___________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 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,[State or other (94-2404110,[I.R.S. Employer
jurisdiction) Identification No.])
of incorporation or
organization]
1 Infinite Loop
Cupertino (95014,[Zip Code])
California,[Address of
principal executive offices]
Registrant's telephone number, including area code: (408) 996-1010
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No []
121,158,498 shares of Common Stock Issued and Outstanding as of May 5, 1995
___________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 2,652 $ 2,077 $ 5,484 $ 4,546
Costs and expenses:
Cost of sales 1,957 1,578 3,975 3,455
Research and development 143 134 275 286
Selling, general and 386 330 801 705
administrative
Restructuring costs -- -- (17) --
2,486 2,042 5,034 4,446
Operating income 166 35 450 100
Interest and other income
(expense), net (50) (7) (35) (7)
Income before provision 116 28 415 93
for income taxes
Provision for income 43 11 154 36
taxes
Net income $ 73 $ 17 $ 261 $ 57
Earnings per common and
common equivalent share $ .59 $ .15 $ 2.14 $ .49
Cash dividends paid per
common share $ .12 $ .12 $ .24 $ .24
Common and common
equivalent shares used in
the calculations of
earnings per share (in
thousands) 122,644 118,944 122,122 117,950
</TABLE>
See accompanying notes.
2
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In millions)
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,375 $ 1,203
Short-term investments 611 55
Accounts receivable, net of allowance for
doubtful accounts of $97 ($91 at September 1,633 1,581
30, 1994)
Inventories:
Purchased parts 429 469
Work in process 161 207
Finished goods 394 412
984 1,088
Deferred tax assets 350 293
Other current assets 208 256
Total current assets 5,161 4,476
Property, plant, and equipment:
Land and buildings 481 484
Machinery and equipment 605 573
Office furniture and equipment 152 158
Leasehold improvements 216 237
1,454 1,452
Accumulated depreciation and amortization (791) (785)
Net property, plant, and equipment 663 667
Other assets 226 160
$ 6,050 $ 5,303
</TABLE>
See accompanying notes.
3
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
(Unaudited)
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 627 $ 292
Accounts payable 854 882
Accrued compensation and employee benefits 138 137
Accrued marketing and distribution 182 178
Accrued restructuring costs 26 58
Other current liabilities 416 397
Total current liabilities 2,243 1,944
Long-term debt 304 305
Deferred tax liabilities 789 671
Shareholders' equity:
Common stock, no par value; 320,000,000
shares authorized; 121,093,059 shares issued
and outstanding at March 31, 1995
(119,542,527 shares at September 30, 1994) 339 298
Retained earnings 2,331 2,096
Accumulated translation adjustment 44 (11)
Total shareholders' equity 2,714 2,383
$ 6,050 $ 5,303
</TABLE>
See accompanying notes.
4
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 31, April 1,
1995 1994
<S> <C> <C>
Cash and cash equivalents, beginning of the
period $ 1,203 $ 676
Operations:
Net income 261 57
Adjustments to reconcile net income to cash
generated by operations:
Depreciation and amortization 67 81
Net book value of property, plant, and
equipment retirements 1 10
Changes in assets and liabilities:
Accounts receivable (52) 39
Inventories 104 220
Other current assets (9) (128)
Accounts payable (28) 19
Accrued restructuring costs (32) (80)
Other current liabilities 30 65
Deferred tax liabilities 118 70
Cash generated by operations 460 353
Investments:
Purchase of short-term investments (928) (171)
Proceeds from sale of short-term investments 372 367
Purchase of property, plant, and equipment (52) (99)
Other (23) (25)
Cash generated by (used for)
investment activities (631) 72
Financing:
Increase (decrease) in short-term borrowings 335 (332)
Increase (decrease) in long-term borrowings (1) 298
Increases in common stock, net of related
tax benefits and changes in notes receivable
from shareholders 38 48
Cash dividends (29) (28)
Cash generated by (used for)
financing activities 343 (14)
Total cash generated 172 411
Cash and cash equivalents, end of the period $ 1,375 $ 1,087
</TABLE>
See accompanying notes.
5
<PAGE>
APPLE COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim information is unaudited; however, in the opinion of the
Company's management, all adjustments necessary for a fair statement of
interim results have been included. All adjustments are of a normal
recurring nature unless specified in a separate note included in these
Notes to Consolidated Financial Statements. The results for interim
periods are not necessarily indicative of results to be expected for
the entire year. These financial statements and notes should be read
in conjunction with the Company's annual consolidated financial
statements and the notes thereto for the fiscal year ended September
30, 1994, included in its Annual Report on Form 10-K for the year ended
September 30, 1994 (the "1994 Form 10-K").
2. In the first quarter of 1995, the Company lowered its estimates of the
total remaining costs associated with its restructuring plan initiated
in the third quarter of 1993 and recorded an adjustment that increased
income by $17 million ($11 million, or $0.09 per share, after taxes).
This adjustment primarily reflected favorable cancellation settlements
of certain R&D project commitments and facility leases and the
completion of other actions at lower costs than originally estimated.
At March 31, 1995, the Company had $26 million of accrued restructuring
costs for actions that are currently under way. Approximately $20
million in charges to the accrual are expected to be incurred during
1995 with the remaining $6 million incurred beyond 1995. Charges to be
incurred beyond 1995 relate primarily to recurring payments under
certain noncancelable operating leases.
The following table depicts a roll-forward reconciliation of the
activity in the restructuring accrual balance from September 30, 1994
to March 31, 1995:
<TABLE>
<CAPTION>
(In millions)
Balance at Balance at
September 30, Adjust- March 31,
Category 1994 Charges ments 1995
<S> <C> <C> <C> <C>
Employee termination
payments (C) $ 11 $ 4 $ 5 $ 2
Provisions relating to
employees who will not be
terminated (C) 4 * 1 3
Termination payments for leases
and other contracts (C) 20 6 1 13
Write-down of operating assets
to be sold (N) 1 * 1 --
Provisions for litigation (C) 2 1 -- 1
R&D project cancellations (C) 6 1 5 --
Other provisions and write-
downs (B) 13 2 4 7
1991 accrued restructuring
costs (B) 1 1 -- --
$ 58 $ 15 $ 17 $ 26
</TABLE>
C: Cash; N: Noncash; B: Both cash and noncash
*: Less than $1 million
3. Interest and other income (expense), net, consists of the
following:
<TABLE>
<CAPTION> (In millions)
Three Six
Months Ended Months Ended
March April March April
31, 1, 31, 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest income $ 26 $ 8 $ 44 $ 18
Interest expense (10) (8) (17) (18)
Gain (loss) on foreign exchange
instruments (52) 5 (44) 10
Net premiums and discounts earned
(paid) on forward and option foreign
exchange instruments (16) (11) (17) (17)
Other income (expense), net 2 (1) (1) --
$(50) $(7) $(35) $(7)
</TABLE>
6
<PAGE>
4. 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 certificates of
deposit, time deposits and commercial paper with maturities of three
months or less at the date of purchase. Short-term investments consist
principally of 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 March 31, 1995, the
Company's cash equivalents, short-term investments and marketable
equity securities are classified as available-for-sale.
