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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 29, 1995 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 95014
Cupertino California [Zip Code]
[Address of principal executive offices]
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 $ 4,481,098,558 as of December 1, 1995,
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.
123,022,624 shares of Common Stock Issued and Outstanding as of
December 1, 1995
DOCUMENTS INCORPORATED BY REFERENCE,
Portions of the definitive Proxy Statement dated December 19, 1995 (the
"Proxy Statement"), to be delivered to shareholders in connection with
the Annual Meeting of Shareholders to be held January 23, 1996, 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 officers 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 (registered
trademark) 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.
During 1995, the Company continued a major product transition to Power
Macintosh (registered trademark), its line of Macintosh computers
based on the PowerPC (registered trademark) architecture, a Reduced
Instruction Set Computing ("RISC") microprocessor jointly developed by
Apple, International Business Machines Corporation ("IBM") and Motorola,
Inc. The Company believes that these PowerPC based products yield
significant improvements in price/performance and functionality
compared with its products built using the Motorola 68000 series of
Complex Instruction Set Computing ("CISC") microprocessors. 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.
The Company announced the licensing of the Macintosh operating system
("Mac OS") to other personal computer vendors in January 1995 in an effort
to increase overall market share. Several vendors are currently selling
product which utilizes Mac OS. The Company believes that licensing the
operating system will result in a broader installed base on which
software vendors can develop and provide technical innovations for the
Macintosh platform. Further information regarding the licensing of the
Mac OS may be found in 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.
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 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: the PowerPC RISC-based microprocessor, and
the Motorola 68000 CISC-based microprocessor. The majority of the
Company's products are built using the PowerPC RISC-based microprocessor,
which include the Power Macintosh (registered trademark) family of personal
computers and certain products within the Macintosh Performa
(registered trademark) and the PowerBook
families of personal computers. Products currently based on the Motorola
series of CISC-based microprocessors include the Macintosh LC, and
certain products within the Macintosh Performa and the PowerBook
families of personal computers. Generally, products based on the
Motorola series of microprocessors can also be upgraded to take advantage
of the PowerPC processor. The Company also offers DOS compatible systems
which include built-in 68LC040 and 486DX2 processors enabling them to run
applications, games, and CD-ROM titles for MS-DOS 6.2 and Windows 3.1
operating systems as well as the Mac(trademark)OS operating system.
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Power Macintosh
The Power Macintosh high-performance family of personal computers is
targeted at business and professional users and is designed
to meet the speed, expansion 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 (trademark) 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 applications such as graphics, color
presentations, multimedia, and spreadsheets.
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 PowerBook
The PowerBook family of notebook-sized personal computers is specifically
designed for mobile computing needs. All PowerBook personal computers
include the PowerBook Mobility Bundle, a combination of communications,
power-management, security, compatibility, and entertainment software
designed to enhance mobile computing.
Peripheral Products
The Company sells associated computer peripherals, including the
ImageWriter (registered trademark), StyleWriter (registered trademark),
Color StyleWriter and LaserWriter (registered trademark) printer
families, CD-ROM and magnetic disk drives, scanners and a range of color
and monochrome monitors.
Personal Digital-Assistant Products
The Apple MessagePad (trademark) 120 communications assistant integrates
Newton (registered trademark) 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, its proprietary Macintosh system
software called Mac OS, 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 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
(trademark) labeling program. Claris products are distributed primarily
through independent software resellers.
Networking and Connectivity Products
The Company sells 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
interoperability with other computers and computing environments as well
as the Internet. 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 is moving forward on its new strategy of focusing on the
Internet to deliver online solutions for customers in each of the
Company's markets. In doing so, eWorld (trademark), the Company's online
service, plans to increasingly feature Internet content,
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services, and technology, along with a global electronic mail system with
news, information and other services. This on-line service also includes
eWorld for Macintosh and NewtonMail (registered trademark), eWorld's
messaging service for Newton.
Markets and Distribution
The Company's customers are primarily in the business, education, and
consumer markets. 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 Americas represent the Company's largest geographic
marketplace. The Apple Americas organization focuses on the Company's
sales, marketing, and support efforts in the United States, Canada and
Latin America. Products sold in these regions are primarily manufactured
in the Company's facilities in California, Colorado, and Singapore, and
distributed from facilities in California and Illinois.
Approximately 45% to 48% 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 division and the Apple Pacific division. The Apple Europe
division 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 focuses on opportunities in Japan and Asia;
Australia and New Zealand; and the Caribbean region. Products sold by
the Pacific division are manufactured primarily in the Company's
facilities in California, Colorado and Singapore.
The Company distributes its products through third-party computer
resellers, and is also continuing its expansion into various consumer
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.
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 certain raw materials, processes, and components essential to
the Company's business are generally available from multiple sources, key
components and processes currently obtained from single sources include
certain of the Company's displays, microprocessors, mouse devices,
keyboards, disk drives, printers and printer components, application-
specific integrated circuits ("ASICs") and other custom chips, and
certain processes relating to construction of the plastic housing for the
Company's computers. 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. 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
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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., 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 also from time to time experienced significant price
increases and limited availability of certain components that are
available from multiple sources. Any similar occurrences in the future
could have an adverse affect on the Company's operating results.
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 certain 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.
Further discussion relating to availability and supply of components may
be found under Part II, Item 7 of this Form 10-K under the subheading
"Inventory and Supply" included under the heading "Factors That May
Affect Future Results and Financial Condition," which information is
hereby incorporated by reference.
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.
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. However, past performance should not be considered a
reliable indicator of the Company's future revenue or financial
performance.
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 in each
of the fiscal years 1995, 1994, and 1993.
Backlog
In general, the Company's resellers typically purchase products on an as-
needed basis. Resellers frequently change delivery
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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 production or fulfillment constraints exist. The Company's
backlog of unfilled orders decreased slightly to approximately $618
million at December 1, 1995 from $663 million at December 2, 1994. The
Company's backlog at December 1, 1995 consists primarily of its higher-
end Power Macintosh products. The Company expects that substantially all
of its orders in backlog at December 1, 1995 will be either shipped or
canceled during fiscal 1996.
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
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 Annual Report on 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.
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 relative
price/performance, product quality and reliability, availability of
software, product features, 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 $614 million, $564 million, and $665 million, in fiscal years
1995, 1994 and 1993, 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," 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 29, 1995, Apple and its subsidiaries worldwide had 13,191
regular employees, and an additional 4,424 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," included under the heading "Factors
That May Affect Future Results and Financial Condition," which
information is hereby incorporated by reference.
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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 29, 1995, the
Company leased approximately 4.5 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.
The Company owns its manufacturing facilities in Fountain, Colorado,
Cork, Ireland, and Singapore, which total approximately 1,144,000 square
feet. The Company also owns a 725,000 square-foot facility in
Sacramento, California, which is used as a manufacturing, service and
support center. In addition, the Company 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 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 487,000 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 and
Financial Condition," 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 29, 1995.
Executive Officers of the Registrant
The following sets forth certain information regarding the executive
officers of the Company as of December 1, 1995:
Michael H. Spindler*, President and Chief Executive Officer (age 53).
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. Mr. Spindler is also director of Bertelsmann AG.
James J. Buckley*, Senior Vice President and President, Apple Americas
(age 45). 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. In January 1994, Mr. Buckley was named Senior Vice
President and President, Apple USA, in October 1995, was named
President, Apple North America, and in November 1995, was named
President, Apple Americas.
John Floisand*, Senior Vice President and President, Apple Pacific (age
51). 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
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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.
G. Frederick Forsyth*, Senior Vice President, Worldwide Operations (age
51). 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.
Marco Landi* , Senior Vice President and President, Apple Europe (age 51)
Mr. Landi joined the Company in March 1995, as Senior Vice President and
President of Apple Europe to assume responsibility for all of Apple's
business operations throughout Europe, Africa and the Middle East. Prior
to joining the Company, Mr. Landi was employed by Texas Instruments ("TI")
Europe as President of TI Europe, Middle East, and Africa, responsible
for all of TI's business operations in those regions. Prior to that
assignment, Mr. Landi served for two years as President of TI Asia.
