______________________________________________________________________________
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 27, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-10030
APPLE COMPUTER, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA[State or other jurisdiction 94-2404110
of incorporation or organization] [I.R.S. Employer
Identification No.]
1 Infinite Loop
Cupertino California, 95014
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $2,941,155,709 as of November 29, 1996,
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.
124,552,511 shares of Common Stock Issued and Outstanding as of
November 29, 1996
DOCUMENTS INCORPORATED BY REFERENCE,
Portions of the definitive Proxy Statement dated December 1996 (the
"Proxy Statement"), to be delivered to shareholders in connection with the
Annual Meeting of Shareholders to be held February 5, 1997, are
incorporated by reference into Parts I and III.
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PART I
Item 1. Business
General
Apple Computer, Inc. ("Apple" or the "Company") was incorporated under
the laws of the State of California on January 3, 1977. The Company's
principal executive offices are located at 1 Infinite Loop, Cupertino,
California, 95014 and its telephone number is (408) 996-1010.
The Company designs, manufactures and markets microprocessor-based
personal computers and related personal computing and communicating
solutions for sale primarily to education, home, business 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.
During 1996, the Company began to implement certain restructuring
actions aimed at reducing its cost structure, improving its competitiveness,
and restoring sustained profitibility. The Company's restructuring actions
have included the termination of employees, as well as the sale of the
Company's Fountain, Colorado, manufacturing facility to SCI Systems,
Inc. ("SCI"). As part of the terms of this sale, the Company is committed
to purchase product manufactured by SCI in the future. Further
information regarding the above may be found in Part II, Item 7 of this
Annual Report on Form 10-K (the "Form 10-K") under the subheadings
"Restructuring of Operations" and "Inventory and Supply" included under
the heading "Factors That May Affect Future Results and Financial
Condition," and in Part II, Item 8 on this Form 10-K in the Notes to
Consolidated Financial Statements under the heading "Restructuring of
Operations," under the subheading "Concentrations in the Available
Sources of Supply of Materials and Product" included under the heading
"Concentrations of Risk," and under the subheading "Purchase
Commitment" included under the heading "Commitments and
Contingencies," which information is hereby incorporated by reference.
Principal 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.
The Company offers a wide range of personal computing products,
including personal computers, related peripherals, software, and
networking and connectivity products.
All of the Company's Macintosh products include the PowerPC(trademark)
RISC-based microprocessor. The Company also offers computer products
capable of running application software designed for the MS-DOS or
Windows operating systems ("Cross Platform Products"). These products
include the RISC-based PowerPC microprocessor and either include the
Pentium or 586-class microprocessor or can accommodate an add-on card
containing a Pentium or 586-class microprocessor. These products enable
users to run concurrently applications that require the Mac OS, MS-DOS,
Windows 3.1, or Windows 95 operating systems.
Power Macintosh
The Power Macintosh high-performance family of personal computers is
targeted at business, academic 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.
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Macintosh Performa
The Performa family of personal computers is designed to appeal primarily
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.
Macintosh PowerBook
The PowerBook family of portable computer products is specifically
designed for mobile computing needs. All PowerBook personal computers
include 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, a range of color
monitors, and the QuickTake(registered trademark) 150 digital camera.
MessagePad and Related Products
The Apple MessagePad(registered trademark) 130 communications assistant
integrates Newton(registered trademark) technology in a hand-held mobile
computer that intelligently assists the user in capturing, organizing and
communicating information. The Apple MessagePad 2000 includes additional
built-in applications and a faster processor as compared to the Apple
MessagePad 130. The Apple eMate 300 integrates Newton technology in a mobile
computer and includes built-in applications. The product allows students to
perform preliminary work on the eMate 300 and enhance it on either an existing
Mac OS or Windows software-based desktop computer. The eMate 300
allows students to enter data by keyboard or stylus and also share data and
files with each other, send and receive e-mail, and access the Internet. The
Company plans to begin selling the Apple MessagePad 2000 and the
Apple eMate 300 in early calendar 1997.
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 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(registered
trademark) products are distributed primarily through independent software
resellers.
Servers
The Workgroup and Network Server families of products provide file,
print, Internet, and application services, to varying size workgroups.
These products also provide Apple system connectivity to local area
networks, and interoperability with other computers and computing
environments.
Internet Products
Apple's Internet strategy is focused on delivering seamless integration with
and access to the Internet throughout the Company's product line and
developing and supporting "open" standards for the Internet. The
Company has a number of Internet products currently available. The
Apple Internet Connection Kit is a collection of Apple and third-party
software which enables the user to connect directly to the Internet. The
Company has recently introduced Cyberdog(registered trademark), a set of tools
which enables the user to customize the way they access and view Internet
content. The Apple Internet Server Solution consists of a workgroup server
and both Apple and third-party software which enable the users to establish a
presence on the World Wide Web.
Further information regarding the Company's products 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.
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Markets and Distribution
The Company's customers are primarily in the education, home, business
and government markets. Certain customers are attracted to the Macintosh
for a variety of reasons, including the availability of a wide variety of
certain 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 1970s. 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.
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 North and South America.
Products sold in these regions are primarily manufactured in the
Company's facilities in California and Singapore, and in the SCI facility in
Colorado, and are distributed from the Company's facility in California and
from a third-party facility in Illinois.
Approximately 46% to 52% of the Company's revenues in recent years has
come from its international operations. The Company's international sales
and marketing divisions consist of: Apple Americas; Apple Europe,
Middle East and Africa ("Apple EMEA"); Apple Japan; and Apple Asia
Pacific (which does not include Japan). The marketing divisions focus on
opportunities in their regions. Products sold by Apple EMEA are
manufactured primarily in the Company's facility in Cork, Ireland.
Products sold by Apple Americas, Apple Japan, and Apple Asia Pacific are
manufactured primarily in the Company's facilities in California and
Singapore, and in the SCI facility in Colorado.
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 and third-
party 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 Notes
to Consolidated Financial Statements under the heading "Industry Segment
and Geographic Information," which information is hereby incorporated by
reference.
Raw materials
Although certain 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, there may be initial capacity constraints until such time as
the suppliers' yields have matured. 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 component to the Company were to
be delayed or curtailed, the Company's ability to ship the related product
utilizing that component in desired quantities and in a timely manner could
be adversely affected. The Company's business and financial performance
could also be adversely affected, depending on the time required to obtain
sufficient quantities from the original source, or to identify and obtain
sufficient quantities from an alternate source. The Company believes that
the suppliers whose loss to the Company could have a material adverse
effect upon the Company's business and financial position include, at this
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time: Canon, Inc., General Electric Co., IBM, Motorola, Inc., Sharp
Corporation, Sony Corporation, Texas Instruments, Inc., and/or their United
States affiliates VLSI Technology, Inc., Quanta Computer, Inc., Quantum
Corporation, and SCI. However, the Company helps mitigate these potential risks
by working closely with these and other key suppliers on product introduction
plans, strategic inventories, coordinated product introductions, and
manufacturing schedules and levels. 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 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 is obligated to purchase certain percentages of its total
annual volumes of CPUs and logic boards from SCI over each of the next
three years (see Exhibit 10.B.14 hereto). In addition, 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 and
product 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," and in Part II,
Item 8 on this Form 10-K in the Notes to Consolidated Financial
Statements under the subheading "Concentrations in the Available Sources
of Supply of Materials and Product" included under the heading
"Concentrations of Risk," and under the subheading "Purchase
Commitment" included under the heading "Commitments and
Contingencies," 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, Claris 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.
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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.
Significant Customers
No customer accounted for more than 10% of the Company's net sales in
1996, 1995, and 1994.
Backlog
In general, the Company's resellers 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 of unfilled orders decreased to
approximately $563 million at November 29, 1996 from $618 million at
December 1, 1995. The Company's backlog at November 29, 1996
consisted primarily of the Company's PowerBook products, as well as
higher-end Power Macintosh products. The Company expects that
substantially all of its orders in backlog at November 29, 1996 will be
either shipped or canceled during fiscal 1997.
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. 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 "Net Sales"
included under the heading "Results of Operations," and 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,
MessagePad and related products, 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," and in Part II, Item 8 on
this Form 10-K in the Notes to Consolidated Financial Statements under
the subheading "Reserves Against Inventories" under the heading
"Accounting Estimates," which information is hereby incorporated by
reference.