The adjustments recorded to shareholders' equity for unrealized holding
gains (losses) on available-for-sale cash equivalents and short term
investments were not material either individually or in the aggregate,
at March 31, 1995. The net adjustment recorded to shareholders' equity
for unrealized holding gains (losses) related to marketable equity
securities was an unrealized gain of approximately $40 million at March
31, 1995. The realized gains (losses) recorded to earnings on sales of
available-for-sale securities, either individually or in the aggregate,
were not material for the three and six months ended March 31, 1995.
5. U.S. income taxes have not been provided on a cumulative total of $372
million of undistributed earnings of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely
invested in operations outside the United States. It is not
practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed. Except for such
indefinitely invested earnings, the Company provides for federal and
state income taxes currently on undistributed earnings of foreign
subsidiaries.
The Internal Revenue Service has proposed federal income tax
deficiencies for the years 1984 through 1988, and the Company has made
prepayments thereon. The Company has contested these alleged
deficiencies and is pursuing administrative and judicial remedies.
Management believes that adequate provision has been made for any
adjustments that may result from these tax examinations.
6. Earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares attributable to stock
options outstanding during the period.
7. Certain prior year amounts on the consolidated statements of cash flows
have been reclassified to conform to the current period presentation.
8. On January 25, 1995, the Board of Directors declared a cash dividend of
$0.12 per share related to the Company's first fiscal quarter ended
December 30, 1994. The dividend was distributed on March 10, 1995, to
shareholders of record as of February 17, 1995. On April 27, 1995, the
Board of Directors declared a cash dividend of $0.12 per share for the
Company's second fiscal quarter ended March 31, 1995. The dividend is
payable on June 23, 1995, to shareholders of record as of June 2, 1995.
9. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on Apple's fiscal calendar.
(Tabular information: Dollars in millions, except per share amounts)
Results of Operations
<TABLE>
<CAPTION>
Second Quarter Six Months
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 2,652 $ 2,077 27.7% $ 5,484 $ 4,546 20.6%
Gross margin $ 695 $ 499 39.3% $ 1,509 $ 1,091 38.3%
Percentage of net 26.2% 24.0% 27.5% 24.0%
sales
Operating expenses
(excluding
restructuring
costs) $ 529 $ 464 14.0% $ 1,076 $ 992 8.5%
Percentage of net
sales 19.9% 22.4% 19.6% 21.8%
Restructuring costs -- -- -- $ (17) -- --
Percentage of
net sales -- -- -0.3% --
Interest and other
income
(expense),net $ (50) $ (7) 661.1% $ (35) $ (7) 422.4%
Net income $ 73 $ 17 329.4% $ 261 $ 57 357.9%
Earnings per share $ 0.59 $ 0.15 293.3% $ 2.14 $0.49 336.7%
</TABLE>
Net sales for the second quarter and first six months of 1995 increased
over the comparable periods of 1994, primarily resulting from a combination
of unit growth and higher average selling prices. The increase in average
selling prices was driven by a shift in mix towards the Company's newer
products and products with multi-media configurations. Specifically, the
Company recorded strong sales of its Performa (registered trademark) 630,
and of products within the Power Macintosh(registered trademark) family
and PowerBook (registered trademark) 500 series of personal
computers. Increased sales of these products contributed to an increase in
the average aggregate revenue per Macintosh (registered trademark) computer
unit of approximately 10% and 17% in the second quarter and first
six months of 1995, respectively, over the comparable periods of
1994. Total Macintosh computer unit sales increased 21% and 9% in the
second quarter and first six months of 1995, respectively, over the
comparable periods of 1994. This unit sales growth principally resulted
from strong sales of the Company's Power Macintosh products, PowerBook
500 series of personal computers and 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.
International net sales grew 34% and 26% in the second quarter and first
six months of 1995, respectively, over the comparable periods of 1994,
primarily reflecting strong net sales growth in the Pacific region,
particularly Japan. Net sales for the second quarter and first six months
of 1995 grew moderately in Europe over the comparable periods of 1994.
International net sales represented 54% and 51% of total net sales for the
second quarter and first six months of 1995, respectively, compared with
52% and 48%, respectively, for the corresponding periods of 1994.
Domestic net sales grew 21% and 15% in the second quarter and first six
months of 1995, respectively, over the comparable periods of 1994,
primarily resulting from strong growth in the education, consumer and
business markets.
In general, the Company's resellers typically purchase products on an as-
needed basis due to the Company's distribution strategy, which is designed
to expedite the filling of orders. Resellers frequently change delivery
schedules and order rates depending on changing market conditions.
Unfilled orders ("backlog") can be, and often are, canceled at will. The
Company attempts to fill orders on the requested delivery schedules.
However, products may be in relatively short supply from time to time until
production volumes have reached a level sufficient to meet demand or if
other production or fulfillment constraints exist. The Company's backlog
increased to approximately $795 million at May 5, 1995, from
approximately $670 million at February 3, 1995, primarily due to backlog of
the Company's Power Macintosh products.
In the Company's experience, the actual amount of product backlog at any
particular time is not a meaningful indication of its future business
prospects. In particular, backlog often increases in anticipation of or
immediately following introduction of new products because of over-ordering
by dealers anticipating shortages. Backlog often is reduced sharply once
dealers and customers believe they can obtain sufficient supply. Because
of the foregoing, as well as other factors affecting the Company's backlog,
backlog should not
8
<PAGE>
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 I, Item 2 of this Form 10-Q under the heading
"Factors that May Affect Future Results
and Financial Condition", which information is hereby incorporated by
reference.
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)
is often directly related to the need to market products in configurations
competitive with other producers. 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 industry-wide competitive pressures.
Gross margin increased both in amount and as a percentage of net sales
during the second quarter and first six months of 1995, respectively, over
the comparable periods of 1994. The increase in gross margin as a
percentage of net sales was primarily a result of a shift in product mix
towards the Company's newer high margin products within each product
category which included strong sales of the Company's entry level Macintosh
Performa 630, and of products within its Power Macintosh family and its
PowerBook 500 series of personal computers.
The increase in gross margin levels was affected somewhat favorably by
changes in foreign currency exchange rates as a result of a weaker U.S.
dollar relative to certain foreign currencies during both the first and
second quarters of 1995 compared with the corresponding periods of 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.
The Company's gross margin percentage declined from 28.7% in the first
quarter of 1995 to 26.2% in the second quarter of 1995, resulting primarily
from the Company's pricing strategies, particularly on entry
level and PowerBook notebook personal computers, and to a lesser extent on
Power Macintosh products. It is anticipated that gross margins will remain
under pressure and could fall below prior years' levels worldwide due to a
variety of factors, including continued industry-wide pricing pressures,
increased competition, and compressed product life cycles.
<TABLE>
<CAPTION>
Research and Second Quarter Six Months
Development
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Research and
development $143 $134 6.7% $275 $286 -3.8%
Percentage of net
sales 5.4% 6.5% 5.0% 6.3%
</TABLE>
Research and development expenditures increased in amount in the second
quarter of 1995 when compared with the corresponding period of 1994, due to
higher project- and headcount- related spending. During the first six
months of 1995, research and development expenditures decreased when
compared with the corresponding period of 1994, primarily reflecting lower
product development expenditures during the first quarter of 1995 as a
result of the Company's restructuring actions aimed at reducing costs as
well as fewer new product introductions in the first quarter of 1995
compared with the corresponding period of 1994.
