
between TGL Associates and the Registrant,
as amended by a Modification of Lease 45
Agreement dated March 1, 1989.
10.D.2 (1) Amended and Restated General Partnership
Agreement dated July 12, 1991 between ACI
Real Properties, Inc. and Sobrato 45
Development Company #910.
10.D.2-1 (1) Agreement amending Cupertino Gateway
Partners General Partnership Agreement 46
dated November 11, 1992.
10.D.3 (1) Lease Agreement (Building 1) dated July
12, 1991 between Cupertino Partners and 46
the Registrant.
(1) Incorporated by reference at page indicated.
58
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.D.3-1 (1) First Amendment of Lease (Building 1)
dated November 11, 1992. 46
10.D.4 (1) Lease Agreement (Building 2) dated July
12, 1991 between Cupertino Gateway 46
Partners and the Registrant.
10.D.4-1 (1) First Amendment of Lease (Building 2)
dated November 11, 1992. 46
10.D.5 (1) Lease Agreement (Building 3) dated July
12, 1991 between Cupertino Gateway 46
Partners and the Registrant.
10.D.5-1 (1) First Amendment of Lease (Building 3)
dated November 11, 1992. 46
10.D.6 (1) Lease Agreement (Building 4) dated July
12, 1991 between Cupertino Gateway 46
Partners and the Registrant.
10.D.6-1 (1) First Amendment of Lease (Building 4)
dated November 11, 1992. 46
10.D.7 (1) Lease Agreement (Building 5) dated July
12, 1991 between Cupertino Gateway 46
Partners and the Registrant.
10.D.7-1 (1) First Amendment of Lease (Building 5)
dated November 11, 1992. 46
10.D.8 (1) Lease Agreement (Building 6) dated July
12, 1991 between Cupertino Gateway 46
Partners and the Registrant.
10.D.8-1 (1) First Amendment of Lease (Building 6)
dated November 11, 1992. 46
11 Computation of per share earnings. 68
21 Subsidiaries of the Company. 69
23 Consent of Independent Auditors. 49
24 Power of Attorney. 50
27 Financial Data Schedule. 70
(1) Incorporated by reference at page indicated.
59