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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, networking and
communications, and the Internet. The Company's research and
development expenditures totaled $604 million, $614 million, and $564
million in fiscal years 1996, 1995, and 1994, respectively.
Further information regarding the Company's R&D expenditures for fiscal
year 1996 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 27, 1996, Apple and its subsidiaries worldwide had 10,896
regular employees, and an additional 2,502 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.
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 Sacramento, California, Cork,
Ireland, and Singapore. As of September 27, 1996, the Company leased
approximately 4.1 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 Cork, Ireland, and
Singapore, which total approximately 781,000 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, which approximates 856,000 square feet. Outside
the United States, the Company owns a facility in Apeldoorn, Netherlands,
which is used primarily for distribution, totaling approximately 265,000
square feet, and certain other international facilities, totaling
approximately 460,000 square feet.
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Certain facilities in Sacramento, California; Apeldoorn, Netherlands and
in the United Kingdom are currently being held for sale as part of the
Company's restructuring plan, which includes increasing the proportion of
the Company's products manufactured and distributed under outsourcing
arrangements. Further information regarding the Company's restructuring
plan, may be found in Part II, Item 7 of this Form 10-K under the
subheadings "Restructuring of Operations" and "Inventory and Supply"
included under the heading "Factors That May Affect Future Results and
Financial Condition," and in Part II, Item 8 on this Form 10-K in the Notes
to Consolidated Financial Statements under the heading "Restructuring of
Operations," under the subheading "Concentrations in the Available
Sources of Supply of Materials and Product" included under the heading
"Concentrations of Risk," and under the subheading "Purchase
Commitment" included under the heading "Commitments and
Contingencies," which information is hereby incorporated by reference.
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
even after the sale of the foregoing facilities. 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 subheading "Other Factors" included 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 27, 1996.
Executive Officers of the Registrant
The following sets forth certain information regarding the executive
officers of the Company as of December 5, 1996:
Gilbert F. Amelio*, Chairman and Chief Executive Officer (age 53). Dr.
Amelio joined the Company's Board of Directors in November 1994 and
was elected Chairman of the Board and Chief Executive Officer in
February 1996. From 1991 to February 1996, Dr. Amelio was President
and Chief Executive Officer of National Semicondutor Corporation, a
manufacturer of semiconductors. Previously, he served as president of
Rockwell Communications Systems, a subsidiary of Rockwell
International. He is currently a director of Pacific Telesis Group, a
communications and information services company.
Fred D. Anderson*, Executive Vice President and Chief Financial Officer
(age 52). Mr. Anderson joined the Company in April 1996 as Executive
Vice President and Chief Financial Officer. Prior to joining the Company,
Mr. Anderson was Corporate Vice President and Chief Financial Officer of
Automatic Data Processing, Inc. ("ADP"), a computing services company,
from August 1992 to March 1996. Prior to joining ADP, Mr. Anderson
held several domestic and international executive positions at MAI Basic
Four, Inc., including President and Chief Operating Officer.
Ellen M. Hancock, Executive Vice President and Chief Technology
Officer (age 53). Ms. Hancock joined the Company in July 1996 as
Executive Vice President, Research and Development and Chief
Technology Officer. From September 1995 to May 1996, she was
Executive Vice President, Chief Operating Officer of National
Semiconductor Corporation, a manufacturer of semiconductors. Prior to
her employment with National Semiconductor, she was Senior Vice
President and Group Executive of the Networking Hardware, Networking Software,
and Software Solutions divisions at International Business Machines ("IBM")
from 1993-1995.
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Marco Landi*, Executive Vice President and Chief Operating Officer
(age 53). 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, and in June 1996 was promoted to Executive Vice President and
Chief Operating Officer. 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.
George M. Scalise*, Executive Vice President and Chief Administrative
Officer (age 61). Mr. Scalise joined the Company in March 1996 as
Executive Vice President and Chief Administrative Officer. Prior to
joining the Company, Mr. Scalise was Executive Vice President and Chief
Administrative Officer at National Semiconductor Corporation.
Robert M. Calderoni, Senior Vice President, Finance and Operations
Controller (age 37). Mr. Calderoni joined the Company in July 1996 in his
present position. Previously, from February 1995 to July 1996, he was
Vice President, Finance, for Storage Systems at IBM, and from 1993 to
February 1995 was a Director of Finance at IBM. Prior to 1993 he held
various finance positions at IBM.
Satjiv Chahil, Senior Vice President, Worldwide Corporate Marketing
(age 46). Mr. Chahil joined the Company as Director of Marketing for
Apple Pacific in 1988. He subsequently served as Vice President , New
Media and Vice President, Entertainment Industry. In January 1996 Mr.
Chahil was named Senior Vice President, Corporate Marketing.
Therese Kreig Crane, Senior Vice President, Strategic Market Segments
(age 46). Dr. Crane joined the Company in 1985 as a business
development manager. She served in a variety of marketing positions until
1994, when she was named Vice President of K-12 Education Sales for the
Apple USA division. In 1995 she was promoted to Senior Vice President,
Education Market Division for Apple Americas. Dr. Crane was named
Senior Vice President, Strategic Market Segments in June 1996.
Guerrino De Luca, Senior Vice President, Apple Computer, Inc. and
President, Claris Corporation (age 44). Mr. DeLuca, who joined the
Company in 1989, was promoted to Vice President, Marketing, for Apple
Europe in 1992. He served as Vice President and General Manager of the
Personal Interactive Electronics Group for Apple Europe in 1993, and as
Vice President of Marketing and Sales for the Company's software
division in 1994. In 1995 he was named President of Claris Corporation, a
subsidiary of the Company that develops, manufactures and markets
software applications. Mr. De Luca was made a Senior Vice President of
the Company in 1996.
Michael L. Dionne, Senior Vice President and General Manager, Apple
Assist (age 47). Mr. Dionne, who joined the Company in 1983, was
promoted to Senior Vice President of U.S. Sales in July 1990. He was
named Vice President of Marketing Operations for the Apple USA
division in May 1993 and in June 1994, he was named Vice President of
Worldwide Communications and Marketing Services. Mr. Dionne was
promoted to Senior Vice President, Business Markets Division, Apple
Americas in January 1996, and was named Senior Vice President and
General Manager, Apple Assist in July 1996.
John Floisand*, Senior Vice President, Worldwide Sales (age 52). Mr.
Floisand joined the Company in May 1986, as Director of Sales, Apple
Computer, Ltd., United Kingdom. In October 1988, Mr. Floisand was
named Director of Sales Development, Customer Services and Operations,
Apple Pacific Division, and in February 1992 was promoted to Vice
President, Sales Development, Customer Services and Operations, Apple
Pacific Division. Mr. Floisand was named Vice President and President,
Apple Pacific in August 1992. In October 1994, Mr. Floisand was
promoted to Senior Vice President and President, Apple Pacific, and in
June 1996 was named Senior Vice President, Worldwide Sales.
G. Frederick Forsyth, Senior Vice President and General Manager,
Power Macintosh Products Group (age 52). 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. From June 1993 to June 1996, Mr. Forsyth served as
Senior Vice President, Worldwide Operations. He assumed his present
position in June 1996.
9
<PAGE>
James R. Groff, Senior Vice President and General Manager, Information
Appliance Products Division (age 44). Mr. Groff joined the Company in
1988 when Apple acquired Network Innovations Corporation, a networking software
company he co-founded in 1984. After the acquisition, Mr. Groff remained
President of that company. From 1993 to 1995 he was Vice President and
General Manager of the Apple Business Systems division. In 1995 he was named
Vice President of Worldwide Education for the Worldwide Marketing and
Customer Solutions division. After leaving the Company for a brief period
in 1996, he returned in June 1996 as Senior Vice President and General
Manager, Information Appliance Products Division.
Howard F. Lee, Senior Vice President and General Manager, Servers and
Alternate Platform Products Division (age 44). Mr. Lee joined the
Company in September 1994, as Vice President, Macintosh Systems, and
was named to his present position in June 1996. From 1991 to 1994, Mr.