David C. Nagel*, Senior Vice President, Worldwide Research and
Development (age 50). 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, he was named General Manager of the
AppleSoft Division. Dr. Nagel was named Senior Vice President, Worldwide
Research and Development in April 1995.
Kevin J. Sullivan*, Senior Vice President, Human Resources (age 54). 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.
Jeanne Seeley, Vice President, Finance and Corporate Controller (age 46).
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
48). 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. - Change in Control Arrangements"
and "Information About Apple Computer, Inc. - Arrangements with Executive
Officers" of the Company's Proxy Statement, which information is hereby
incorporated by reference.
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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
audited Consolidated Financial Statements. 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.
(Dollars in millions, except per share amounts)
ANNUAL
Five fiscal years ended 1995 1994 1993 1992 1991
September 29, 1995
Net sales $ 11,062 $ 9,189 $ 7,977 $ 7,086 $ 6,309
Net income $ 424 $ 310 $ 87 $ 530 $ 310
Earnings per common and
common equivalent share $ 3.45 $ 2.61 $ 0.73 $ 4.33 $ 2.58
Cash dividends declared
per common share $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48
Common and common
equivalent shares used in
the calculations of
earnings per share
(in thousands) 123,047 118,735 119,125 122,490 120,283
Cash, cash equivalents,
and short-term
investments $ 952 $ 1,258 $ 892 $ 1,436 $ 893
Total assets $ 6,231 $ 5,303 $ 5,171 $ 4,224 $ 3,494
Long-term debt $ 303 $ 305 $ 7 $ 18 $ 18
Deferred tax liabilities $ 702 $ 671 $ 630 $ 611 $ 510
9
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 1995 Change 1994 Change 1993
Net sales $ 11,062 20% $ 9,189 15% $ 7,977
Gross margin $ 2,858 22% $ 2,343 -14% $ 2,728
Percentage of net sales 25.8% 25.5% 34.2%
Research and development $ 614 9% $ 564 -15% $ 665
Percentage of net sales 5.6% 6.1% 8.3%
Selling, general and
administrative $ 1,583 14% $ 1,384 -15% $ 1,632
Percentage of net sales 14.3% 15.1% 20.5%
Operating expenses (excluding
restructuring costs) $ 2,197 13% $ 1,948 -15% $ 2,297
Percentage of net sales 19.9% 21.2% 28.8%
Restructuring costs $ (23) -82% $ (127) -140% $ 321
Percentage of net sales (0.2%) (1.4%) 4.0%
Interest and other income
(expense), net $ (10) 55% $ (22) -175% $ 30
Net income $ 424 37% $ 310 258% $ 87
Earnings per share $ 3.45 32% $ 2.61 258% $ 0.73
Net Sales
Net sales increased $1,873 million, or 20%, in fiscal 1995, compared with
an increase of $1,212 million, or 15%, in fiscal 1994. The net sales
growth in 1995 over 1994 was primarily due to a combination of unit
growth, higher average selling prices, and changes in currency exchange
rates. Total Macintosh computer unit sales increased approximately 15%
over the prior year. This unit sales growth resulted principally from
strong sales of the Company's Power Macintosh products, which accounted
for over 70% of total unit shipments at the end of the fourth quarter of
1995, compared with 26% in the comparable period of 1994, and from sales
of newer product offerings within the Performa family of desktop
personal computers. This unit growth was partially offset by declining
unit sales of certain of the Company's older product offerings. The
average aggregate revenue per Macintosh unit increased 12% in 1995
compared with 1994, primarily due to a shift in product mix toward the
Company's newer products and products with multimedia configurations.
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 and of newer product offerings within the Macintosh Performa
family of desktop personal computers and, to a lesser extent, from sales
of products 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.
International net sales grew 25% from 1994 to 1995, primarily reflecting
strong net sales growth in the Pacific region, particularly Japan, and
favorable changes in currency exchange rates. Net sales grew moderately
in Europe over the same period. International net sales grew 17% from
1993 to 1994, primarily reflecting strong net sales growth in the Pacific
region, particularly Japan. International net sales represented 48% of
net sales in 1995 compared with 46% of net sales in 1994 and 45% of net
sales in 1993. Domestic net sales grew 16% over the prior year, compared
with an increase of 14% in 1994 over 1993, primarily resulting from
strong growth in the education and consumer markets.
In general, the Company's resellers typically purchase products on an as-
needed basis. Resellers frequently change delivery schedules and order
rates depending on changing market conditions. Unfilled orders
("backlog") can be, and often are, canceled at will. The Company
attempts to fill orders on the requested delivery schedules. 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 production or fulfillment constraints exist. The Company's backlog
was approximately $618 million at December 1, 1995, consisting primarily
of the Company's higher-end Power Macintosh products.
10
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
overordering by dealers anticipating shortages. Backlog often is reduced
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. For further
information regarding the Company's backlog, refer to page 13 of
Management's Discussion and Analysis of Financial Condition and Results
of Operations under the heading "Factors That May Affect Future Results
and Financial Condition."
Gross Margin
Gross margin represents the difference between the Company's net sales
and its cost of goods sold. The amount of revenue generated by the sale
of products is influenced principally by the price set by the Company for
its products relative to competitive products. The cost of goods sold is
based primarily on the cost of components and, to a lesser extent, direct
labor costs. The type and cost of components included in particular
configurations of the Company's products (such as memory and disk drives)
are often directly related to the need to market products in
configurations competitive with those of other manufacturers.
Competition in the personal computer industry is intense, and in the
short term, frequent changes in pricing and product configuration are
often necessary in order to remain competitive. Accordingly, gross
margin as a percentage of net sales can be significantly influenced in
the short term by actions undertaken by the Company in response to
industrywide competitive pressures.
Gross margin increased both in amount and as a percentage of net sales in
1995 compared with 1994. The increase in gross margin as a percentage of
net sales was primarily a result of a shift in product mix toward the
Company's newer, high-margin products, which included strong sales of
certain products within the Company's Power Macintosh family of personal
computers and its entry-level Macintosh Performa family.
The increase in gross margin levels was affected favorably by changes in
foreign currency exchange rates as a result of a weaker U.S. dollar
relative to certain foreign currencies in 1995 compared with 1994. The
Company's operating strategy and pricing take into account changes in
exchange rates over time; however, the Company's results of operations
can be significantly affected in the short term by fluctuations in
foreign currency exchange rates.
Gross margin in 1994 declined as a percentage of net sales from 1993
levels. 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.
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 gross margin percentage was 25.8% in 1995, gross
margin as a percentage of net sales declined to 20.7% in the fourth
quarter of 1995, primarily due to aggressive pricing actions and product
mix issues related to component availability and delays in new PowerPC
processor-based product production. It is anticipated that gross margins
will continue to remain under significant pressure and are likely to
remain comparable to the level reported for the fourth quarter of 1995
due to a variety of factors, including continued industrywide pricing
pressures, increased competition, particularly in Japan, and compressed
product life cycles.
Research and Development
Research and development expenditures increased in amount during 1995
when compared with 1994, primarily due to higher project- and headcount-
related spending, as the Company continues to invest in the development
of new products and technologies. The decrease in research and
development expenditures during 1994 compared with 1993 reflected the
results of the Company's restructuring actions aimed at reducing costs,
including product development expenditures. Research and development
expenditures as a percentage of net sales have continued to decrease
since 1993 as a result of revenue growth during 1994 and 1995, coupled
with the Company's continuing efforts to focus its research and
development project spending in an efficient manner.
The Company believes that continued focused 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.
Selling, General and Administrative
Selling, general and administrative expenses increased in amount, but
decreased as a percentage of net sales, in 1995 compared with 1994. This
increase in expense was primarily a result of increased advertising and
channel marketing program spending as the Company continued its efforts
to expand its market share. Although the Company has increased its
selling and marketing expenses in an effort to expand its market share,
there can be no assurance that such an increase in spending will result
in a corresponding
11
increase in market share. The decrease as a percentage of net sales
since 1993 is primarily a result of revenue growth during 1994 and 1995,
combined with the Company's ongoing efforts to manage total operating
expense growth.
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. Revenue growth
in 1994 also contributed to the decrease in selling, general and
administrative expenses as a percentage of net sales.
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.