As a percentage of net sales, research and development expenditures
decreased in the second quarter and first six months of 1995 compared with
the corresponding periods of 1994, primarily due to the increase in the
level of net sales.
9
<PAGE>
<TABLE>
<CAPTION>
Selling, General Second Quarter Six Months
and Administrative 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Selling, general
and administrative $386 $330 17.0% $801 $705 13.6%
Percentage of net
sales 14.6% 15.9% 14.6% 15.5%
</TABLE>
Selling, general and administrative expenses increased in amount in the
second quarter and first six months of 1995 when compared with the
corresponding periods of 1994. This increase was primarily a result of
increased advertising and channel marketing program spending as the Company
continued its efforts to expand its market share. Despite this increase in
expenditures, selling, general and administrative expenses decreased as a
percentage of net sales in the second quarter and first six months of 1995
when compared with the corresponding periods of 1994, primarily as a result
of the increase in the level of net sales combined with the Company's
ongoing efforts to manage operating expense growth.
The Company will continue to face the challenge of managing selling,
general and administrative expenses relative to gross margin levels,
particularly in light of the Company's expectation of continued pressure on
gross margins, and continued competitive pressures worldwide. The Company
anticipates that selling, general and administrative expenses will increase
in amount during the remaining quarters of 1995, but will remain relatively
flat as a percentage of net sales.
<TABLE>
<CAPTION>
Restructuring costs Second Quarter Six Months
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Restructuring costs -- -- -- $(17) -- --
Percentage of net
sales Net -- -- (0.3%) --
</TABLE>
For information regarding the Company's restructuring actions, refer to
Note 2 of the Notes to Consolidated Financial Statements (Unaudited) in
Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is
hereby incorporated by reference.
<TABLE>
<CAPTION>
Interest and Other Second Quarter Six Months
Income (Expense),Net 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Interest and other
income (expense),
net $(50) $(7) 614.3% $(35) $(7) 400%
</TABLE>
Interest and other income (expense), net, increased by approximately $43
million in expense in the second quarter of 1995 compared with the same
period in 1994. The increase in expense was primarily driven by net losses
recorded for the mark-to-market valuation of outstanding currency
forwards and sold currency options undertaken for currency risk management
purposes, and to a lesser extent, higher overall hedging costs as a result
of the increased volatility in the exchange markets as the value of the
U.S. dollar declined dramatically relative to other foreign currencies
during March of 1995. The increase in expense was slightly offset by an
increase in net interest income resulting from higher cash balances coupled
with higher investment interest rates. As of May 1, 1995, the Company's
net mark-to-market valuation of outstanding currency forwards and sold
currency options undertaken for currency risk management purposes has
remained consistent with the net mark-to-market valuation recorded at
March 31, 1995.
Interest and other income (expense), net, increased by approximately $28
million in expense for the first six months of 1995 when compared with the
corresponding period of 1994, reflecting the $43 million increase in mark-
to-market losses, and expense related
10
<PAGE>
to foreign exchange risk management activity during the second quarter of
1995 as discussed above. This increase in expense was partially offset by
a $15 million increase in interest and other income, net, during the first
quarter of 1995 when compared with the corresponding period of 1994 which
reflected increased interest income of $8 million, net gains from foreign
currency risk management activity, and a decrease in interest expense.
Notional principal amounts on certain of the Company's foreign exchange
instruments increased significantly compared with the balances at September
30, 1994, in accordance with the Company's currency risk management
strategies. Specifically, notional principal amounts on purchased and sold
foreign exchange options not accounted for as hedges increased
approximately $4.7 billion and $3.8 billion respectively, compared with the
balances at September 30. 1994. The notional principal amounts for off-
balance-sheet instruments provide one measure of the transaction volume
outstanding at a particular point in time, and do not necessarily represent
the amount of the Company's exposure to credit or market risk. The net
impact of the mark-to-market valuation on these foreign exchange
instruments is discussed in the preceding paragraphs.
Further information regarding the Company's foreign exchange hedging
programs may be found in Part I, Item 2 of this Form 10-Q under the
subheading "Global Market Risks" included under the heading "Factors that
May Affect Future Results and Financial Condition."
<TABLE>
<CAPTION>
Provision for Income Second Quarter Six Months
Taxes 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Provision for income
taxes $43 $11 290.9% $154 $36 327.8%
Effective tax rate 37% 38% 37% 38%
</TABLE>
The information contained in Note 4 of the Notes to Consolidated Financial
Statements (Unaudited) in Part I, Item 1 of this Quarterly Report on Form
10-Q is incorporated by reference into this discussion.
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.
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 (registered trademark) microprocessor.
The success of this ongoing transition will depend on the Company's
ability to continue to sell products based on the Motorola 68000 series
of microprocessors while gaining market acceptance of the new PowerPC
processor-based products, to successfully manage inventory levels of both
product lines simultaneously, and to continue to coordinate the timely
development and distribution by independent software vendors of new
"native" software applications specifically designed for the PowerPC
processor-based products.
11
<PAGE>
The rate of product shipments immediately following introduction of a new
product is not necessarily an indication of the future rate of shipments
for that product, which depends on many factors, some of which are not
under the control of the Company. These factors may include initial large
purchases by a small segment of the user population that tends to purchase
new technology prior to its acceptance by the majority of users ("early
adopters"); purchases in satisfaction of pent-up demand by users who
anticipated new technology and as a result deferred purchases of other
products; and over-ordering by dealers who anticipate shortages due to the
aforementioned factors. The preceding may also be offset by other factors,
such as the deferral of purchases by many users until new technology is
accepted as "proven" and for which commonly used software products are
available; and the reduction of orders by dealers once they believe they
can obtain sufficient supply of product previously in backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasing sharply coincident with
introduction, and then reducing sharply once dealers and customers believe
they can obtain sufficient supply of product.
The measurement of demand for newly introduced products is further
complicated by the availability of different product configurations, which
may include various types of built-in peripherals and software.
Configurations may also require certain localization (such as language) for
various markets and, as a result, demand in different geographic areas may
be a function of the availability of third-party software in those
localized versions. For example, the availability of European-language
versions of software products manufactured by U.S. producers may lag behind
the availability of U.S. versions by a quarter or more. This may result in
lower initial demand for the Company's new products outside the United
States, 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. The
Company's results of operations and financial condition could be adversely
affected should the Company be unable to effectively manage the impact of
industry-wide pricing pressures.
The Company's future operating results and financial condition may also be
affected by the Company's ability to offer customers competitive
technologies while effectively managing the impact on inventory levels and
the potential for customer confusion created by product proliferation.
On November 7, 1994, the Company reached an agreement with International
Business Machines Corporation (IBM) and Motorola, Inc. on a new hardware
reference platform for the PowerPC microprocessor that is intended to
deliver a much wider range of operating system and application choices for
computer customers. As a result of this agreement, the Company intends to
make the Macintosh operating system available on the common platform.
Accordingly, the Company's future operating results and financial
condition may be affected by its ability to implement this and certain
other collaboration agreements entered into, and to manage the associated
competitive risk.