Lee served as Vice President of Engineering, SPARC Technology, at Sun
Microsystems, Inc., a developer, manufacturer and marketer of computer
workstations.
Jane A. Risser, Vice President and Treasurer (age 45). Ms. Risser, who
joined the Company in 1986, was named to her present position in May
1996. From 1991 to May 1996, she held the position of Director of
Corporate Finance. She was previously the Director of Investor Relations.
Douglas S. Solomon, Vice President, Strategic Planning and Vice
President, Corporate Development (age 46). Dr. Solomon, who joined the
Company in 1983, was named Director, Corporate Development, in May
1992. In December 1995, he was promoted to Vice President, Corporate
Development, and in July 1996 to the additional position of Vice
President, Strategic Planning.
Patricia Sharp, Senior Vice President, Human Resources (age 52). Ms.
Sharp was promoted to her present position in December 1996. From July
1996 to December 1996, she served as Vice President, Human Resources,
for the Advanced Technology Group and from April 1995 to July 1996,
she was Senior Director, Human Resources, research and development.
Prior to that assignment, she held various managerial positions within the
Human Resources organization.
*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.
10
<PAGE>
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
<TABLE>
<CAPTION>
Five fiscal years
ended September
27, 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $9,833 $11,062 $ 9,189 $ 7,977 $ 7,086
Net income (loss) $(816) $ 424 $ 310 $ 87 $ 530
Earnings (loss)per
common and common
equivalent share $(6.59) $ 3.45 $ 2.61 $ 0.73 $ 4.33
Cash dividends declared
per common share $ 0.12 $ 0.48 $ 0.48 $ 0.48 $ 0.48
Common and common
equivalent shares used
in the calculations of
earnings(loss)per share
(in thousands) 123,734 123,047 118,735 119,125 122,490
Cash, cash equivalents,
and short-term
investments $1,745 $ 952 $ 1,258 $ 892 $ 1,436
Total assets $5,364 $ 6,231 $ 5,303 $ 5,171 $ 4,224
Long-term debt $ 949 $ 303 $ 305 $ 7 $ 18
Deferred tax
liabilities $ 354 $ 702 $ 671 $ 630 $ 611
</TABLE>
11
<PAGE>
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)
<TABLE>
<CAPTION>
Results of
Operations 1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Net sales $9,833 (11%) $11,062 20% $9,189
Gross margin $ 968 (66%) $ 2,858 22% $2,343
Percentage of
net sales 9.8% 25.8% 25.5%
Research and
development $ 604 (2%) $ 614 9% $ 564
Percentage of
net sales 6.1% 5.6% 6.1%
Selling, general and
administrative $1,568 (1%) $ 1,583 14% $1,384
Percentage of
net sales 15.9% 14.3% 15.1%
Restructuring
costs $ 179 NM $ (23) NM $ (127)
Percentage of
net sales 1.8% (0.2%) (1.4%)
Interest and other
income(expense),
net $ 88 NM $ (10) 55% $ (22)
Net income
(loss) $ (816)(292%) $ 424 37% $ 310
Earnings (loss)
per share $(6.59)(291%) $ 3.45 32% $ 2.61
</TABLE>
NM: Not Meaningful
Overview
During the last nine months of 1996, the Company experienced a
significant decline in net sales, units shipped, and share of the personal
computer market. This decline in demand and the resulting losses, coupled
with intense price competition throughout the industry, led to the
Company's decision to implement a new strategic direction intended to
improve the Company's competitiveness and restore its profitability. The
Company has initiated programs to develop and market products and
services more selectively targeted to education, home, and business
segments. In moving in this new strategic direction, the Company expects
to reduce the number of new product introductions and the number of
products in certain categories within its current product portfolio.
Net Sales
Net sales trended downward beginning in the second quarter of 1996,
decreasing $1,229 million, or 11%; $1,545 million, or 19%; and $682
million, or 23%; during the twelve, nine, and three months ended
September 27, 1996, respectively, compared with the same periods in
1995, due to a decrease in net sales of Macintosh(registered trademark)
computers and of peripheral products such as displays and printers. Total
Macintosh computer unit sales trended downward beginning in the second quarter
of 1996, decreasing 11%, 19%, and 26% during the twelve, nine, and three
months ended September 27, 1996, respectively, compared with the same
periods in 1995. This decline in unit sales was a result of a decline or lack
of growth in worldwide demand for all product families, which the
Company believes was due principally to customer concerns regarding the
Company's strategic direction, financial condition, and future prospects,
and due to delays in the shipment of certain PowerBook(registered trademark)
products as a result of quality problems. In addition, unit sales of
peripheral products trended downward beginning in the second quarter of 1996,
decreasing 20%, 24%, and 30% during the twelve, nine and three months ended
September 27, 1996, respectively, compared with the same periods in
1995, for the reasons noted above. The average aggregate revenue per
Macintosh unit increased slightly during the twelve and three months
ended September 27, 1996, and decreased slightly during the nine months
ended September 27, 1996, compared with the same periods in 1995,
primarily due to a continued shift in product mix toward the Company's
newer products and products with multimedia configurations, offset to
varying degrees by pricing actions across all product lines in order to
12
<PAGE>
stimulate demand. The average aggregate revenue per peripheral product was
flat during the twelve, nine, and three months ended September 27, 1996
compared with the same periods in 1995. The average revenue per Macintosh and
per peripheral unit will remain under significant downward pressure due to a
variety of factors, including industrywide pricing pressures and increased
competition.
International net sales represented 52% of net sales in 1996 compared with
48% of net sales in 1995. International net sales trended downward
beginning in the second quarter of 1996, decreasing 3%, 11% and 13%
during the twelve, nine, and three months ended September 27, 1996,
respectively, compared with the same periods in 1995. Net sales in
European markets trended downward beginning in the second quarter of
1996, decreasing during the twelve, nine, and three months ended
September 27, 1996 compared with the same periods in 1995, as a result of
a decrease in Macintosh and peripheral unit sales, partially offset by an
increase in the average aggregate revenue per Macintosh and per
peripheral unit, primarily during the first part of the year. Net sales in
Japan trended downward beginning in the second quarter of 1996,
decreasing during the twelve, nine, and three months ended September 27,
1996 compared with the same periods in 1995. An increase in Macintosh
unit sales during these periods was more than offset by a decrease in the
average aggregate revenue per Macintosh and per peripheral unit and a
decrease in peripheral unit sales. Domestic net sales trended downward
beginning in the second quarter of 1996, decreasing by 18%, 26%, and
30% for the twelve, nine, and three months ended September 27, 1996,
respectively, compared with the corresponding periods in 1995, resulting
from a decline or lack of growth in demand for all product families.
According to an industry source, in the fourth quarter of 1996 compared
with the fourth quarter of 1995, the Company's share of the worldwide and
U.S. personal computer markets declined to 5.4% from 8.7%, and to 7.3%
from 13.2%, respectively.
Net sales increased $1,873 million, or 20%, in 1995 over 1994, 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(registered trademark) products, which accounted for more than 70%
of total unit shipments during the fourth quarter of 1995, compared with 26%
in the comparable period of 1994, and from sales of newer product offerings
within the Performa(registered trademark) 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.
International net sales represented 48% of net sales in 1995 compared with
46% of net sales in 1994. International net sales grew 25% in 1995 from
1994, primarily reflecting strong net sales growth in the Pacific region,
particularly Japan. Domestic net sales increased 16% in 1995 over 1994.
In general, the Company's resellers 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
$563 million at November 29, 1996, and consisted primarily of the
Company's PowerBook products, as well as higher-end 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
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.
The Company believes that net sales will remain below the level of the
prior year's comparable periods through at least the first quarter of 1997, if
not later. In addition, there can be no assurance that the Company will be
able to achieve sales levels in the first quarter of 1997 comparable to the
levels achieved in the fourth quarter of 1996.
13
<PAGE>
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 decreased to 9.8% in 1996 compared with 25.8% in 1995.