Restructuring Costs
For information regarding the Company's restructuring actions, refer to
pages 29 - 30 of the Notes to Consolidated Financial Statements.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, decreased to $10 million in
expense in 1995 from $22 million in expense in 1994. This $12 million
favorable change is comprised of $48 million in interest and other income
attributable to higher average cash balances, higher interest rates, and
interest rate hedging gains, offset in part by a $36 million unfavorable
variance related to realized and unrealized foreign exchange hedging
losses and foreign exchange hedging costs. Market volatility and higher
foreign currency balances account for the increased hedging cost.
In 1994, interest and other income (expense), net, decreased to $22
million in expense from $30 million of income in 1993, resulting in a $52
million unfavorable change. 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 $52 million change during 1994. Other factors contributing to this
variance included interest income, which was higher in 1993 than in 1994
primarily due to a $15 million interest payment received on a
nonrecurring 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.
For more information regarding the Company's strategy and accounting for
financial and other derivative instruments, refer to pages 26 - 28 of
the Notes to Consolidated Financial Statements.
Provision for Income Taxes 1995 Change 1994 Change 1993
Provision for income taxes $ 250 32% $ 190 258% $ 53
Effective tax rate 37% 38% 38%
The Company's effective tax rate decreased to 37% in 1995 compared with a
rate of 38% in 1994 and 1993. For additional information regarding
income taxes, refer to pages 31 - 32 of the Notes to Consolidated
Financial Statements.
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 availability of application software for new products,
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.
12
In 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
continuing to gain 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 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 coincident with
introduction, and then decreasing 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, even though localized versions of the Company's
products may be available.
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.
For example, in Japan, other companies have begun to initiate extreme
competitive actions in order to gain market share, and as a result, the
Company has implemented incremental pricing and promotional activities.
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 downward pressures on gross
margins.
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. The Company's future operating results and financial
condition may also be affected by overall demand for personal computers
and general customer preferences for one platform over another or one set
of product features over another.
On November 7, 1994, the Company reached an agreement with IBM and
Motorola, Inc. on a new hardware reference platform for the PowerPC
microprocessor that is intended to deliver a much wider range of
operating system and application choices for computer customers. As a
result of this agreement, the Company is moving forward with its efforts
to make the Macintosh operating system available on the common platform.
In line with its efforts, on November 13, 1995, the Company, IBM, and
Motorola, Inc. announced the availability of the "PowerPC Platform," which
is a set of specifications that defines a "unified" personal computer
architecture and combines the Power Macintosh platform and the PC
environment. Accordingly, the Company's future operating results and
financial condition may be affected by its ability to continue to
implement this agreement and certain other collaboration agreements,
and to manage the associated competitive risk.
The Company is currently the primary 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 (trademark)
operating systems. The Company's future operating results and financial
condition may be affected by its ability to increase market share in its
personal computer business. As part of its efforts to increase
overall market share, the Company announced the licensing of the
Macintosh operating system to other personal computer vendors in
January 1995, and several vendors currently sell product that utilize the
Macintosh operating system. The success of the Company's efforts to
increase its overall market share through licensing of the Macintosh
operating system will depend in part on the Company's ability to manage
the risks associated with competing with companies producing Macintosh
OS-based computer systems. Accordingly, the Company cannot determine
13
the ultimate effect that licensing of the Macintosh operating system
will have on its product pricing and unit sales or future operating
results and financial condition. The Company believes that licensing the
operating system will result in a broader installed base on which software
vendors can develop and provide technical innovations for the Macintosh
platform. However, there can be no assurance that the installed base
will be broadened by the licensing of the operating system or that licensing
will result in an increase in the number of application software titles or
the rate at which vendors will bring to market application software
based on the Macintosh operating system.
The Company's principal competitor in producing operating system
software, Microsoft Corporation, is a large, well-financed corporation
which has a dominant position in various segments of the personal
computer software industry. In August 1995, Microsoft Corporation
released Windows 95, another of its operating system offerings. As a
result of the introduction of Windows 95, the Company has taken and will
continue to take steps to address the additional challenges to and
competitive pressures on its efforts in developing and marketing the
Company's products. Accordingly, the Company's future operating results
and financial condition could be adversely affected should the Company be
unable to effectively manage the competitive pressure and other
challenges presented by the introduction of Windows 95.
Certain of the Company's personal computer products are capable of
running application software designed for the MS-DOS or Windows operating
systems ("Cross-Platform Products"), through software emulation of Intel
Corporation microprocessor chips 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.
The Company has also introduced products that include both the RISC-
based PowerPC 601 microprocessor and the 486 DX2/66 microprocessor, which
enable users to switch between the Macintosh and DOS or Windows computing
environments.
The Company currently supplies customers who purchase Cross-Platform
Products capable of running the MS-DOS or Windows 3.1 operating system with
operating system software under a licensing agreement with Microsoft.
This license agreement expires on December 31, 1995 (the "Old License
Agreement"). The Company has attempted to license Windows 95 software
from Microsoft but has been unable to do so because of the Company's
unwillingness to consent to Microsoft's demand under Microsoft's proposed
license agreement (the "New License Agreement") that the Company agree
not to sue Microsoft if Microsoft infringes any of the Company's patents.
Microsoft has also informed the Company that it will not renew the Old
License Agreement unless the Company accepts the New License Agreement.
Accordingly, unless an appropriate licensing agreement is reached, upon
the expiration of the Old License Agreement, the Company will be unable
to supply customers with any of Microsoft's operating systems on Cross-
Platform Products. Although customers could obtain copies of such
software from other sources, the Company is unable to predict the effect
of such a situation on the demand for Cross-Platform Products. Although
Cross-Platform Products represented only a small portion of the Company's
unit sales during 1995, the Company is unable to predict the effect of
such a situation on the Company's future operating results.
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. Microsoft Corporation is an important
developer of application software for the Company's products.
Accordingly, Microsoft's interest in producing application software for
the Company's products may be influenced by Microsoft's perception of its
interests as an operating system vendor.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors that produce superior
price/performance results compared with those supplied to the Company's
competitors by Intel Corporation, the developer and producer of the
microprocessors used by most personal computers using the MS-DOS and
Windows operating systems. IBM produces personal computers based on 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 and
capitalize on its investments in other markets, such as the markets for
Internet services and personal digital assistant (PDA) products.
14
Global Market Risks
A large portion of the Company's revenue is derived from its
international operations. As a result, the Company's operations and
financial results could be significantly affected by international
factors, such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company
distributes its products. When the U.S. dollar strengthens against other
currencies, the U.S. dollar value of non-U.S. dollar-based sales
decreases. When the U.S. dollar weakens, the U.S. dollar value of non-
U.S. dollar-based sales increases. Correspondingly, the U.S. dollar value
of non-U.S. dollar-based costs increases when the U.S. dollar weakens and
decreases when the U.S. dollar strengthens. Overall, the Company is a
net receiver of currencies other than the U.S. dollar and, as such,
benefits from a weaker dollar and is adversely affected by a stronger
dollar relative to major currencies worldwide. Accordingly, changes in
exchange rates, and in particular a strengthening of the U.S. dollar, may
negatively affect the Company's consolidated sales and gross margins (as
expressed in U.S. dollars).
To mitigate the short-term impact of fluctuating currency exchange rates
on the Company's non-U.S. dollar-based sales, product procurement, and
operating expenses, the Company regularly hedges its non-U.S. dollar-
based exposures. Specifically, the Company enters into foreign exchange
forward and option contracts to hedge firmly committed transactions.
Currently, hedges of firmly committed transactions do not extend beyond
one year. The Company also purchases foreign exchange option contracts
to hedge certain other probable, but not firmly committed transactions.
Hedges of probable, but not firmly committed transactions currently do
not extend beyond one year. To reduce the costs associated with these
ongoing foreign exchange hedging programs, the Company also regularly
sells foreign exchange option contracts and enters into certain other
foreign exchange transactions. All foreign exchange forward and option
contracts not accounted for as hedges, including all transactions
intended to reduce the costs associated with the Company's foreign
exchange hedging programs, are carried at fair value and are adjusted on
each balance sheet date for changes in exchange rates. Refer to the
Financial Instruments footnote on pages 26 - 28 of the Notes to
Consolidated Financial Statements for further discussion.