The Company's future operating results and financial condition may also be
affected by the Company's ability to increase market share in its personal
computer business. The Company recently announced the licensing of the
Macintosh operating system to other personal computer vendors in January of
1995, and one vendor is currently selling product which utilizes the
Macintosh operating system. However, 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. Certain of the
Company's personal computer products are capable of running application
software designed for the MS-DOS or Windows operating systems, 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 also recently introduced
products which include both the RISC-based PowerPC 601 microprocessor and
the 486 DX2/66 microprocessor which enable users to switch between
Macintosh and DOS computing environments. In addition, as a result of the
collaboration agreement noted in the preceding paragraph, the Company
believes it may have the opportunity to increase its market share
in the personal computer business as the Macintosh operating system becomes
available on computers based on the new hardware reference platform.
Decisions by customers to purchase the Company's personal computers, as
opposed to MS-DOS or Windows-based systems, are often
12
<PAGE>
based on the availability of third-party software for particular
applications. The Company believes that the availability of third-party
application software for the Company's hardware products depends in part on
the third-party developers' perception and analysis of the relative
benefits of developing such software for the Company's products versus
software for the larger MS-DOS and Windows market. This analysis is based
on factors such as the relative market share of the Company's products, the
anticipated potential revenue that may be earned, and the costs of
developing such software products.
In an effort to increase overall market share, the Company has commenced
licensing the Macintosh operating system to other personal computer
vendors. The Company anticipates that the licensing activities will result
in a variety of these vendors bringing to market personal computers that
will run application software based on the Macintosh operating system. The
Company also believes that licensing the operating system will offer
software vendors a broader installed base on which they can develop and
provide technical innovations for the Macintosh platform. However, there
can be no assurance on 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 efforts to increase
its overall market share through licensing of the Macintosh operating
system is also dependent on the Company's ability to manage the risks
associated with competing companies producing Macintosh OS-based computer
systems. Accordingly, the Company cannot determine the ultimate
effect that licensing of the Macintosh operating system will have on
its sales or results of operations.
Microsoft Corporation is the developer of the MS-DOS and Windows operating
systems, which are the principal competing operating systems to the
Company's Macintosh operating system. Microsoft is also an important
developer of application software for the Company's products. Accordingly,
Microsoft's interest in producing application software for the Company's
products may be influenced by Microsoft's perception of its interests as an
operating system vendor.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
new PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors which produce superior
price/performance results compared with those supplied to the Company's
competitors by Intel Corporation, the developer and producer of the
microprocessors used by most personal computers using the MS-DOS and
Windows operating systems. IBM produces personal computers based on the
Intel microprocessors as well as on the PowerPC microprocessor, and is also
the developer of OS/2, a competing operating system to the Company's
Macintosh operating system. Accordingly, IBM's interest in supplying the
Company with improved versions of microprocessors for the Company's
products may be influenced by IBM's perception of its interests as a
competing manufacturer of personal computers and as a competing operating
system vendor.
The Company's future operating results and financial condition may also be
affected by the Company's ability to successfully expand its new
businesses and product offerings into other markets, such as the markets
for on-line services and personal digital assistant (PDA) products.
Global Market Risks
A large portion of the Company's revenue is derived from its international
operations. As a result, the Company's operations and financial results
could be significantly affected by international factors, such as changes
in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. When the
U.S. dollar strengthens against other currencies, the U.S. dollar value of
non-U.S. dollar-based sales decreases. When the U.S. dollar weakens, the
U.S. dollar value of non-U.S. dollar-based sales increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs
increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall, the Company is a net receiver of currencies other
than the U.S. dollar and, as such, benefits from a weaker dollar and is
adversely affected by a stronger dollar relative to major currencies
worldwide. Accordingly, changes in exchange rates may negatively affect
the Company's consolidated sales and gross margins (as expressed in U.S.
dollars).
To mitigate the short-term impact of fluctuating currency exchange rates on
the Company's non-U.S. dollar-based sales, product procurement, and
operating expenses, the Company regularly hedges its non-U.S. dollar-based
exposures. Specifically, the Company enters into foreign exchange forward
and option contracts to hedge firmly committed transactions. Currently,
hedges of firmly committed transactions do not extend beyond one year. The
Company also purchases foreign exchange option contracts to hedge certain
other probable, but not firmly committed transactions. Hedges of probable,
but not firmly committed transactions do not extend beyond one year. To
reduce the costs associated with these ongoing foreign exchange hedging
programs, the Company also regularly sells foreign exchange option
contracts and enters into certain other foreign exchange transactions. All
foreign exchange
13
<PAGE>
forward and option contracts not accounted for as hedges, including all
transactions intended to reduce the costs associated with the Company's
foreign exchange hedging programs, are carried at fair value and are
adjusted on each balance sheet date for changes in exchange rates.
While the Company is exposed with respect to fluctuations in the interest
rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash, cash
equivalents, and short-term investments as well as interest paid on its
short-term borrowings and long-term debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company has entered into interest
rate swap and option transactions. Certain of these swaps are intended to
better match the Company's floating-rate interest income on its cash, cash
equivalents, and short-term investments with the fixed-rate interest
expense on its long-term debt. The Company also enters into interest rate
swap, swaption, and option transactions in order to extend the effective
duration of a portion of its cash, cash equivalent, and short-term
investment portfolios. These swaps may extend the Company's cash investment
horizon up to a maximum effective duration of three years.
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 non hedge portfolios, the Company continually monitors
its foreign exchange forward and option positions, and its interest rate
swap, swaption, and option positions on a stand-alone basis and in
conjunction with its underlying foreign currency- and interest rate-
related exposures, respectively, from both an accounting and an economic
perspective. However, given the effective horizons of the Company's risk
management activities, there can be no assurance that the aforementioned
programs will offset more than a portion of the adverse financial impact
resulting from unfavorable movements in either foreign exchange or interest
rates. In addition, the timing of the accounting for recognition of gains
and losses related to marked-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.
Inventory and Supply
The Company's products include certain components, such as specific
microprocessors manufactured by Motorola, Inc., that are currently
available only from single sources. Any availability limitations,
interruptions in supplies, or price increases of these and other components
could adversely affect the Company's business and financial results.
Continued growth in the personal computer industry may create demand for
certain components that exceeds the present manufacturing capacity of
component suppliers. If the Company cannot obtain an adequate supply of
either custom-made or commonly-used components due to competitive factors
in the personal computer industry, the Company's future operating results
and financial condition may be adversely affected by product constraints
and increased costs. The Company's future operating results and financial
condition may also be adversely affected by the Company's ability to manage
inventory levels and lead times required to obtain components in order to
be more responsive to short-term shifts in customer demand patterns. In
addition, if anticipated unit sales growth for new and current product
offerings is not realized, inventory valuation reserves may be necessary
that would adversely affect the Company's results of operations and
financial condition.
Marketing and Distribution
A number of uncertainties exist regarding the marketing and distribution of
the Company's products. Currently, the Company's primary means of
distribution is through third-party computer resellers. However, in
response to changing industry practices and customer preferences, the
Company is continuing its expansion into various consumer channels, such as
mass-merchandise stores (for example, Sears and Wal-Mart), consumer
electronics outlets, and computer superstores. The Company's business and
financial results could be adversely affected if the financial condition of
these sellers weakens or if sellers within consumer channels decide not to
continue to distribute the Company's products.