This decrease is primarily the result of a $616 million charge in the second
quarter of 1996 for the write-down of certain inventory, as well as the
costs to cancel excess component orders, necessitated by significantly
lower than expected demand for many of the Company's products,
primarily its entry-level products. Also, the Company separately incurred
approximately $145 million in charges during the last nine months of 1996
to provide for the estimated costs to correct certain quality problems in
certain entry-level, Performa, PowerBook and peripheral products,
covering both goods held in inventory and shipped goods. The Company
also incurred greater warranty expenses per unit sold during 1996
compared with 1995. In addition, this decrease in gross margins is due to
the Company's response to extreme competitive actions by other
companies attempting to gain market share, including the Company's
pricing actions in the United States, Japan and Europe across most product
lines, which were partially offset by a decrease in the cost of certain
product components. In the first quarter of 1997, the Company took, and
the Company expects that it will continue to take, similar pricing actions
with respect to a number of product lines.
The decrease in gross margin levels was slightly offset by hedging gains,
net of the effects of a stronger U.S. dollar relative to certain foreign
currencies. The Company's operating and pricing strategies 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 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 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.
Although gross margin for 1996 was 9.8%, it improved to 22.0% during
the fourth quarter, primarily as a result of lower component costs, sales of
fully reserved product, and a shift in product mix toward the Company's
newer products and products with multimedia configurations, which tend
to have higher margins. There can be no assurance that the Company will
be able to sustain the gross margin level achieved in the fourth quarter.
Gross margins will remain under significant downward pressure due to a
variety of factors, including continued industrywide pricing pressures,
increased competition, and compressed product life cycles. Gross margins
could also be affected by the Company's ability to effectively manage
quality problems and warranty costs, and to stimulate demand for certain
of its products.
<TABLE>
<CAPTION>
Research and Development 1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Research and development $604 (2%) $614 9% $564
Percentage of net sales 6.1% 5.6% 6.1%
</TABLE>
Research and development expenditures decreased slightly in 1996 when
compared with 1995, primarily due to the termination of certain third-party
joint development efforts. The increase as a percentage of net sales
resulted from a decrease in the level of net sales. The increase in research
and development expenditures during 1995 compared with 1994 reflected
higher project- and headcount-related spending. The decrease as a
percentage of net sales was the result of revenue growth in 1995 over
1994.
14
<PAGE>
The Company believes that continued investments in research and
development are critical to its future growth and competitive position in
the marketplace and are directly related to continued, timely development
of new and enhanced products. The Company believes that research and
development expenditures in 1997 will be comparable to those in 1996.
<TABLE>
<CAPTION>
Selling, General and
Administrative 1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Selling, general
and administrative $1,568 (1%) $1,583 14% $1,384
Percentage of net sales 15.9% 14.3% 15.1%
</TABLE>
Selling, general and administrative expenses remained relatively flat, but
increased as a percentage of net sales, in 1996 compared with 1995. The
increase as a percentage of net sales in 1996 when compared with 1995
was the result of reduced net sales. In 1995, selling, general and
administrative expenses increased as a result of increased advertising and
channel marketing programs. The decrease as a percentage of net sales
was primarily the result of the sales growth in 1995 over 1994.
As a result of its restructuring plan, the Company expects that selling,
general and administrative expenditures in 1997 will decrease compared
with 1996 levels.
Restructuring Costs
For information regarding the Company's restructuring actions, refer to
page 39 of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Interest and Other
Income(Expense), Net 1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Interest and other
income(expense), net $ 88 NM $(10) 55% $(22)
</TABLE>
Interest and other income (expense), net, increased to $88 million in
income in 1996 from $10 million in expense in 1995. This $98 million
favorable change is primarily composed of a favorable variance of $78
million related to net realized and unrealized foreign exchange hedging
gains, and lower foreign exchange hedging costs, primarily as a result of
lower market and option volatility, higher U.S. interest rates compared
with rates abroad, and reduced foreign currency cash flows; an increase of
$73 million related to realized gains on the sale of most of the Company's
available-for-sale and other equity securities during 1996; offset by a $52
million unfavorable variance related to interest income (expense), as a
result of higher average debt balances and lower average cash balances
during the year, and an overall decline in average interest rate yields. In
addition, the Company's cost of funds has increased as a result of the
downgrading from January 1996 through May 1996 of its short-term debt
to NP and C by Moody's Investor Services and Standard and Poor's Rating
Agency, respectively, and of its long-term debt to B1 and B+ by Moody's
Investor Services and Standard and Poor's Rating Agency, respectively.
In 1995, interest and other income (expense), net, decreased to $10 million
in expense from $22 million in expense in 1994. This $12 million
favorable change was primarily composed of $49 million in interest
income (expense) 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 accounted for the increased
hedging costs.
For a summary of the Company's interest and other income (expense), net,
refer to page 37 of the Notes to Consolidated Financial Statements. For
more information regarding the Company's strategy and accounting for
financial instruments, refer to pages 33 - 36 of the Notes to Consolidated
Financial Statements. For more information regarding the Company's
notes payable to banks and long-term debt, refer to pages 36 - 37 of the
Notes to Consolidated Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
Provision (Benefit)
for Income Taxes 1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Provision (benefit)
for income taxes $(479) NM $250 32% $190
Effective tax rate 37% 37% 38%
</TABLE>
At September 27, 1996, the Company had deferred tax assets arising from
deductible temporary differences, tax losses, and tax credits of $487
million before being offset against certain deferred tax liabilities for
presentation on the Company's balance sheet. A substantial portion of this
asset is realizable based on the ability to offset existing deferred tax
liabilities. Realization of approximately $85 million of the asset is
dependent on the Company's ability to generate approximately $245
million of future U.S. taxable income. Management believes that it is
more likely than not that the asset will be realized based on forecasted U.S.
income. However, there can be no assurance that the Company will meet
its expectations of future U.S. income. As a result, the amount of the
deferred tax assets considered realizable could be reduced in the near and
long term if estimates of future taxable U.S. income are reduced. Such an
occurrence could materially adversely affect the Company's financial
results and condition. The Company will continue to evaluate the
realizability of the deferred tax assets quarterly by assessing the need for a
valuation allowance. For additional information regarding income taxes,
refer to pages 40 - 41 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. Potential risks and
uncertainties that could affect the Company's future operating results and
financial condition include, without limitation, continued competitive
pressures in the marketplace and the effect of any reaction by the
Company to such competitive pressures, including pricing actions by the
Company; the ability of the Company to make timely delivery to the
marketplace of successful technological innovations; the effects of
significant adverse publicity; the Company's ability to supply products in
certain categories; and uncertainties concerning the Company's ability to
successfully implement its new strategic direction and restructuring
actions.
The Company expects that it will not return to sustained profitability until
at least the second quarter of 1997, if not later.
Restructuring of Operations
During 1996, the Company began to implement certain restructuring
actions aimed at reducing its cost structure, improving its competitiveness,
and restoring sustained profitability. There are several risks inherent in the
Company's efforts to transition to a new cost structure. These include the
risk that the Company will not be able to reduce expenditures quickly
enough to restore sustained profitability and the risk that cost-cutting
initiatives will impair the Company's ability to innovate and remain
competitive in the computer industry.
As part of its restructuring effort, the Company has begun to implement a
new business model. Implementation of the new business model involves
several risks, including the risk that by simplifying its product line the
Company will increase its dependence on fewer products, potentially
reduce overall sales, and increase its reliance on unproven products and
technology. Another risk of the new business model is that by increasing
the proportion of the Company's products to be manufactured under
outsourcing arrangements, the Company could lose control of the quality
or quantity of the products manufactured, or lose the flexibility to make
timely changes in production schedules in order to respond to changing
market conditions. In addition, the new business model could adversely
affect employee morale, thereby damaging the Company's ability to retain
and motivate employees. Also, because the new business model contemplates that
the Company will rely to a greater extent on collaboration and licensing
arrangements with third parties, the Company will have less direct control
over certain of its research and development efforts, and its ability to create
innovative new products may be reduced. Finally, even if the new business model
is successfully implemented, there can be no assurance that it will effectively
resolve the various issues currently facing the Company. In addition,
although the Company believes that the actions it is taking under its
restructuring plan should help restore marketplace confidence in the
Macintosh platform, there can be no assurance that such actions will be
successful.