While the Company is exposed with respect to fluctuations in the interest
rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations
in the general level of U.S. interest rates. In this regard, changes in
U.S. interest rates affect the interest earned on the Company's cash,
cash equivalents, and short-term investments as well as interest paid on
its short-term borrowings and long-term debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company has entered into
interest rate swap and option transactions. Certain of these swaps are
intended to better match the Company's floating-rate interest income on
its cash, cash equivalents, and short-term investments with the fixed-
rate interest expense on its long-term debt. The Company also enters
into interest rate swap and option transactions in order to diversify a
portion of the Company's exposure away from fluctuations in short-term
U.S. interest rates. These instruments may extend the Company's cash
investment horizon up to a maximum effective duration of three years.
To ensure the adequacy and effectiveness of the Company's foreign
exchange and interest rate hedge positions, as well as to monitor the
risks and opportunities of the nonhedge portfolios, the Company
continually monitors its foreign exchange forward and option positions,
and its interest rate swap and option positions on a stand-alone basis
and in conjunction with its underlying foreign currency- and interest
rate-related exposures, respectively, from both an accounting and an
economic perspective. However, given the effective horizons of the
Company's risk management activities, there can be no assurance that the
aforementioned programs will offset more than a portion of the adverse
financial impact resulting from unfavorable movements in either foreign
exchange or interest rates. In addition, the timing of the accounting
for recognition of gains and losses related to mark-to-market instruments
for any given period may not coincide with the timing of gains and losses
related to the underlying economic exposures, and as such, may adversely
affect the Company's operating results and financial position. The
Company generally does not engage in leveraged hedging.
Inventory and Supply
The Company's ability to satisfy demand for its products may be limited
by the availability of key components. The Company believes that the
availability from suppliers to the personal computer industry of
microprocessors and ASICs presents the most significant potential for
constraining the Company's ability to produce products. Specific
microprocessors manufactured by Motorola, Inc. and IBM are currently
available only from single sources, while some advanced microprocessors
are currently in the early stages of ramp-up for production and thus have
limited availability. The Company and other producers in the personal
computer industry also compete for other semiconductor products with
other industries that have experienced increased demand for such
products, due to either increased consumer demand or increased use of
semiconductors in their products (such as the cellular phone and
automotive industries). Finally, the Company uses some components that
are not common to the rest of the personal computer industry (including
certain ASICs). Continued availability of these components may be
affected if producers were to decide to concentrate on the production of
common components instead of custom components. Such product supply
constraints and corresponding increased costs could adversely affect the
Company's future operating results and financial condition, including
loss of market share.
15
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, the Company's results of operations and
financial condition could be adversely affected.
Marketing and Distribution
A number of uncertainties may affect the marketing and distribution of
the Company's products. Currently, the Company's primary means of
distribution is through third-party computer resellers. However, the
Company is continuing its expansion into various consumer channels, such
as mass-merchandise stores, consumer electronics outlets, and computer
superstores. The Company's business and financial results could be
adversely affected if the financial condition of these resellers weakens
or if resellers within consumer channels decide not to continue to
distribute the Company's products.
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 is currently in the process of replacing 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 if it is unable to implement and effectively manage the
transition to this new integrated system.
In April 1995, the Company announced a companywide reorganization
designed to more closely align the Company's organizational structure
with the Company's business strategy of placing increased focus on
customer needs and expanding its presence in the home, education, and
business markets. In November 1995, the Company announced a further
companywide reorganization to accelerate the implementation of its market
segmentation strategy. The Company's reorganization will result in the
consolidation of its sales, marketing, and customer solutions
organization into three geographic business units, namely, the Americas,
Europe, and Japan and Asia. The Company's future operating results and
financial condition could be adversely affected by its ability to
effectively manage the transition to these new organizational structures.
Although it is uncertain at this time, the Company may incur future
restructuring charges as a result of these reorganizations.
Historically, the Company has experienced increased sales in its first
and fourth fiscal quarters due to holiday demand for and calendar year-
end buying of some of its products. As of the date of this Annual
Report, published reports relating to the U.S. economy indicated a
potentially unfavorable year-end buying season. Any general economic
slowdown could adversely affect demand for the Company's products, which
could adversely affect the Company's results of operations and financial
condition.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
Liquidity and Capital Resources
The Company's financial position with respect to cash, cash equivalents,
and short-term investments, net of short-term borrowings, decreased to
$491 million at September 29, 1995, from $966 million at September 30,
1994.
Less cash was generated by operations in 1995 compared with 1994,
primarily as a result of growth in inventory levels and an increase in
accounts receivable. Inventory levels grew during 1995 in order to
support anticipated demand in the first quarter of 1996 for the Company's
new products. Accounts receivable also increased, reflecting the higher
sales levels achieved during 1995, primarily toward the end of the fourth
quarter.
Cash used for operations in 1995 was partially offset by cash generated
from higher sales and accounts payable levels. The increased sales
levels were driven by aggressive pricing and promotional actions coupled
with strong demand for the Company's PowerPC processor-based products.
Accounts payable increased as a result of the growth in inventory and
production levels and longer payment terms negotiated with vendors.
More cash was generated by operations in 1994 compared with 1993,
primarily due to a significant decrease in inventory levels, as well as
increased sales levels. The significant decrease in inventory levels
during 1994 resulted from improved inventory
16
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.
Excluding short-term investments, net cash used for investments increased
in 1995 compared with 1994 and 1993 levels. Net cash used for the
purchase of property, plant, and equipment totaled $159 million in 1995,
and was primarily made up of increases in manufacturing machinery and
equipment. The Company anticipates that capital expenditures in 1996
will remain relatively consistent with 1995 expenditure levels.
The Company leases the majority of its facilities and certain of its
equipment under noncancelable operating leases. In 1995, rent expense
under all operating leases was approximately $127 million. The Company's
future lease commitments are discussed on page 34 of the Notes to
Consolidated Financial Statements.
Short-term borrowings at September 29, 1995, were approximately $169
million higher than at September 30, 1994. These borrowings were
primarily made to fund expected working capital growth in certain markets
worldwide. In general, the Company's short-term borrowings reflect
borrowings made under its commercial paper program and short-term loans
from certain commercial banks. In particular, Apple Japan, Inc. and
Apple Computer BV (Netherlands), subsidiaries of the Company, held short-
term borrowings from several banks, totaling approximately $199 million
and $262 million, respectively, at September 29, 1995.
The Company's balance of long-term debt remained relatively constant
during 1995. In 1994, $300 million aggregate principal amount of 6.5%
unsecured notes were issued 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 three-month U.S. dollar
London Interbank Offered Rate ("LIBOR"). 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 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.
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 31 - 32
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.
17
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 19
Consolidated Balance Sheets at September 29, 1995 and
September 30, 1994 20
Consolidated Statements of Income for the three fiscal years
ended September 29, 1995 21
Consolidated Statements of Shareholders' Equity for the
three fiscal years ended September 29, 1995 22
Consolidated Statements of Cash Flows for the three fiscal
years ended September 29, 1995 23
Notes to Consolidated Financial Statements 24
Selected Quarterly Financial Information (Unaudited) 36
Financial Statement Schedules:
For the three fiscal years ended September 29, 1995
Schedule II - Valuation and qualifying accounts S-1
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.
18
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 29, 1995 and September 30, 1994, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended September 29, 1995.