Other Factors
The majority of the Company's research and development activities, its
corporate headquarters, and other critical business operations are located
near major seismic faults. The Company's operating results and financial
condition could be materially adversely affected in the event of a major
earthquake.
The Company plans to replace its current transaction systems (which include
order management, distribution, manufacturing, and finance) with a single
integrated system as part of its ongoing effort to increase operational
efficiency. The Company's future operating results and financial condition
could be adversely affected by its ability to implement and effectively
manage the transition to this new integrated system.
14
<PAGE>
In April 1995, the Company announced a company-wide 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.
Although the Company does not anticipate any downsizing as a result of the
organizational changes, the Company's future operating results and
financial condition could be adversely affected by its ability to
effectively manage the transition to this new organizational structure.
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
Six Months
1995
<TABLE>
<CAPTION>
<S> <C>
Cash, cash equivalents and short-term
investments, net of short-term
borrowings $ 1,359
Cash generated by operations $ 460
Cash used for investment activities,
excluding short-term investments $ 75
Cash generated by financing activities $ 343
The Company's financial position with respect to cash, cash equivalents and
short-term investments, net of short-term borrowings increased to $1,359
million at March 31, 1995 from $966 million at September 30, 1994. This
increase was primarily attributable to the Company's continued efforts to
increase profit levels and to manage working capital, particularly in the
areas of inventory and accounts receivable.
Cash generated by operations during the first six months of 1995 totaled
$460 million. Cash was generated primarily by higher sales levels related
to a shift in product mix towards higher-margin products which typically
have higher average selling prices.
Net cash used for the purchase of property, plant and equipment totaled
approximately $52 million during the first six months of 1995. These
purchases primarily included manufacturing machinery and equipment. The
Company anticipates that capital expenditures in 1995 will be relatively
consistent with 1994 expenditures of $160 million.
Short-term borrowings at March 31, 1995 were approximately $335 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 typically reflect borrowings
made under its commercial paper program and short-term uncommitted bid-line
arrangements with certain commercial banks. In particular, Apple Japan,
Inc., and Apple Computer BV, (Netherlands), wholly owned subsidiaries of
the Company, incurred short-term borrowings from several banks, totaling
approximately $457 million and $170 million, respectively, at March 31,
1995.
Long-term borrowings of $304 million at March 31, 1995 remained consistent
with the balance at September 30, 1994. Substantially the entire amount of
long-term borrowings represents $300 million aggregate principal amount of
6.5% unsecured notes issued under an omnibus shelf registration statement
filed with the Securities and Exchange Commission in 1994. This shelf
registration covers the
registration of debt and other securities for an aggregate offering price
of up to $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 Company expects that it will continue to incur short- and long-term
borrowings from time to time generally 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
15
<PAGE>
any related tax liability on amounts that may be repatriated.
The Internal Revenue Service has proposed federal income tax deficiencies
for the years 1984 through 1988, and the Company has made prepayments
thereon. The Company has contested these alleged deficiencies and is
pursuing administrative and judicial remedies. Management believes that
adequate provision has been made for any adjustments that may result from
these tax examinations.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to page 39 of the Company's 1994 Annual Report on Form 10-
K under the subheading "Litigation" for a discussion of certain litigation
involving Microsoft Corporation and Hewlett-Packard Company and 1993
Securities and State Court Shareholders Action Litigation.
In the case of Apple Computer, Inc. v. Microsoft Corporation and Hewlett-
Packard Company, 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 Corporation and
Hewlett-Packard is now final. The remaining outstanding matter in the case
is Microsoft's and Hewlett-Packard's requests for an award of their
attorneys' fees under the Copyright Act. The trial court has scheduled
preliminary proceedings on these requests, looking toward a hearing in July
1995 to resolve them.
With respect to the 1993 Securities and State Court Shareholders Action
Litigation, the Company announced on May 9, 1995, that all of the
complaints filed in those cases have been voluntarily dismissed by the
plaintiffs. No payment or consideration of any kind was paid by the
defendants, including the Company.
The Company continues to believe the pending suits cited above in which the
Company is a defendant, to be without merit and intends to vigorously
defend against these actions. The Company believes the resolution of all
of these matters will not have a material adverse effect on its financial
condition and results of operations as reported in the accompanying
financial statements. However, depending on the amount and timing of an
unfavorable resolution of these lawsuits, it is possible that the Company's
future results of operations or cash flows could be materially affected in
a particular period.
Item 4. Submission of Matters to a Vote of Security Holders
a) The annual meeting of shareholders was held on January 24, 1995.
b) The following directors were elected at the meeting to serve two-year
terms as Class I directors:
Gilbert F. Amelio
Joseph A. Graziano
B. Jurgen Hintz
Katherine M. Hudson
Michael H. Spindler
The following directors are continuing to serve their terms as Class II
directors which will expire at the next annual meeting.
Peter O. Crisp
Bernard Goldstein
Delano E. Lewis
A. C. Markkula, Jr.
16
<PAGE>
c) The matters voted upon at the meeting and results of the voting with
respect to those matters were as follows:
</TABLE>
<TABLE>
<CAPTION>
For Withheld
(1) Election of Class I
Directors:
<S> <C> <C> <C> <C> <C>
Gilbert F. Amelio 101,441,845 938,584
Joseph A. Graziano 101,765,074 615,355
B. Jurgen Hintz 101,961,508 418,921
Katherine M. Hudson 101,684,692 695,737
Michael H. Spindler 101,764,683 615,746
Broker
For Against Abstain Non-
Votes
(2) Ratification of 101,898,239 203,676 278,514 --
Ernst & Young
LLP as the
Company's
independent
auditors for
fiscal year
1995.
</TABLE>
The foregoing matters are described in detail in the Registrant's
definitive proxy statement dated December 12, 1994, for the Annual Meeting
of Shareholders held on January 24, 1995.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
10.A.20 Separation Agreement dated April 19,1995, between
the Registrant and Ian Diery.
11 Computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLE COMPUTER, INC.
(Registrant)
DATE: May 15, 1995 BY /s/ Joseph A. Graziano
Joseph A. Graziano
Executive Vice President and
Chief Financial Officer
18
<PAGE>
APPLE COMPUTER, INC.
INDEX TO EXHIBITS
Exhibit Description Page Number
Index
10.A.20 Separation Agreement dated April 19,
1995, between the Registrant and Ian 20
Diery.
11 Computation of per Share Earnings 26
27 Financial Data Schedule 27
19
<PAGE>
EXHIBIT 10.A.20
Separation Agreement
In consideration of the mutual agreements set forth below, Ian Diery
("Diery") and Apple Computer, Inc. ("Apple") agree to the following terms
and conditions of this Separation Agreement (the "Agreement"):
1. Nature of Business. Apple is in the business of designing,
developing, producing, selling and marketing computer systems, related
products and services. The business practices of Apple and the market
conditions in which Apple operates change rapidly and these changes have
necessitated prompt changes in management, and/or managers'
responsibilities. These changes are needed from time to time in the high
level management positions such as those for which Diery has been employed.