16
<PAGE>
For the foregoing reasons there can be no assurance that the current
restructuring actions will achieve their goals or that similar actions will not
be required in the future. The Company's future operating results and
financial condition could be adversely affected should it encounter
difficulty in effectively managing the transition to the new business model
and cost structure.
For more information regarding the Company's restructuring actions
initiated in the second quarter of 1996, refer to page 39 of the
Notes to Consolidated Financial Statements.
Product Introductions and Transitions
Due to the highly volatile nature of the personal computer industry, which
is characterized by dynamic customer demand patterns and rapid
technological advances, the Company frequently introduces new products
and product enhancements. The success of new product introductions is
dependent on a number of factors, including market acceptance, the
Company's ability to manage the risks associated with product transitions,
the availability of application software for new products, the effective
management of inventory levels in line with anticipated product demand,
the availability of products in appropriate quantities to meet anticipated
demand, and the risk that new products may have quality or other defects
in the early stages of introduction. Accordingly, the Company cannot
determine the ultimate effect that new products will have on its sales or
results of operations. In addition, although the number of new product
introductions may decrease under the Company's new business model, the
risks and uncertainties associated with new product introductions may
increase as the Company refocuses its product offerings on key growth
segments.
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. These factors may be offset by others, such as the
deferral of purchases by many users until new technology is accepted as
"proven" and for which commonly used software products are available;
and the reduction of orders by dealers once they believe they can obtain
sufficient supply of products previously in backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasing coincident with
introduction, and then decreasing once dealers and customers believe they
can obtain sufficient supply of the new products.
The measurement of demand for newly introduced products is further
complicated by the availability of different product configurations, which
may include various types of built-in peripherals and software.
Configurations may also require certain localization (such as language) for
various markets and, as a result, demand in different geographic areas may
be a function of the availability of third-party software in those localized
versions. For example, the availability of European-language versions of
software products manufactured by U.S. producers may lag behind the
availability of U.S. versions by a quarter or more. This may result in lower
initial demand for the Company's new products outside the United States,
even though localized versions of the Company's products may be
available.
The increasing integration of functions and complexity of operations of the
Company's products also increase the risk that latent defects or other faults
could be discovered by customers or end-users after volumes of products
have been produced or shipped. If such defects were significant, the
Company could incur material recall and replacement costs under product
warranties.
17
<PAGE>
Competition
The personal computer industry is highly competitive and is characterized
by aggressive pricing practices, downward pressure on gross margins,
frequent introduction of new products, short product life cycles, continual
improvement in product price/performance characteristics, price sensitivity
on the part of consumers, and a large number of competitors. During
1996, the Company's results of operations and financial condition were,
and in the future may continue to be, adversely affected by industrywide
pricing pressures and downward pressures on gross margins. The industry
has also been characterized by rapid technological advances in software
functionality and hardware performance and features based on existing or
emerging industry standards. Many of the Company's competitors have
greater financial, marketing, manufacturing, and technological resources;
broader product lines; and larger installed customer bases than those of the
Company.
The Company's future operating results and financial condition may be
affected by overall demand for personal computers and general customer
preferences for one platform over another or one set of product features
over another.
The Company is currently the primary maker of hardware that uses the
Macintosh operating system ("Mac(registered trademark) OS"). The Mac OS has a
minority market share in the personal computer market, which is dominated by
makers of computers that run the MS-DOS and Microsoft Windows
operating systems. The Company believes that the Mac OS, with its
perceived advantages over MS-DOS and Windows, has been a driving
force behind sales of the Company's personal computer hardware for the
past several years. Recent innovations in the Windows platform, including
those introduced by Windows 95, have added features to the Windows
platform similar to those offered by the Mac OS. The Company is
currently taking and will continue to take steps to respond to the
competitive pressures being placed on its personal computer sales as a
result of the recent innovations in the Windows platform. The Company's
future operating results and financial condition may be affected by its
ability to maintain and increase the installed base for the Macintosh
platform. The Company recently announced a new strategy with respect to
updating its operating system while redesigning its plan for a next-
generation operating system. To extend the life of its current operating
system, the Company intends to issue periodic releases consisting of
discrete operating system components. The Company expects that this
will enable it to introduce some new functionality for the current operating
system sooner than it would be able to introduce a completely new
operating system. Concurrently, the Company will continue development
of its next-generation operating system, focusing on increased
functionality at the possible expense of some backward compatibility.
Diminished backward compatibility in its new operating system could
result in a loss of existing customers. Inability to introduce a next-
generation operating system on a timely basis, or to gain developer support
and market accepatance for it, may have an adverse impact on the
Company's operating results and financial condition.
As part of its efforts to increase the installed base for the Macintosh
platform, the Company announced the licensing of the Mac OS to other
personal computer vendors in January 1995, as well as an additional
licensing initiative in 1996. Several vendors currently sell products that
utilize the Macintosh operating system. The Company believes that
licensing the operating system will result in a broader installed base on
which software vendors can develop and provide technical innovations for
the Macintosh platform. However, there can be no assurance that the
installed base will be broadened by the licensing of the operating system or
that licensing will result in an increase in the number of application
software titles or the rate at which vendors will bring to market application
software based on the Mac OS. In addition, as a result of licensing its
operating system, the Company is forced to compete with other companies
producing Mac OS-based computer systems. The benefits to the Company
from licensing the Mac OS to third parties may be more than offset by the
disadvantages of being required to compete with them.
As a supplemental means of addressing the competition from MS-DOS
and Windows, the Company has devoted substantial resources toward
developing personal computer products capable of running application
software designed for the MS-DOS or Windows operating systems
("Cross-Platform Products"). These products include the RISC-based
PowerPC(trademark) microprocessor and either include the Pentium or 586-class
microprocessor or can accommodate an add-on card containing a Pentium
or 586-class microprocessor. These products enable users to run
concurrently applications that require the Mac OS, MS-DOS, Windows
3.1, or Windows 95 operating systems.
Depending on customer demand, the Company may supply customers who
purchase Cross-Platform Products with Windows operating system
software under licensing agreements with Microsoft. However, in order to
do so, the Company will need to enter into one or more agreements with
certain Microsoft distributors.
18
<PAGE>
The Company, International Business Machines Corporation ("IBM") and
Motorola, Inc. have agreed upon and announced the availability of
specifications for a PowerPC microprocessor-based hardware reference
platform. These specifications define a "unified" personal computer
architecture that gives access to both the Power Macintosh platform and
the PC environment. The Company's future operating results and financial
condition may be affected by its ability to continue to implement this
agreement and to manage the risk associated with the transition to this new
hardware reference platform.
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 third-party
developers' perception and analysis of the relative benefits of developing,
maintaining, and upgrading such software for the Company's products
versus software for the larger MS-DOS and Windows market. This
analysis is based on factors such as the perceived strength of the Company
and its products, the anticipated potential revenue that may be generated,
and the costs of developing such software products. To the extent the
Company's recent financial losses and declining demand for the
Company's product have caused software developers to question the
Company's position in the personal computer market, developers could be
less inclined to develop new application software or upgrade existing
software for the Company's products and more inclined to devote their
resources to developing and upgrading software for the larger MS-DOS
and Windows market. Microsoft Corporation is an important developer of
application software for the Company's products. Accordingly,
Microsoft's interest in producing application software for the Company's
products may be influenced by Microsoft's perception of its interests as the
vendor of the Windows operating systems.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
PowerPC RISC microprocessor for certain of the Company's products, to
supply to the Company in adequate numbers microprocessors that produce
superior price/performance results compared with those supplied to the
Company's competitors by Intel Corporation, the developer and producer
of the microprocessors used by most personal computers using the MS-
DOS and Windows operating systems. IBM produces personal computers
based on Intel microprocessors as well as workstations based on the
PowerPC microprocessor, and is also the developer of OS/2, a competing
operating system to the Company's Mac OS. Accordingly, IBM's interest
in supplying the Company with microprocessors for the Company's
products may be influenced by IBM's perception of its interests as a
competing manufacturer of personal computers and as a competing
operating system vendor.
Several competitors of the Company, including Compaq, IBM, and
Microsoft, have either targeted or announced their intention to target
certain of the Company's key market segments, including education and
publishing. Many of these companies have greater financial, marketing,
manufacturing, and technological resources than the Company.