Our audits also included the financial statement schedule listed in the
Index to Consolidated Financial Statements. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 29, 1995 and September 30,
1994, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended September 29, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, 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 16, 1995
19
Consolidated Balance Sheets
(Dollars in millions)
September 29, 1995, and September 30, 1994 1995 1994
Assets:
Current assets:
Cash and cash equivalents $ 756 $ 1,203
Short-term investments 196 55
Accounts receivable, net of allowance for
doubtful accounts of $87 ($91 in 1994) 1,931 1,581
Inventories:
Purchased parts 841 469
Work in process 291 207
Finished goods 643 412
1,775 1,088
Deferred tax assets 251 293
Other current assets 315 256
Total current assets 5,224 4,476
Property, plant, and equipment:
Land and buildings 504 484
Machinery and equipment 638 573
Office furniture and equipment 145 158
Leasehold improvements 205 237
1,492 1,452
Accumulated depreciation and amortization (781) (785)
Net property, plant, and equipment 711 667
Other assets 296 160
$ 6,231 $ 5,303
Liabilities and Shareholders' Equity:
Current liabilities:
Short-term borrowings $ 461 $ 292
Accounts payable 1,165 882
Accrued compensation and employee benefits 131 137
Accrued marketing and distribution 206 178
Other current liabilities 362 455
Total current liabilities 2,325 1,944
Long-term debt 303 305
Deferred tax liabilities 702 671
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 320,000,000 shares
authorized;122,921,601 shares issued and
outstanding in 1995 (119,542,527 shares in 1994) 398 298
Retained earnings 2,464 2,096
Other 39 (11)
Total shareholders' equity 2,901 2,383
$ 6,231 $ 5,303
See accompanying notes.
20
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Three fiscal years ended
September 29, 1995 1995 1994 1993
Net sales $ 11,062 $ 9,189 $ 7,977
Costs and expenses:
Cost of sales 8,204 6,846 5,249
Research and development 614 564 665
Selling, general and
administrative 1,583 1,384 1,632
Restructuring costs (23) (127) 321
10,378 8,667 7,867
Operating income 684 522 110
Interest and other income
(expense), net (10) (22) 30
Income before income taxes 674 500 140
Provision for income taxes 250 190 53
Net income $ 424 $ 310 $ 87
Earnings per common and common
equivalent share $ 3.45 $ 2.61 $ 0.73
Common and common equivalent
shares used in the calculations
of earnings per share
(in thousands) 123,047 118,735 119,125
See accompanying notes.
21
Consolidated Statements of Shareholders' Equity
(Dollars in millions, except per share amounts)
Total
Common Stock Share-
Shares Retained holders'
(in Thousands) Amount Earnings Other Equity
Balance at September 25,
1992 118,479 $ 282 $ 1,905 $ -- $ 2,187
Common stock issued under
stock option and purchase
plans, including related
tax benefits 2,693 102 -- -- 102
Repurchase of common stock (5,025) (180) (93) -- (273)
Cash dividends of $0.48
per common share -- -- (56) -- (56)
Accumulated translation
adjustment -- -- -- (20) (20)
Net income -- -- 87 -- 87
Balance at September 24,
1993 116,147 204 1,843 (20) 2,027
Common stock issued under
stock option and purchase
plans, including related
tax benefits 3,396 94 -- -- 94
Cash dividends of $0.48
per common share -- -- (57) -- (57)
Accumulated translation
adjustment -- -- -- 9 9
Net income -- -- 310 -- 310
Balance at September 30,
1994 119,543 298 2,096 (11) 2,383
Common stock issued under
stock option and purchase
plans, including related
tax benefits 3,379 100 -- -- 100
Cash dividends of $0.48
per common share -- -- (58) -- (58)
Accumulated translation
adjustment -- -- -- 6 6
Change in unrealized gains
(losses) on available-for-
sale securities -- -- -- 44 44
Net income -- -- 424 -- 424
Other -- -- 2 -- 2
Balance at September 29,
1995 122,922 $ 398 $ 2,464 $ 39 $ 2,901
See accompanying notes.
22
Consolidated Statements of Cash Flows
(Dollars in millions)
Three fiscal years ended
September 29, 1995 1995 1994 1993
Cash and cash equivalents,
beginning of the period $ 1,203 $ 676 $ 498
Operations:
Net income 424 310 87
Adjustments to reconcile net
income to cash generated by
(used for) operations:
Depreciation and amortization 127 168 166
Net book value of property,
plant, and equipment retirements 6 11 13
Changes in assets and liabilities:
Accounts receivable (350) (199) (295)
Inventories (687) 418 (927)
Deferred tax assets 42 (25) (69)
Other current assets (59) 34 (96)
Accounts payable 283 139 316
Accrued restructuring costs (47) (250) 203
Other current liabilities (10) 90 (68)
Deferred tax liabilities 31 41 19
Cash generated by (used
for) operations (240) 737 (651)
Investments:
Purchase of short-term
investments (1,672) (312) (1,432)
Proceeds from sale of short-term
investments 1,531 474 2,153
Purchase of property, plant, and
equipment (159) (160) (213)
Other (102) (4) (15)
Cash generated by (used
for) investment activities (402) (2) 493
Financing:
Increase (decrease) in short-term
borrowings 169 (531) 639
Increase (decrease) in long-term
borrowings (2) 297 (11)
Increases in common stock, net of
related tax benefits 86 82 85
Repurchase of common stock -- -- (273)
Cash dividends (58) (56) (56)
Other -- -- (48)
Cash generated by (used
for ) financing activities 195 (208) 336
Total cash generated (used) (447) 527 178
Cash and cash equivalents, end of
the period $ 756 $ 1,203 $ 676
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $ 49 $ 34 $ 12
Income taxes, net $ 188 $ 46 $ 226
Schedule of non-cash transactions:
Tax benefit from stock options $ 15 $ 12 $ 17
See accompanying notes.
23
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 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.
Advertising Costs
Advertising costs, except for costs associated with direct-response
advertising, are charged to expense the first time the advertising takes
place. The costs of direct-response advertising are capitalized and
amortized over the period during which future benefits are expected to be
received.
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 statement
of income.
Financial Instruments
Investments
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. There are no investments with maturities greater
than twelve months. 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.
Effective October 1, 1994, the Company adopted Financial Accounting
Standard No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with FAS 115, prior period
financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect of the change was not
material to shareholders' equity as of October 1, 1994. Under FAS 115,
debt securities that a company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities that
a company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as either
available-for-sale or trading and are carried at fair value. Generally,
unrealized holding gains and losses on securities classified as available-
for-sale are reported as a component of shareholders' equity. Unrealized
holding gains and losses on securities classified as trading are included
in earnings.
The Company's cash equivalents consist primarily of U.S. Government
securities, Euro-dollar deposits, and commercial paper with maturities of
three months or less at the date of purchase. Short-term investments
consist principally of Euro-dollar deposits and commercial paper with
maturities between three and twelve months. The Company's marketable
equity securities consist of securities issued by U.S. corporations and
are included in "Other assets" on the accompanying balance sheet. As of
September 29, 1995, the Company's cash equivalents, short-term
investments, and marketable equity securities are classified and
accounted for as available-for-sale and are generally held until
maturity.
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, primarily 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. The Company does not hold or
transact in financial instruments for other than risk management
purposes.
24
Gains and losses on accounting hedges of existing assets or liabilities
are included in the carrying amounts of those assets or liabilities and
are ultimately recognized in income as part of those carrying amounts.
Gains and losses related to qualifying accounting hedges of firm
commitments or anticipated transactions are also deferred and are
recognized in income or as adjustments of carrying amounts when the
hedged transaction occurs. Realized and unrealized gains and losses on
interest rate and foreign exchange contracts that do not qualify as
accounting hedges are recognized quarterly as a component of interest and
other income (expense), net.
The Company monitors its interest rate and foreign exchange positions
daily based on 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.
Interest Rate Derivatives
The Company enters into interest rate derivative transactions, including
interest rate swaps 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
diversify a portion of the Company's exposure away from fluctuations in
short-term U.S. interest rates. The Company may also enter into
interest rate contracts that are intended to reduce the cost of the
interest rate risk management program.
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 a majority of its
existing material foreign exchange transaction exposures. However, the
Company may 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.
Probable, but not firmly committed 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 Company also purchases foreign exchange option contracts to hedge
certain other probable, but not firmly committed transactions. 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. In addition, the Company enters into other
foreign exchange transactions, which are intended to reduce the costs
associated with its foreign exchange risk management programs. The
duration of foreign exchange hedging instruments, whether for firmly
committed transactions or for probable, but not firmly committed
transactions, currently does not exceed one year.
For further information regarding the Company's accounting treatment of
its investments and other financial and derivative instruments, refer to
pages 26 - 28 of the Notes to Consolidated Financial Statements.