2. Resignation from Office. Employee hereby resigns from his
position as Executive Vice President and General Manager, Personal Computer
Division, effective as the date of this Agreement. Diery hereby resigns
from all other positions he holds on behalf of Apple, its subsidiaries and
affiliates, which positions are set forth at Exhibit A hereto. Diery
agrees to sign all appropriate documentation prepared by Apple to
facilitate these resignations.
3. Employment Status/Termination. Subject to paragraph 11 below,
from the date of this Agreement through October 15, 1995 ("Termination
Date") or such earlier date as a result of an event under paragraph 11,
Diery will continue to devote his best efforts to Apple and will remain an
employee of and fiduciary to Apple reporting to Edward B. Stead. Until
Termination Date, Diery shall continue to receive his regular salary,
participate in the Apple's FY '95 Senior/Executive Incentive Bonus Plan
("Bonus Plan") and receive medical insurance benefits and agrees that he
will use his accrued vacation and sabbatical before Termination Date.
Apple will designate Diery as a participant in Apple's Executive Severance
Plan ("Plan") on or about August 15, 1995, or such earlier date as
determined between the parties, and Diery will become eligible to receive
the appropriate compensation and benefits under that Plan.
4. Compensation and Benefits Upon Termination. Subject to paragraph
11 below, at Termination Date, Apple will pay the following:
a. Severance Payments. Under the Plan, on Termination Date as
defined above, Diery is eligible to receive a lump sum severance payment
equal to 7 months' pay and a proration of his FY '96 bonus, less
deductions. Subject to paragraph 11 below, Apple will pay Diery eight
hundred eighty seven thousand, four hundred eighty-five thousand dollars
($887,485), less deductions, in full satisfaction of all Apple's
obligations under the Plan, Bonus Plan and otherwise. Diery shall be paid
on or about Termination Date and such payment constitutes full compensation
under the Plan , Bonus Plan and otherwise. There shall be no other
payments to Diery except as stated in this paragraph 4(a) and in paragraph
3 above and the amount of such payments shall be subject to paragraph 11.
b. Satisfaction of Repayment Obligations. At Termination Date,
Diery shall have satisfied any and all repayment obligations to Apple
including specifically his obligation to satisfy his promissory note to
Apple relating to a down payment loan. A copy of the promissory note date
December 6, 1989 is attached hereto as Exhibit B. Diery and Apple agree
that the principal and interest due and owing as of October 15, 1995 is two
hundred sixty-one thousand, seven hundred ninety dollar and seventy-one
cents ($261,790.71). If this amount (or adjusted amount in the event
Diery's Termination Date is prior to October 15, 1995) remains unpaid on
Termination Date, Diery agrees that the entire sum may be withheld from the
amounts otherwise payable to him under this Agreement.
c. Stock Options. The Board or Apple's Stock Option Committee
(the "Committee") previously granted Diery options to purchase shares of
Apple Common Stock under Apple's 1981 and 1990 Stock Option Plans (the
"1981 and 1990 Plans") and options to purchase shares of stock under
Apple's 1987 Executive Long Term Stock Option Plan ("ELTSOP"). Such
options shall continue to vest and be exercisable in accordance with the
terms of the grant agreement issued to Diery with respect to such grants,
and the terms of the 1981 and 1990 Stock Option Plans and the ELTSOP
administered by the Board or the Committee.
20
<PAGE>
d. Receipt of Documentation. Diery acknowledges that he has
previously received from Apple copies of pertinent portions of Apple's
Senior/ Executive Bonus Program, the 1981 and 1990 Stock Option Plans,
Apple's ELTSOP, the Vacation and Holiday Policies, and Apple's Benefit
Plans relating to health care, life insurance, accidental death and
disability, short and long term disability and Savings Plans. Diery
understands and agrees to be bound by the written terms and conditions of
these various plans, policies or programs, and agrees that Apple has
reserved the right and option, in its sole discretion, to change,
interpret, modify or terminate these and all other plans, policies or
programs at any time without Diery's consent.
e. No Other Benefits. Diery will not be entitled to receive
any other compensation, bonus or benefits provided by, through or on behalf
of Apple, its affiliates or subsidiaries, other than benefits that are
vested as of the date of this Agreement and that are payable in accordance
with the terms of any applicable Benefit Plan, or otherwise provided for
herein.
5. Confidentiality. The terms of this Agreement are confidential.
Neither Diery nor Apple will at any time disclose to any third party the
fact or terms of this Agreement, except as authorized by this agreement or
as required by law. Diery may also make such disclosure to his spouse, tax
advisor or lawyer, all of whom shall be instructed to keep the information
disclosed to them confidential; any disclosure by any such party shall be
deemed a disclosure by Diery. Apple and Diery shall not disparage each
other in their communications in response to all inquiries from the press,
public media or any other third parties regarding this Agreement or Diery's
employment termination.
6. Trade Secrets, Proprietary and Confidential Information. Diery
agrees to comply with Apple's "Proprietary Rights and Information
Agreement" which is attached hereto as Exhibit C to this Agreement
In addition, Diery agrees to continue to abide by the principles and
guidelines in Apple's Global Ethics brochure, the terms of which are
incorporated herein.
On or before Termination Date, Diery agrees to promptly return all
proprietary and confidential information, including but not limited to all
inventions, discoveries, improvements, computer programs, designs,
documentation, notes, plans, drawings and copies thereof to Apple.
Diery and Apple agree that this section regarding Trade Secrets,
Proprietary and Confidential Information shall survive the termination of
this Agreement.
7. Fiduciary Duties/Non-Competition/Non-Solicitation. Diery further
recognizes that Apple's work force constitutes an important and vital
aspect of its business. Diery agrees, therefore, that both during his
employment with Apple,and for a period of six months following
Termination Date, he shall notsolicit, or assist others to become employed
by any firm, company or other business enterprise. Diery further
represents that he has no time prior to this Agreement solicited or
encouraged any employee to leave Apple.
Diery will retain his fiduciary responsibilities to Apple to the
extent provided by law. For six months following Termination Date, Diery
will not, without the prior express written consent of Apple, compete with
Apple by engaging in or assisting others to develop or market products or
services that are in competition with Apple products or services. Diery's
agreement not to compete is limited to the states of California and New
York only.
Diery and Apple also agree, that upon a breach or violation or
threatened breach or violation of any confidentiality, trade secrets, non-
competition or non-solicitation agreement by Diery contained herein, or if
any provision of Sections 5, 6, or 7 of this Agreement, Apple, in addition
to all other remedies which might be available to it, shall be entitled as
a matter of right to equitable relief in any court of competent
jurisdiction, including the right to obtain injunctive relief or specific
performance. Diery and Apple agree that the remedies at law for any such
breach or violation are not fully adequate and that the injuries to Apple
as a result of the continuation of any breach or violation are incapable of
full calculation in monetary terms and therefore constitute irreparable
harm. This paragraph 7 shall survive the termination of this Agreement.
21
<PAGE>
8. Indemnification. All rights of indemnification previously
provided by Apple to Diery by Apple's By-Laws and/or by the Indemnification
Agreement dated October 16, 1989, shall continue in full force and effect
in accordance with their terms, following the date of this Agreement. A
copy of Diery's Indemnification Agreement is attached hereto as Exhibit D
to this Agreement.