The Company is integrating Internet capabilities into its new and existing
hardware and software platforms. There can be no assurance that the
Company will be able to continue to do so successfully. In addition, the
Internet market is rapidly evolving and is characterized by an increasing
number of market entrants who have introduced or developed products
addressing access to, authoring for, or communication over, the Internet.
Many of these competitors have a significant lead over the Company in
developing products for the Internet, have significantly greater financial,
marketing, manufacturing, and technological resources than the Company,
or both.
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 MessagePad
(registered trademark) and related products.
19
<PAGE>
Global Market Risks
A large portion of the Company's revenue is derived from its international
operations. As a result, the Company's operations and financial results
could be significantly affected by international factors, such as changes in
foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. When the
U.S. dollar strengthens against other currencies, the U.S. dollar value of
non-U.S. dollar-based sales decreases. When the U.S. dollar weakens, the
U.S. dollar value of non-U.S. dollar-based sales increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs
increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall, the Company is a net receiver of currencies other
than the U.S. dollar and, as such, benefits from a weaker dollar and is
adversely affected by a stronger dollar relative to major currencies
worldwide. Accordingly, changes in exchange rates, and in particular a
strengthening of the U.S. dollar, may negatively affect the Company's
consolidated sales and gross margins (as expressed in U.S. dollars).
To mitigate the short-term impact of fluctuating currency exchange rates
on the Company's non-U.S. dollar-based sales, product procurement, and
operating expenses, the Company regularly hedges its non-U.S. dollar-
based exposures. Specifically, the Company enters into foreign exchange
forward and option contracts to hedge firmly committed transactions.
Currently, hedges of firmly committed transactions do not extend beyond
one year. The Company also purchases foreign exchange option contracts
to hedge certain other probable but not firmly committed transactions.
Hedges of probable but not firmly committed transactions currently do not
extend beyond one year. To reduce the costs associated with these
ongoing foreign exchange hedging programs, the Company also regularly
sells foreign exchange option contracts and enters into certain other
foreign exchange transactions. All foreign exchange forward and option
contracts not accounted for as hedges, including all transactions intended
to reduce the costs associated with the Company's foreign exchange
hedging programs, are carried at fair value and are adjusted on each
balance sheet date for changes in exchange rates.
While the Company is exposed with respect to fluctuations in the interest
rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash, cash
equivalents, and short-term investments as well as interest paid on its notes
payable to banks and long-term debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company has entered into interest
rate swap, collar, and floor transactions. Certain of these transactions 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 these
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
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, option and floor positions both 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, therefore, may adversely affect the
Company's operating results and financial position. The Company
generally does not engage in leveraged hedging.
The Company's current financial condition may have an impact on the
costs of its hedging transactions, as well as the willingness of its financial
counter-parties to enter into hedging transactions with the Company.
Inventory and Supply
In line with the Company's efforts to redesign its business model, the
Company is taking steps to streamline its product portfolios in its key
usage areas in education, business, and the home. This planned
simplification of product lines has resulted in inventory reserves.
Cancelation fees related to custom component inventory purchased for
anticipated product introductions that have been canceled have also been
paid or accrued. The Company has also separately provided for the
estimated cost to correct certain quality problems in certain entry-level,
Performa, PowerBook, and peripheral products. Although the Company
believes its inventory and related reserves are adequate, no assurance can
be given that the Company will not incur additional inventory and related
charges.
20
<PAGE>
The Company must order components for its products and build inventory
well in advance of product shipments. Because the Company's markets are
volatile and subject to rapid technology and price changes, there is a risk
that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. The Company's operating
results and financial condition have been and may in the future be
materially adversely affected by the Company's ability to manage its
inventory levels and respond to short-term shifts in customer demand
patterns.
Certain of the Company's products are manufactured in whole or in part by
third-party manufacturers, either pursuant to design specifications of the
Company or otherwise. As a result of the Company's restructuring actions,
which include the sale of the Company's Fountain, Colorado,
manufacturing facility to SCI Systems, Inc. ("SCI") and a related
manufacturing outsourcing agreement with SCI, the proportion of the
Company's products produced and distributed under outsourcing
arrangements will increase. While outsourcing arrangements may lower
the fixed cost of operations, they will also reduce the direct control the
Company has over production. It is uncertain what effect such diminished
control will have on the quality or quantity of the products manufactured,
or the flexibility of the Company to respond to changing market
conditions. Furthermore, any efforts by the Company to manage its
inventory under outsourcing arrangements could subject the Company to
liquidated damages or cancelation of the arrangement.
Moreover, although arrangements with such manufacturers may contain
provisions for warranty expense reimbursement, the Company remains at
least initially responsible to the ultimate consumer for warranty service.
Accordingly, in the event of product defects or warranty liability, the
Company may remain primarily liable. Any unanticipated product defect
or warranty liability, whether pursuant to arrangements with contract
manufacturers or otherwise, could adversely affect the Company's future
operating results and financial condition.
The Company's ability to satisfy demand for its products may be limited
by the availability of key components. The Company has experienced
some limitations in supply of certain microprocessors in the first quarter of
1996. 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 IBM and
Motorola, Inc. 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 microprocessors and ASICs). Continued
availability of these components may be affected if producers were to
decide to concentrate on the production of common components instead of
components customized to meet the Company's requirements. Such
product supply constraints and corresponding increased costs could
decrease the Company's net sales and adversely affect the Company's
operating results and financial condition.
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. Such resellers
include 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 weakened or if resellers within consumer channels were
to decide not to continue to distribute the Company's products.
Uncertainty over demand for the Company's products may cause resellers
to reduce their ordering and marketing of the Company's products. Under
the Company's arrangements with its resellers, resellers have the option to
reduce or eliminate unfilled orders previously placed, in most instances
without financial penalty. Resellers also have the option to return products
to the Company without penalty within certain limits, beyond which they
may be assessed fees. The Company has recently experienced a reduction
in ordering from historical levels by resellers due to uncertainty
concerning the Company's condition and prospects.
Other Factors
The majority of the Company's research and development activities, its
corporate headquarters, and other critical business operations, including
certain major vendors, 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.
21
<PAGE>
Production and marketing of products in certain states and countries may
subject the Company to environmental and other regulations which
include, in some instances, the requirement that the Company provide
consumers with the ability to return to the Company product at the end of
its useful life, and leave responsibility for environmentally safe disposal or
recycling with the Company. It is unclear what effect such regulation will
have on the Company's future operating results and financial condition.
The Company is currently in the process of replacing its existing
transaction systems (which include order management, product
procurement, distribution, and finance) with a single integrated system as
part of its ongoing effort to increase operational efficiency. The
Company's future operating results and financial condition could be
adversely affected if the Company is unable to implement and effectively
manage the transition to this new integrated system.
As part of the Company's restructuring plan, the Company sold its Napa,
California, data center to MCI Systemhouse ("MCI"), and entered into a
data processing outsourcing agreement with MCI. While this outsourcing
agreement may lower the Company's fixed costs of operations, it will also
reduce the direct control the Company has over its data processing. It is
uncertain what effect such diminished control will have on the Company's
data processing.
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 notes payable to banks, increased to
$1,559 million at September 27, 1996, from $491 million at September 29,
1995. The Company's financial position with respect to cash, cash
equivalents, and short-term investments increased to $1,745 million at
September 27, 1996, from $952 million at September 29, 1995. The
Company's cash and cash equivalent balance at September 27, 1996,
includes $177 million pledged as collateral to support letters of credit
primarily associated with the Company's purchase commitments under the
terms of the sale of the Company's Fountain, Colorado, manufacturing
facility to SCI. The Company's cash and cash equivalent balance at
September 29, 1995, includes $90 million pledged as collateral to support
notes payable to banks.
Cash generated by operations during 1996 totaled $519 million. Cash
generated by operations was primarily the result of decreases in
inventories and accounts receivable, partially offset by decreases in
accounts payable and deferred tax liabilities. As part of the Company's
restructuring plan and in order to meet certain liquidity requirements
during 1996, the Company generated $145 million of cash from the sale of
certain equity investments, and the sale of the Fountain, Colorado,
manufacturing facility to SCI and the Napa, California, data center to MCI.