Income Taxes
The income tax provisions for 1995 and 1994 have been determined in
accordance with statement of Financial Accounting Standard No. 109 ("FAS
109"), "Accounting for Income Taxes," whereby 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
expected to be recovered or settled. The Company adopted FAS 109
effective the first day of fiscal 1994 on a prospective basis, and the
financial statements of years ended prior to 1994 have not been restated.
The cumulative effect of the change was not material. 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 $395
million of undistributed earnings of certain of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely
invested in operations outside of the United States. It is not
practicable to determine the income tax liability that might be incurred
if these earnings were to be distributed. Except for such indefinitely
invested earnings, the Company provides for federal and state income
taxes currently on undistributed earnings of foreign subsidiaries.
Earnings per Share
Earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares attributable
25
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.
Stock-Based Compensation
The Company has not elected early adoption of Financial Accounting
Standard No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation."
FAS 123 becomes effective beginning with the Company's first quarter of
fiscal year 1997, and will not have a material effect on the Company's
financial position or results of operations. Upon adoption of FAS 123,
the Company will continue to measure compensation expense for its stock-
based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and will provide pro forma disclosures of net income and
earnings per share as if the fair value-based method prescribed by FAS
123 had been applied in measuring compensation expense.
Reclassifications
Certain prior year amounts on the Consolidated Balance Sheets and
Consolidated Statements of Cash Flows and the Industry Segment and
Geographic Information and Income Taxes footnotes have been reclassified
to conform to the current year presentation.
Financial Instruments
Investments
The following table summarizes the Company's available-for-sale
securities as of September 29, 1995:
(In millions)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
government agencies $ 232 $ -- $ -- $ 232
U.S. corporate debt securities 140 -- -- 140
Foreign government securities 456 2(A) -- 458
Total included in cash and cash
equivalents $ 828 $ 2 $ -- $ 830
U.S. corporate debt securities $ 48 $ -- $ -- $ 48
Foreign government securities 146 -- -- 146
Total included in short-term
investments $ 194 $ -- $ -- $ 194
Equity securities $ 1 $ 42 $ -- $ 43
Total included in other assets $ 1 $ 42 $ -- $ 43
Total $ 1,023 $ 44 $ -- $ 1,067
(A) The $2 million represents gross unrealized gains on interest rate
hedging transactions.
Gross unrealized holding gains or losses on available-for-sale securities
are recorded as a component of shareholders' equity, and include any
unrealized gains and losses on interest rate contracts accounted for as
hedges against the underlying securities. Of the $42 million of gross
unrealized gains related to equity securities, approximately $40 million
relates to securities that are restricted from sale until February 1996.
The gross realized gains recorded to earnings on sales of available-for-
sale securities were $1.5 million in 1995. There were no gross realized
losses recorded to earnings on sales of available-for-sale securities in
1995. The cost of securities sold is based on the specific
identification method.
Interest Rate Derivatives and Foreign Currency Instruments
The table on page 27 shows the notional principal, fair value, and credit
risk amounts of the Company's interest rate derivative and
26
foreign currency instruments as of September 29, 1995, and 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 29, 1995, and 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.
(In millions)
1995 1994
----------------------- -----------------------
Notional Fair Credit Notional Fair Credit
Principal Value Risk Principal Value Risk
Amount Amount
Transactions Qualifying as
Accounting Hedges
Interest rate instruments
Swaps $ 450 $ (7) $ 2 $ 669 $ (40) --
Interest rate collars $ 105 --(A) --(A) -- -- --
Sold options $ 150 --(A) -- -- -- --
Foreign exchange instruments
Spot / Forward contracts $1,211 $ 16 $ 23 $2,385 $ (23) $ 15
Purchased options $1,441 $ 32 $ 32 $1,510 $ 17 $ 21
Sold options -- -- -- $ 302 $ (1) --
Transactions Other Than
Accounting Hedges
Interest rate instruments
Swaps $ 10 --(A) -- -- -- --
Sold options $ 100 $ (1) -- $ 148 --(A) --
Foreign exchange instruments
Spot/Forward contracts -- -- -- $ 300 --(A) --(A)
Purchased options $3,046 $ 134 $134 $1,600 $ 32 $ 32
Sold options $6,082 $ (83) -- $5,511 $ (45) --
(A) 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 the three- or six-month U.S. dollar LIBOR
and receive a fixed rate of interest without exchanges of the underlying
notional amounts. Maturity dates for interest rate swaps currently range
from one to ten years. At September 29, 1995, and September 30, 1994,
interest rate swaps classified as receive-fixed swaps had weighted
average receive rates of 6.38% and 5.89%, respectively. Weighted average
pay rates on these swaps were 5.88% and 6.52% at September 29, 1995, and
September 30, 1994, respectively. Interest rate option contracts require
the Company to make payments should certain interest rates either fall
below or rise above predetermined levels.
Interest rate collars limit the Company's exposure to fluctuations in
short-term interest rates by locking in a range of interest rates. An
interest rate collar is a no-cost structure that consists of a purchased
option and a sold option. The Company receives a payment when the three-month
LIBOR falls below predetermined levels, and makes a payment when the three-
month LIBOR rises above predetermined levels. The entire structure
generally qualifies as an accounting hedge.
All interest rate option contracts outstanding at September 29, 1995,
expire within three years.
Interest rate contracts not accounted for as hedges are carried at fair
value with gains and losses recorded currently in income as a
27
component of interest and other income (expense), net. 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 $9 million and $40 million at September 29, 1995, and
September 30, 1994, respectively, 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.
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, and the adjustment is recognized in income at
that time. 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 29, 1995, and
September 30, 1994, were immaterial. All foreign exchange forward
contracts expire within one year.
Purchased 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 component of the hedged
transaction. Deferred gains and losses on such agreements were
immaterial at September 29, 1995, and September 30, 1994. As of
September 29, 1995, maturity dates for purchased foreign exchange option
contracts ranged 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 29, 1995, 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 on 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.
Fair Values of Other Financial Instruments
The carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
(In millions)
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 756 $ 756 $ 1,203 $ 1,203
Short-term investments $ 196 $ 196 $ 55 $ 55
Short-term borrowings $ 461 $ 461 $ 292 $ 292
Long-term debt:
Ten-year unsecured notes $ 300 $ 289 $ 300 $ 259
Other $ 3 $ 3 $ 5 $ 5
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 29, 1995.
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
28
exposure and the number 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 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.
Advertising Costs
There were no direct-response advertising costs reported as assets at
September 29, 1995, and September 30, 1994. Advertising expense was
$204.7 million, $158.2 million, and $153.4 million for 1995, 1994, and
1993, respectively.
Borrowings
Short-Term Borrowings (In millions)
1995 1994
Commercial paper $ -- $ 90
Notes payable to banks 461 202
$ 461 $ 292
The weighted average interest rates for Japanese yen-denominated notes
payable to banks at September 29, 1995, and September 30, 1994, were
approximately 2.2% and 2.6%, respectively. The weighted average interest
rate for U.S. dollar-denominated notes payable to banks at September 29,
1995, was approximately 6.2%. The Company had no U.S. dollar-denominated
notes payable to banks at September 30, 1994. The weighted average
interest rate for commercial paper borrowings at September 30, 1994, was
approximately 5.0%. Interest expense on short-term borrowings was $20.4
million, $24.9 million, and $8.9 million for 1995, 1994, and 1993,
respectively.
Long-Term Debt
On February 10, 1994, the Company issued $300 million aggregate principal
amount of 6.5% unsecured notes in a public offering registered 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 long-
term debt for the years ended September 29, 1995, and September 30, 1994,
was $19.5 million and $12.5 million, respectively.
For information regarding the Company's estimated fair value of short-
term and long-term debt, refer to page 28 of the Notes to Consolidated
Financial Statements.
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 a 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
29
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 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 at a cost of approximately $95 million in termination
benefits, and approximately 80 had been relocated. The Company had
reduced its use of office space in the Bay Area by approximately 867,000
square feet.
During 1995, the Company further lowered its estimates of the total
remaining costs associated with its restructuring plan initiated in the
third quarter of 1993 and recorded an adjustment that increased income by
$23 million ($14 million, or $0.12 per share, after taxes). This
adjustment primarily reflected favorable cancelation settlements of
certain R&D project commitments and facility leases and the completion of
other actions at lower costs than originally estimated.