9. Successors. Apple will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Apple to expressly
assume and agree to perform this Agreement in the manner and to the same
extent that Apple would be required to perform it if no such succession had
taken place. Failure of Apple to obtain such assumption and agreement
prior to the effectiveness of any such succession shall entitle Diery to
the benefits listed in paragraph 4 of this Agreement, subject to the terms
and conditions therein.
10. Governing Law. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the laws of the State of
California without regard to its choice of law principles.
11. Entire Agreement. This Agreement, and Exhibits A, B, C and D to
this Agreement, set forth the entire Agreement and understanding between
Diery and Apple, and supersede any other negotiations, agreements,
understandings, oral agreements, representations or past or future
practices, whether written or oral, by Apple. This Agreement may be
amended only by written agreement, signed by the parties to be bound by the
amendment. Parol evidence will be inadmissible to show agreement by and
between the parties to any term or condition contrary to or in addition to
the terms and conditions contained in this Agreement.
Each Apple plan or policy referred to herein directly or by
implication (except the 1981 and 1990 Stock Option Plans and the ELTSOP) is
incorporated herein only insofar as it does not contradict this Agreement.
If any inconsistencies exist between this Agreement and any such plan or
policy, this Agreement shall control. If any inconsistencies exist between
this Agreement and any such plan or policy, this Agreement and the 1981 and
1990 Stock Option Plans or the ELTSOP, those stock plans shall control.
Nothing in any such plan, policy, or this Agreement shall change the
At Will nature of Diery's employment under this Agreement and under his
employment agreement dated September 15, 1989, by which either party can
terminate Diery's employment without regard to cause. Diery understands
and agrees that Apple is obligated to make the payments outlined in
paragraph 3 and 4 of this Agreement in the event Diery's employment
terminates before Termination Date for any reason other than:
a. by Apple for "Business Reasons" as defined below;
b. by Diery for any reason, except if Diery's employment is
terminated for any material breach by Apple of this Agreement. In this
event, Diery will be entitled to the payments outlined in paragraph 3 and 4
adjusted according to the actual, accelerated Termination Date and
offsetting any payments made to him prior to the actual, accelerated
Termination Date;
For purposes of this Agreement only, "Business Reasons" shall mean that you
are terminated for the following reasons:
(i) you have engaged in unfair competition with Apple; or
(ii) you have induced any customer of Apple to breach any
contract with Apple;
(iii) you have made any unauthorized disclosure of or
otherwise misused any of the secrets or confidential information of Apple;
(iv) you have committed any act of embezzlement, fraud or
theft with respect to any Apple property;
(v) you have violated any Apple policy or guideline or the
terms of this Agreement;
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(vi) you have caused material loss, damage or injury to or
otherwise endangered the property, reputation or employees of Apple;
(vii) you have engaged in malfeasance, negligence or
misconduct, or failed to perform reasonable duties and responsibilities
consistent with your fiduciary duties and responsibilities to Apple; or
(viii) you have failed to act in accordance with
specific, reasonable and lawful instructions from Apple's
Chief Executive Officer, or his delegate.
12. Right to Advice of Counsel. Diery understands that he has the
right to have this Agreement reviewed by his lawyer and acknowledges that
Apple has encouraged him to consult with his lawyer so that he is fully
aware of his rights and obligations under this Agreement. Diery
acknowledges that he has done so.
13. Modification. This Agreement may not be amended, modified,
changed or discharged in any respect except as agreed in writing and signed
by Diery and the Chief Executive Officer of Apple Computer, Inc.
14. Severability and Interpretation. In the event that any provision
or any portion of this Agreement is held invalid or unenforceable by a
court of competent jurisdiction, such provision or portion thereof shall be
considered separate and apart from the remainder of this Agreement and the
other provisions shall remain fully valid and enforceable, provided that,
if paragraphs 5, 6, 7, 19 and 21 are held to be invalid or unenforceable in
response to a motion, argument or other act by Diery, then Apple, at its
sole discretion, may rescind the Agreement and recover all consideration
paid to Diery under the Agreement.
15. Notices. All notices required by this Agreement shall by given
in writing either by personal delivery or by first class mail, return
receipt requested. Notices shall be addressed as follows:
To Apple: Apple Computer, Inc.
1 Infinite Loop, Mail Stop 38-I
Cupertino, California 95014
Attention: General Counsel
To Diery : 4175 Woodside Road
Woodside, California 94062
or in each case to such other address as Diery or Apple shall notify the
other. Notice given by mail shall be deemed given five (5) days following
the date of mailing.
16. Miscellaneous. The rights and obligations of Apple under this
Agreement shall inure to the benefit of and shall be binding upon the
present and future subsidiaries of Apple, any and all subsidiaries of a
subsidiary, all affiliated corporations, and successors and assigns of
Apple. No assignment of this Agreement by Apple will relieve Apple of its
obligations. Diery shall not assign any of his rights and/or obligations
under this Agreement and any such attempted assignment will be void. This
Agreement shall be binding upon Diery heirs, executors, administrators, or
other legal representatives and their legal assigns.
17. Damage Limitation. At Termination Date, Diery shall not be
entitled to recover any compensation, benefits or damages except as
specifically described in this Agreement. This damage waiver provides that
no damages (including without limitation, special, consequential, general,
liquidated or punitive damages) shall be sought or due from Apple.
18. Waiver. A waiver by either party of any of the terms or
conditions of this Agreement in any instance shall not be deemed or
construed to be a waiver of such term or condition for the future, or of
any subsequent breach thereof. All remedies, rights, undertakings,
obligations, and agreements contained in this Agreement shall be cumulative
and none of them shall be in limitation of any other remedy, right,
undertaking, obligation or agreement of either party.
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19. Release. Diery hereby completely releases and forever discharges
Michael Spindler, Apple, its officers, directors, agents, employees,
attorneys, insurers, subsidiaries and affiliates ("Apple Parties") from,
and covenants not to sue any Apple Party with respect to, all claims,
rights, demands, actions, obligations, debts, sums of money, damages
(including but not limited to general, special, punitive, liquidated and
compensatory damages) and causes of action of every kind, nature and
character, known and unknown, in law or equity, connected with Diery's
employment relationship with the Apple Parties, or any other act or
omission of any Apple Party which may have occurred prior to the date this
Agreement is signed. Diery further agrees that by his acceptance and
negotiation of the payment provided for in paragraph (4) of this Agreement,
he thereby completely releases and forever discharges the Apple Parties
from, and covenants not to sue any Apple Party with respect to, all claims,
rights, demands, actions, obligations, debts, sums of money, damages
(including but not limited to general, special, punitive, liquidated and
compensatory damages) and causes of action of every kind, nature and
character, known and unknown, in law or equity, connected with Diery's
employment relationship with the Apple Parties, or the termination of such
relationship, or any other act or omission of any Apple Party which may
have occurred prior to Termination Date. This release and discharge
includes, but is not limited to, all "wrongful discharge" claims; all
claims relating to any contracts of employment express or implied; any
covenant of good faith and fair dealing express or implied; any tort of any
nature: any federal, state, or municipal statute or ordinance; any claims
under the California Fair Employment and Housing Act, Title VII of the
Civil Rights Act of 1964, 42 U.S.C. Section 1981, and any other laws and
regulations relating to employment discrimination and any and all claims
for attorney's fees and costs. Diery specifically acknowledges that the
foregoing release includes a complete release and discharge of all Apple
Parties from any and all claims, damages of any kind, and claims for
attorneys fees and costs, under the Age Discrimination in Employment Act of
1967 ("ADEA") as amended by the Older Worker Benefit Protection Act
("OWBPA"). Diery and Apple agree that part of the consideration payable to
Diery under this Agreement is consideration that Diery would not otherwise
be entitled to and is in consideration for Diery's release of claims under
the ADEA as amended by the OWBPA.