The Company expects that cash generated from the sale of equity
investments and property, plant and equipment will be significantly less in
1997 compared with 1996. Net cash used for the purchase of property,
plant, and equipment totaled $67 million in 1996, and consisted primarily
of increases in manufacturing machinery and equipment. The Company
expects that the level of capital expenditures in 1997 will be comparable to
1996.
Notes payable to banks at September 27, 1996, were approximately $275
million lower than at September 29, 1995. During 1996, an outstanding
loan to Apple Computer B.V., a subsidiary of the Company, was repaid in
full. At September 27, 1996, Apple Japan, Inc., a subsidiary of the
Company, held $186 million of notes payable to several banks, with
maturity dates ranging from the end of December 1996 to May 1997. The
majority of these loans are guaranteed by the Company.
The Company's balance of long-term debt increased during 1996 due to the
issuance of $661 million aggregate principal amount of 6% unsecured
convertible subordinated notes to certain qualified parties in a private
placement. These notes were sold at 100% of par. These notes pay
interest semi-annually and mature on June 1, 2001. The remainder of
long-term borrowings consists of $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.
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. For more information regarding the Company's long-term debt,
refer to pages XX-XX of the Notes to Consolidated Financial Statements.
22
<PAGE>
The Internal Revenue Service has proposed federal income tax deficiencies
for the years 1984 through 1991, and the Company has made certain
prepayments thereon. The Company contested the proposed deficiencies
for the years 1984 through 1988, and most of the issues in dispute for these
years have been resolved. On June 29, 1995, the IRS issued a notice of
deficiency proposing increases to the amount of the Company's federal
income taxes for the years 1989 through 1991. The Company has filed a
petition with the United States Tax Court to contest these alleged tax
deficiencies. Management believes that adequate provision has been made
for any adjustments that may result from these tax examinations.
The Company's cost of funds has increased as a result of the downgrading
from January 1996 through May 1996 of its short-term debt to NP and C
by Moody's Investor Services and Standard and Poor's Rating Agency,
respectively, and of its long-term debt to B1 and B+ by Moody's Investor
Services and Standard and Poor's Rating Agency, respectively. In
addition, the Company may be required to pledge additional collateral with
respect to certain of its borrowings and letters of credit and to agree to
more stringent covenants than in the past. The Company believes that its
balances of cash and cash equivalents and short-term investments, together
with continued short-term borrowings from banks, will be sufficient to
meet its operating and other cash requirements, including the impact of
planned restructuring actions, on a short- and long-term basis. No
assurance can be given that short-term borrowings from banks can be
continued, or that any additional required financing could be obtained
should the restructuring plan take longer to implement than anticipated or
be unsuccessful. If the Company is unable to obtain such financing, its
liquidity, results of operations, and financial condition could be materially
adversely affected.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Balance Sheets at September 27, 1996,
and September 29, 1995 26
Consolidated Statements of Operations for the three
fiscal years ended September 27, 1996 27
Consolidated Statements of Shareholders' Equity for
the three fiscal years ended September 27, 1996 28
Consolidated Statements of Cash Flows for the three
fiscal years ended September 27, 1996 29
Notes to Consolidated Financial Statements 30
Selected Quarterly Financial Information (Unaudited) 49
Financial Statement Schedule:
For the three fiscal years ended September 27, 1996
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.
24
<PAGE>
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 27, 1996 and September 29, 1995, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended September 27,
1996. Our audits also include the financial statement schedule listed in the
Index to the 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 27, 1996 and September 29, 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended September 27, 1996, 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 14, 1996
25
<PAGE>
Consolidated Balance Sheets
(Dollars in millions)
<TABLE>
<CAPTION>
September 27, 1996, and September 29, 1995
1996 1995
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $1,552 $ 756
Short-term investments 193 196
Accounts receivable, net of allowance
for doubtful accounts of $91($87 in 1995)1,496 1,931
Inventories:
Purchased parts 213 841
Work in process 43 291
Finished goods 406 643
662 1,775
Deferred tax assets 342 251
Other current assets 270 315
Total current assets 4,515 5,224
Property, plant, and equipment:
Land and buildings 480 504
Machinery and equipment 544 638
Office furniture and equipment 136 145
Leasehold improvements 188 205
1,348 1,492
Accumulated depreciation and
amortization (750) (781)
Net property, plant, and equipment 598 711
Other assets 251 296
$5,364 $ 6,231
Liabilities and Shareholders' Equity:
Current liabilities:
Notes payable to banks $ 186 $ 461
Accounts payable 791 1,165
Accrued compensation and employee benefits 120 131
Accrued marketing and distribution 257 206
Accrued warranty and related 181 85
Accrued restructuring costs 117 --
Other current liabilities 351 277
Total current liabilities 2,003 2,325
Long-term debt 949 303
Deferred tax liabilities 354 702
Commitments and contingencies
Shareholders' equity:
Common stock, no par value;
320,000,000 shares authorized;
124,496,972 shares issued and
outstanding in 1996
(122,921,601 shares in 1995) 439 398
Retained earnings 1,634 2,464
Other (15) 39
Total shareholders' equity 2,058 2,901
$5,364 $6,231
</TABLE>
See accompanying notes.
26
<PAGE>
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three fiscal years ended September 27, 1996 1996 1995 1994
<S> <C> <C> <C>
Net sales $ 9,833 $11,062 $ 9,189
Costs and expenses:
Cost of sales 8,865 8,204 6,846
Research and development 604 614 564
Selling, general and administrative 1,568 1,583 1,384
Restructuring costs 179 (23) (127)
11,216 10,378 8,667
Operating income (loss) (1,383) 684 522
Interest and other income (expense), net 88 (10) (22)
Income (loss) before provision (benefit)
for income taxes (1,295) 674 500
Provision (benefit) for income taxes (479) 250 190
Net income (loss) $ (816) $ 424 $ 310
Earnings (loss) per common and
common equivalent share $(6.59) $ 3.45 $ 2.61
Common and common equivalent shares used in
the calculations of earnings(loss) per share
(in thousands) 123,734 123,047 118,735
</TABLE>
See accompanying notes.
27
<PAGE>
Consolidated Statements of Shareholders' Equity
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Total
Shares Retained Shareholders'
(in thousands) Amount Earnings Other Equity
<S> <C> <C> <C> <C> <C>
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
Common stock
issued under
stock option and
purchase plans,
including related
tax benefits 1,575 41 -- -- 41
Cash dividends of
$0.12 per common
share -- -- (14) -- (14)
Accumulated
translation
adjustment -- -- -- (12) (12)
Change in
unrealized gains
(losses) on
available-for-sale
securities -- -- -- (42) (42)
Net loss -- -- (816) -- (816)
Balance at
September 27,
1996 124,497 $439 $1,634 $(15) $2,058
</TABLE>
See accompanying notes.
28
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in millions)
<TABLE>
<CAPTION>
Three fiscal years ended September 27, 1996 1996 1995 1994
<S> <C> <C> <C>
Cash and cash equivalents, beginning of the period $ 756 $1,203 $ 676
Operating:
Net income (loss) (816) 424 310
Adjustments to reconcile net income (loss) to cash
generated by (used for) operations:
Depreciation and amortization 156 127 168
Net book value of property, plant, and equipment
retirements 70 6 11
Changes in assets and liabilities:
Accounts receivable 435 (350) (199)
Inventories 1,113 (687) 418
Deferred tax assets (91) 42 (25)
Other current assets 45 (59) 34
Accounts payable (374) 283 139
Accrued restructuring costs 117 (47) (250)
Other current liabilities 212 (10) 90
Deferred tax liabilities (348) 31 41
Cash generated by (used for) operating
activities 519 (240) 737
Investing:
Purchase of short-term investments (437) (1,672) (312)
Proceeds from sale of short-term investments 440 1,531 474
Purchase of property, plant, and equipment (67) (159) (160)
Other (55) (102) (4)
Cash used for investing activities (119) (402) (2)
Financing:
Increase (decrease) in notes payable to banks (275) 169 (531)
Increase (decrease) in long-term borrowings 646 (2) 297
Increases in common stock, net of related tax benefits 39 86 82
Cash dividends (14) (58) (56)
Cash generated by (used for) financing
activities 396 195 (208)
Total cash generated (used) 796 (447) 527
Cash and cash equivalents, end of the period $1,552 $ 756 $1,203
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $ 49 $ 49 $ 34
Income taxes, net $ 33 $ 188 $ 46
Noncash transaction: tax benefit from stock options $ 2 $ 15 $ 12
</TABLE>
See accompanying notes.