As of September 29, 1995, the Company had $11 million of accrued
restructuring costs for actions that are currently under way, the
majority of which are expected to be completed during 1996.
Approximately $10 million of this accrual represents cash charges
expected to be incurred primarily for estimated facilities and other
expenses.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, consists of the following:
(In millions)
1995 1994 1993
Interest income $ 100 $ 43 $ 70
Interest expense (48) (40) (12)
Foreign currency gain (loss) (15) 9 12
Net premiums and discounts earned
(paid) on foreign exchange
instruments (46) (34) (32)
Other income (expense), net (1) -- (8)
$ (10) $ (22) $ 30
30
Income Taxes
(In millions)
The provision for income taxes
consists of the following:
FAS 109 Method APB 11 Method
1995 1994 1993
Federal:
Current $ 26 $ 61 $ 14
Deferred 113 20 (24)
139 81 (10)
State:
Current 1 6 3
Deferred 15 20 1
16 26 4
Foreign:
Current 89 71 39
Deferred 6 12 20
95 83 59
Provision for income taxes $ 250 $ 190 $ 53
The foreign provision for income taxes is based on foreign pretax
earnings of approximately $572 million, $474 million, and $416 million in
1995, 1994, and 1993, 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 $15 million in 1995.
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 29, 1995, and September 30, 1994, the significant components
of the Company's deferred tax assets and liabilities were:
(In millions)
September 29, September 30,
1995 1994
Deferred tax assets:
Accounts receivable and inventory reserves $ 87 $ 141
Accrued liabilities and other reserves 85 126
Basis of capital assets and investments 82 66
Total deferred tax assets 254 333
Less: Valuation allowance 14 11
Net deferred tax assets 240 322
Deferred tax liabilities:
Unremitted earnings of subsidiaries 648 657
Other 27 29
Total deferred tax liabilities 675 686
Net deferred tax liability $ 435 $ 364
The net change in the total valuation allowance was an increase of $3 million
and $11 million in 1995 and 1994, respectively.
31
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 are as follows:
(In millions)
1993
Income of foreign subsidiaries not taxable in current year $ 53
Warranty, bad debt, and other expenses (80)
Depreciation (4)
Inventory valuation (17)
State income taxes 3
Other individually immaterial items 42
Total deferred taxes $ (3)
A reconciliation of the provision for income taxes, with the amount
computed by applying the statutory federal income tax rate (35.00% in
1995, 35.00% in 1994, and 34.75% in 1993) to income before income taxes,
is as follows:
(In millions)
FAS 109 Method APB 11 Method
1995 1994 1993
Computed expected tax $ 236 $ 175 $ 49
State taxes, net of federal benefit 10 17 2
Research and development tax credit (1) (1) (8)
Indefinitely invested earnings of
foreign subsidiaries (21) (49) (21)
Valuation allowance 3 9 --
Other individually immaterial items 23 39 31
Provision for income taxes $ 250 $ 190 $ 53
Effective tax rate 37% 38% 38%
The Internal Revenue Service ("IRS") has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made
certain prepayments thereon. The Company contested the proposed
deficiencies for the years 1984 through 1988, and most of the issues in
dispute for these years have been resolved. On June 29, 1995, the IRS
issued a notice of deficiency proposing increases to the amount of the
Company's federal income taxes for the years 1989 through 1991. The
Company has filed a petition with the United States Tax Court to contest
these alleged tax deficiencies. Management believes that adequate
provision has been made for any adjustments that may result from these
tax examinations.
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.
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
32
employees, at not less than the fair market value on the date of grant.
These options generally become exercisable over a period of three years,
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.
In July 1995, the Board of Directors adopted an amendment to the 1990
Plan to increase the number of shares reserved for issuance by 8.6
million shares, subject to shareholder approval at the Company's Annual
Meeting of Shareholders scheduled for January 1996. Concurrently, the
Board of Directors also resolved to terminate the 1987 Plan and transfer
all unused shares remaining under the 1987 Plan to the 1990 Plan, subject
to shareholder approval of the aforementioned amendment to the 1990 Plan.
Summarized information regarding the Company's stock option plans as of
September 29, 1995, is as follows:
(In thousands, except per share amounts)
Number of
Shares Price per Share
Outstanding at September 30, 1994 13,411 $ 7.50 - $ 68.00
Granted 4,249
Exercised (2,442) $ 7.50 - $ 57.50
Expired or canceled (1,341)
Outstanding at September 29, 1995 13,877 $ 7.50 - $ 68.00
Exercisable 5,535
Reserved for issuance 16,848
Available for future grant 2,971
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 29, 1995, approximately 18,000 shares were reserved for future
issuance under the Purchase Plan. In June 1995, the Board of Directors
adopted an amendment to the Purchase Plan to increase the number of
shares reserved for issuance by 3 million shares, subject to shareholder
approval at the Company's Annual Meeting of Shareholders scheduled for
January 1996.
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 1995 or in 1994;
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, the Company repurchased
the remaining shares under this authorization, which approximated 1.6
million shares.
33
Employee 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 1995). Effective October 1, 1995, the Company matches 50% to 100%
of each employee's contributions, depending on length of service, up to a
maximum 6% of the employee's earnings. Prior to October 1, 1995, the
Company matched 30% to 70% 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
$14.6 million, $10.7 million, and $11.1 million in 1995, 1994, and 1993,
respectively.
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 5 to 10 years and generally provide renewal options for terms of up to
5 additional years. Rent expense under all operating leases was
approximately $127 million, $122 million, and $170 million in 1995, 1994,
and 1993, respectively. Future minimum lease payments under these
noncancelable operating leases having remaining terms in excess of one
year as of September 29, 1995, are as follows:
(In millions)
1996 $ 71
1997 62
1998 38
1999 21
2000 17
Later years 36
Total minimum lease payments $ 245
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 attorneys' fees in light of
the Fogerty decision. The Company filed a petition for a writ of
------- -----------
certiorari in the Supreme Court of the United States on December 19,
- ----------
1994.
The Company's petition for a writ of certiorari was denied by the Supreme
------------------
Court of the United States on February 21, 1995. Accordingly, the
decision of the appellate court affirming the dismissal of the Company's
copyright infringement case against Microsoft and HP is now final. The
requests of Microsoft and HP for attorneys' fees have been resolved by
settlement agreements. Accordingly, the matter has been entirely
resolved.
34
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 millions)
1995 1994 1993
Net sales to unaffiliated customers:
North America $ 6,130 $ 5,291 $ 4,694
Europe 2,365 2,096 2,002
Japan 1,822 1,234 835
Pacific 745 568 446
Total net sales $ 11,062 $ 9,189 $ 7,977
Transfers between geographic
areas (eliminated in
consolidation):
North America $ 511 $ 409 $ 421
Europe 178 234 263
Japan -- -- 9
Pacific 3,619 2,618 2,293
Total transfers $ 4,308 $ 3,261 $ 2,986
Operating income (loss):
North America $ (20) $ (27) $ (243)
Europe 245 276 60
Japan 46 47 20
Pacific 383 245 256
Eliminations 30 (19) 17
Corporate income (expense), net (10) (22) 30
Income before income taxes $ 674 $ 500 $ 140
Identifiable assets:
North America $ 3,112 $ 2,393 $ 2,627
Europe 927 824 970
Japan 686 522 362
Pacific 581 364 345
Eliminations (34) (67) (46)
Corporate assets 959 1,267 913
Total assets $ 6,231 $ 5,303 $ 5,171
"Europe" includes Europe, the Middle East and Africa. "Pacific" includes
Australia, Hong Kong, Singapore, Taiwan, Latin America, and South
America. Prior year amounts have been restated to conform to the current
year's 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 recorded in 1993 and the
related adjustments recorded in 1995 and 1994 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.