Diery acknowledges that he understands the protections provided by the
OWBPA and that the provisions of the OWBPA have been met by the terms of
this Agreement. Diery states that he knowingly and voluntarily enters into
this Agreement. Diery acknowledges that this Agreement is written in a
manner calculated to be understood by him. Diery further acknowledges that
this Agreement refers without limitation to rights under the Age
Discrimination in Employment Act. Diery understands that by this
Agreement, he does not waive rights or claims that may arise after the date
the Agreement is executed. Diery acknowledges that he is entering this
Agreement in exchange for consideration in addition to anything of value to
which he already is entitled due to his employment with Apple. Further,
Diery acknowledges that this release of claims under the OWBPA is not
requested in connection with an exit incentive program or other employment
termination program offered to a group or class of employees within the
meaning of OWBPA. Diery acknowledges that he has been allowed up to 21
(twenty-one) days from the date that he received this Agreement to accept
its terms. Diery acknowledges he has consulted with an attorney about the
Agreement. Diery acknowledges that after he signs the Agreement, he will
then be given seven (7) days following the date on which he signs the
Agreement to revoke it and that this Agreement will only become effective
after this seven (7) day period has lapsed. Any such revocation must be in
writing signed by Diery and immediately delivered to Apple's General
Counsel.
Diery has read and expressly waives Section 1542 of the California
Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
This waiver is not a mere recital, but is a known waiver of rights and
benefits. This is a bargained-for provision of this Agreement and is
further consideration for the covenants and conditions contained herein.
The Apple Parties hereby release and forever discharge Diery, his
agents and attorneys from, and covenant not to sue Diery, his agents and
attorneys with respect to, all claims, rights, demands, actions,
obligations, debts, sums of money, damages, and causes of action ("claims")
arising from his employment relationship with Apple to the extent permitted
by law and public policy, except for any claims arising from any
intentional acts of misconduct, or any other act taken in bad faith or
without a reasonable belief that it was in the best interests of the Apple
Parties.
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20. Cooperation. Diery agrees that at all times he will make himself
available, for such amounts of time as Apple's General Counsel shall
reasonably deem necessary, to participate in the conduct of and preparation
for any pending or future litigation to which Apple is a party and in which
his experience or knowledge may be relevant. Diery shall be reimbursed for
reasonable travel and out-of-pocket expenses incurred by virtue of his
cooperation as described in this paragraph. In no respect shall this
provision be deemed to pertain to or affect the nature or substance of
Diery testimony at deposition or trial or in any other truthful testimony
at deposition or trial or in any other circumstances.
21. Remedies in Event of Future Dispute.
a. Except as provided in subparagraph (b) below, in the event
of any future dispute, controversy or claim between the parties arising
from or relating to this Agreement, its breach, any matter addressed by
this Agreement, and/or Diery's employment with Apple through Termination
Date, the parties will first attempt to resolve the dispute through
confidential mediation to be conducted in San Francisco by a member of the
firm of Gregoria, Haldeman & Piazza, Mediated Negotiations, 625 Market
Street, Suite 400, San Francisco, California 94105. If the parties'
dispute is not resolved through mediation, it will be resolved through
binding confidential arbitration to be conducted by the American
Arbitration Association in San Francisco, pursuant to its Commercial
Arbitration Rules, and judgment upon the award rendered by the
Arbitrator(s) may be entered by any court having jurisdiction of the
matter. The prevailing party in such arbitration shall be entitled to
recover from the losing party, not only the amount of any judgment awarded
in its favor, but also any and all costs and expenses, incurred in
arbitrating the dispute or in preparing for such arbitration.
b. In the event that a dispute arises concerning compliance
with this Agreement, either party will be entitled to obtain from a court
with jurisdiction over the parties preliminary and permanent injunctive
relief to enjoin or restrict the other party from such breach or to enjoin
or restrict a third party from inducing any such breach, and other
appropriate relief, including money damages. In seeking any such relief,
however, the moving party will retain the right to have any remaining
portion of the controversy resolved by binding confidential arbitration in
accordance with subparagraph (a) above.
By signing the below, the parties agree to the terms hereof, including
the Exhibits hereto, and agree that this document, and Exhibits A, B, C,
and D hereto, sets forth their entire agreement.
APPLE COMPUTER, INC.
By
Date Edward B. Stead
Vice President and General Counsel
Apple Computer, Inc.
I have read, understand, and agree to the foregoing:
Date Ian Diery
APPROVED AS TO FORM:
By
Date Attorney for Ian Diery
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EXHIBIT 11
APPLE COMPUTER, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Earnings
Net income applicable $ 72,917 $ 17,404 $ 261,103 $ 57,422
to common stock
Shares
Weighted average number
of common shares
outstanding 120,860 117,591 120,333 116,929
Adjustment for dilutive
effect of outstanding stock 1,784 1,353 1,789 1,021
options
Weighted average number of
common and common equivalent
shares used for primary
earnings per share 122,644 118,944 122,122 117,950
Primary earnings per $ 0.59 $ 0.15 $ 2.14 $ 0.49
common share
Fully Diluted Earnings Per
Share
Earnings
Net income applicable $ 72,917 $ 17,404 $261,103 $ 57,422
to common stock
Shares
Weighted average number
of common shares 120,860 117,591 120,333 116,929
outstanding
Adjustment for dilutive
effect of outstanding
stock options 1,788 1,365 1,819 1,059
Weighted average number of
common and common equivalent
shares used for fully diluted
earnings per share 122,648 118,956 122,152 117,988
Fully diluted earnings per
common share $ 0.59 $ 0.15 $ 2.14 $ 0.49
</TABLE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME OF
APPLE COMPUTER, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,375
<SECURITIES> 611
<RECEIVABLES> 1,730
<ALLOWANCES> 97
<INVENTORY> 984
<CURRENT-ASSETS> 5,161
<PP&E> 1,454
<DEPRECIATION> 791
<TOTAL-ASSETS> 6,050
<CURRENT-LIABILITIES> 2,243
<BONDS> 304
<COMMON> 339
0
0
<OTHER-SE> 2,375
<TOTAL-LIABILITY-AND-EQUITY> 6,050
<SALES> 5,484
<TOTAL-REVENUES> 5,484
<CGS> 3,975
<TOTAL-COSTS> 3,975
<OTHER-EXPENSES> 1,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 415
<INCOME-TAX> 154
<INCOME-CONTINUING> 261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.14
<PAGE>
</TABLE>