35
Selected Quarterly Financial Information (Unaudited)
(Tabular amounts in millions, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
1995
Net sales $ 3,003 $ 2,575 $ 2,652 $ 2,832
Gross margin $ 621 $ 728 $ 695 $ 814
Net income $ 60 $ 103 $ 73 $ 188
Earnings per common and
common equivalent share $ 0.48 $ 0.84 $ 0.59 $ 1.55
Cash dividends declared
per common share $ 0.12 $ 0.12 $ 0.12 $ 0.12
Price range per common
share $49 7/8- $50 1/8- $48- $43 3/4-
$34 11/16 $33 5/8 $33 7/8 $32 1/2
1994
Net sales $ 2,493 $ 2,150 $ 2,077 $ 2,469
Gross margin $ 679 $ 574 $ 499 $ 592
Net income $ 115 $ 138 $ 17 $ 40
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- $33 1/2- $38 1/8- $ 34-
$26 1/8 $25 1/8 $29 1/4 $22 1/2
At September 29, 1995, there were 29,247 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 first quarter of 1995 includes a restructuring
adjustment that increased income by $17 million ($11 million, or $0.09
per share, after taxes). Net income for the third quarter of 1995
includes a restructuring adjustment that increased income by $6 million
($4 million, or $0.03 per share, after taxes). 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).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
36
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.
- -Change in Control Arrangements", "Information About Apple Computer, Inc. -
Director Compensation", "Information About Apple Computer, Inc. -
Arrangements with Executive Officers", "Report of the Compensation
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. - Arrangements with Executive Officers", and "Report of
the Compensation Committee of the Board of Directors on Executive
Compensation - Compensation Committee Interlocks and Insider
Participation", which information is hereby incorporated by reference.
37
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
1995.
(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 95/1Q By-Laws of the Company, as amended through
November 2, 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.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.
* Footnotes appear on page 40.
** Represents a management contract or compensatory plan or arrangement.
38
(c) Exhibits (continued)
Exhibit
Number Notes* Description
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 ** 1995 Senior / Executive Incentive Bonus Plan.
10.A.8 91K** Form of Indemnification Agreement between the
Registrant and each officer of the Registrant.
10.A.15 91K** Agreement dated April 12, 1991 between the
Registrant and Michael H. Spindler.
10.A.15-1 93K-10.A.1** 1993 Executive Restricted Stock
Plan
10.A.19 94/2Q** Executive Severance Plan as amended and restated
effective as of July 1, 1993
10.A.19-1 95/3Q** Supplement to the Executive Severance Plan
effective as of June 9, 1995.
10.A.20 95/Q2** Separation Agreement dated April 19, 1995, between
the Registrant and Ian Diery.
10.A.21 95/Q3** Form of Senior Executive Retention Agreement dated
June 9, 1995.
10.A.22 95/Q3** Retention Agreement dated June 9, 1995 between the
Registrant and Michael H. Spindler
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.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.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.
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 page 40.
** Represents a management contract or compensatory plan or arrangement.
39
NOTES
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.
90/2Q Incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
30, 1990.
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-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.
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-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.
94/2Q 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.
95/1Q Incorporated by reference to the exhibit of that number in
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1994.
95/2Q Incorporated by reference to the exhibit of that number in
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995
95/3Q Incorporated by reference to the exhibit of that number in
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(d) Financial Statement Schedules
See Item 14(a)(2) of this Form 10-K.
40
(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, 33-00866, 33-23650,
33-31075, 33-40877, 33-47596, 33-57092 33-57080, 33-53873, 33-53879, 33-
53895, 33-60279, and 33-60281) 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, the 1993 Executive Restricted
Stock 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 16, 1995 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 29, 1995.
s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
December 19, 1995
41
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 19, 1995
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael H. Spindler 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/ Jeanne Seeley
MICHAEL H. SPINDLER JEANNE SEELEY
President and Vice President, Finance, and
Chief Executive Officer Corporate Controller
(Principal Executive Officer), and (Principal Financial Officer)
Director December 19, 1995
December 19, 1995
/s/ Armas C. Markkula, Jr /s/ Delano E. Lewis
ARMAS C. MARKKULA, JR. DELANO E. LEWIS
Chairman of the Board Director
and Director December 19, 1995
December 19, 1995
/s/ Peter O. Crisp /s/ Bernard Goldstein
PETER O. CRISP BERNARD GOLDSTEIN
Director Director
December 19, 1995 December 19, 1995
/s/ Jurgen Hintz /s/ Katherine Hudson
B. JURGEN HINTZ KATHERINE HUDSON
Director Director
December 19, 1995 December 19, 1995
/s/ Gilbert F. Amelio
DR. GILBERT F. AMELIO
Director
December 19, 1995
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.
42
SCHEDULE II
APPLE COMPUTER, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Charged to
Allowance for Beginning Costs and Deductions Ending
Doubtful Accounts: Balance Expenses (1) Balance
Year Ended
September 29, 1995 $ 91 $ 17 $ 21 $ 87
Year Ended
September 30, 1994 $ 84 $ 25 $ 18 $ 91
Year Ended
September 24, 1993 $ 83 $ 26 $ 25 $ 84
____________________________________________
(1) Represents amounts written off against the allowance, net of
recoveries.
S-1
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
of California on January 27, 1988. 38
3.2 (1) Amendment to Restated Articles of
Incorporation, filed with the Secretary of
State of the State of California on
February 5, 1990. 38
3.3 (1) By-Laws of the Company, as amended through
April 20, 1994. 38
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
Agent. 38
4.2 (1) Indenture dated as of February 1, 1994,
between the Company and Morgan Guaranty
Trust Company of New York (the
"Indenture"). 38
4.3 (1) 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. 38
4.4 (1) Officers' Certificate, without exhibits,
pursuant to Section 301 of the Indenture,
establishing the terms of the Company's 6
1/2% Notes due 2004. 38
4.5 (1) Form of the Company's 6 1/2% Note due
2004. 38
10.A.1 (1) 1981 Stock Option Plan, as
amended. 38
10.A.2 (1) 1987 Executive Long Term Stock Option
Plan. 38
10.A.3 (1) Apple Computer, Inc. Savings and
Investment Plan, as amended and restated
effective as of October 1, 1990. 38
10.A.3-1 (1) Amendment of Apple Computer, Inc. Savings
and Investment Plan dated March 1, 1992. 39
10.A.4 (1) Form of Director Warrant 39
10.A.5 (1) 1990 Stock Option Plan, as amended through
January 26, 1994. 39
10.A.6 (1) Apple Computer, Inc. Employee Stock
Purchase Plan, as amended. 39
10.A.7 (1) 1995 Senior / Executive Incentive Bonus
Plan. 49
10.A.8 (1) Form of Indemnification Agreement between
the Registrant and each officer of the
Registrant. 39
10.A.15 (1) Agreement dated April 12, 1991 between the
Registrant and Michael H. Spindler. 39
10.A.15-1 (1) 1993 Executive Restricted Stock Plan 39
10.A.19 (1) Executive Severance Plan as amended and
restated effective as of July 1, 1993. 39
(1) Incorporated by reference at page indicated.
44
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.A.19-1 (1) Supplement to the Executive
Severance Plan effective as of June
9, 1995. 39
10.A.20 (1) Separation Agreement dated April 19, 1995,
between the Registrant and Ian Diery. 39
10.A.21 (1) Form of Senior Executive Retention
Agreement dated June 9, 1995. 39
10.A.22 (1) Retention Agreement dated June 9, 1995
between the Registrant and Michael H.
Spindler. 39
10.B.1 (1) Master OEM Agreement dated as of January
26, 1988 between the Company and Tokyo
Electric Co. Ltd. 39
10.B.7 (1) Know-how and Copyright License Agreement
(Power PC Architecture) dated as of
September 30, 1991 between IBM and the
Registrant. 39
10.B.8 (1) Participation in the Customer Design
Center by the Registrant dated as of
September 30, 1991 between IBM and the
Registrant. 39
10.B.9 (1) Agreement for Purchase of IBM Products
(Original Equipment Manufacturer) dated as
of September 30, 1991 between IBM and the
Registrant. 39
10.B.11 (1) Agreement dated October 9, 1991 between
Apple Corps Limited and the Registrant. 39
10.B.12 (1) Microprocessor Requirements Agreement
dated January 31, 1992 between the
Registrant and Motorola, Inc. 39
11 Computation of per share earnings. 46
21 Subsidiaries of the Company. 47
23 Consent of Independent Auditors. 41
24 Power of Attorney. 42
27 Financial Data Schedule. 48
(1) Incorporated by reference at page indicated.
45