29
<PAGE>
Notes to Consolidated Financial Statements
Nature of Operations
Apple Computer (the "Company") designs, manufactures, and markets
microprocessor-based personal computers and related personal computing
products for sale primarily to education, home, business, and government
customers.
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.
Accounting Estimates
General
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in these
consolidated financial statements and accompanying notes. Actual results
could differ materially from those estimates.
Significant Accounting Estimates
Reserves Against Inventories
The Company's reserves against inventories are based on the Company's
best estimates of product sales prices and customer demand patterns,
and/or its plans to transition its products. However, the Company
participates in a highly competitive industry that is characterized by
aggressive pricing practices, downward pressures on gross margins,
frequent introductions of new products, short product life cycles, rapid
technological advances, continual improvement in product
price/performance characteristics, and price sensitivity and changing
demand patterns on the part of consumers. As a result of the industry's
ever-changing and dynamic nature, it is at least reasonably possible that
the estimates used by the Company to determine its reserves against
inventories will be materially different from the actual amounts or results.
These differences could result in materially higher than expected inventory
reserve costs, which could have a materially adverse effect on the
Company's results of operations and financial condition in the near term.
Warranty and Related Accruals
The Company's warranty and related accruals are based on the Company's
best estimates of product failure rates and unit costs to repair. However,
the Company is continually releasing new and ever-more complex and
technologically advanced products. As a result, it is at least reasonably
possible that product could be released with certain unknown quality
and/or design problems. Such an occurrence could result in materially
higher than expected warranty and related costs, which could have a
materially adverse effect on the Company's results of operations and
financial condition in the near term.
Deferred Tax Assets
Realization of approximately $85 million of the total deferred tax assets is
dependent on the Company's ability to generate approximately $245
million of future U.S. taxable income. Management believes that it is
more likely than not that the asset will be realized based on forecasted U.S.
income. However, there can be no assurance that the Company will meet
its expectations of future U.S. income. As a result, the amount of the
deferred tax assets considered realizable could be reduced in the near and
long term if estimates of future taxable U.S. income are reduced. Such an
occurrence could materially adversely affect the Company's results of
operations and financial condition. The Company will continue to
evaluate the realizability of the deferred tax assets quarterly by assessing
the need for a valuation allowance.
30
<PAGE>
Summary of Significant Accounting Policies
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. The Company's cash equivalents consist primarily of U.S.
Government securities, Euro-dollar deposits, and commercial paper.
Short-term investments consist principally of Euro-dollar deposits and
commercial paper. The Company's cash equivalents and short-term
investments are generally held until maturity. The Company's marketable
equity securities consist of securities issued by U.S. corporations and are
included in "Other assets" on the accompanying balance sheets.
Management determines the appropriate classification of its debt and
marketable equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The Company's debt and
marketable equity securities have been classified and accounted for as
available-for-sale. These securities are carried at fair value, with the
unrealized gains and losses, net of taxes, reported as a component of
shareholders' equity. These unrealized gains or losses include any
unrealized losses and gains on interest rate contracts accounted for as
hedges against the available-for-sale securities. Equity securities that are
not considered marketable as defined are carried at cost. Realized gains
and losses on the sale of securities are included in interest and other
income (expense), net. The cost of securities sold is based on the specific
identification method.
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 purposes other than risk management.
Gains and losses on accounting hedges of existing assets or liabilities are
recorded currently in income or shareholder's equity against the losses and
gains on the hedged transactions. Gains and losses related to qualifying
accounting hedges of firmly committed or probable but not firmly
committed transactions are deferred until the occurrence of the hedged
transactions. Gains and losses on interest rate and foreign exchange
contracts that do not qualify as accounting hedges are recorded currently in
income.
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, collars, and floors, 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, and/or 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.
In addition, the Company enters into foreign exchange forward contracts to
hedge certain intercompany loan transactions. These forward contracts
effectively change certain foreign currency denominated debt into U.S.
dollar denominated debt, which better matches against the Company's U.S.
dollar denominated cash equivalents and short-term investments.
31
<PAGE>
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 historically 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 financial instruments, refer to pages 33 - 36 of the Notes to
Consolidated Financial Statements.
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.
Long-Lived Assets
Effective September 30, 1995, the Company adopted Financial Accounting
Standard No. 121 ("FAS 121"), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." In
accordance with FAS 121, prior period financial statements have not been
restated to reflect this change in accounting principle and the cumulative
effect of this change was not material.
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 for the Company in 1997,
and will have no impact on the Company's results of operations and
financial condition as the Company has elected to continue measuring
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." However, the Company 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.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign sales
subsidiaries at year-end exchange rates. Gains and losses from these
translations are credited or charged to "accumulated translation
adjustment" included in shareholders' equity. The foreign manufacturing
and certain other entities use the U.S. dollar as the functional currency and
translate monetary assets and liabilities at year-end exchange rates, and
inventories, property, and non-monetary assets and liabilities at historical
rates. Gains and losses from these translations are included in the results
of operations and are immaterial.
32
<PAGE>
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 are charged to expense the first time the advertising
takes place.
Earnings (Loss) per Share
Earnings (loss) per share is computed using the weighted average number
of common shares outstanding and (in 1995 and 1994 only) the dilutive
effect of common stock options using the treasury stock method. Common
stock options, the convertible subordinated notes, and certain common
shares issued pending shareholder approval were not included in the
computation of loss per share in 1996 as their effect was antidilutive.
Reclassifications
Certain prior year amounts in the Industry Segment and Geographic
Information footnote have been reclassified to conform to the current
year's presentation.
Financial Instruments
Investments
The following table summarizes the Company's available-for-sale
securities as of September 27, 1996:
(In millions)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 86 $ -- $ -- $ 86
U.S. corporate debt
securities 330 -- -- 330
Foreign government
securities 1,098 -- -- 1,098
Total included in
cash and cash
equivalents $1,514 $ -- $ -- $1,514
U.S. corporate debt
securities $ -- $ -- $ -- $ --
Foreign government
securities 193 -- -- 193
Total included in
short-term
investments $ 193 $ -- $ -- $ 193
Equity securities $ -- $ 2 $ -- $ 2
Total included in
other assets $ -- $ 2 $ -- $ 2
Total $1,707 $ 2 $ -- $1,709
</TABLE>
33
<PAGE>
The following table summarizes the Company's available-for-sale securities
as of September 29, 1995:
(In millions)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
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 -- 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
</TABLE>
The gross realized gains recorded to earnings on sales of available-for-sale
securities, as well as the related cash proceeds from those sales, were $15
million and $1 million in 1996 and 1995, respectively. There were no
gross realized losses recorded to earnings on sales of available-for-sale
securities in 1996 or 1995.
The Company's cash and cash equivalent balance at September 27, 1996,
includes $177 million pledged primarily as collateral to support letters of
credit, and at September 29, 1995, includes $90 million pledged as
collateral to support notes payable to banks.
Interest Rate Derivatives and Foreign Currency Instruments
The table on page 35 shows the notional principal, fair value, and credit
risk amounts of the Company's interest rate derivative and foreign
currency instruments as of September 27, 1996, and September 29, 1995.
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 27, 1996, and September 29, 1995. 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.
34
<PAGE>
(In millions)
<TABLE>
<CAPTION>
1996 1995
Credit Credit
Notional Fair Risk Notional Fair Risk
Principal Value Amount Principal Value Amount
<S> <C> <C> <C> <C> <C> <C>
Transactions
Qualifying as
Accounting
Hedges
Interest rate
instruments
Swaps $ 315 $ (13) $ -- $ 450 $ (7) $ 2
Interest
rate collars $ 80 $ -- $ -- $ 105 $ -- $ --
Purchased
floors $ 475 $ 1 $ 1 $ -- $ -- $ --
Sold options $ -- $ -- $ -- $ 150 $ -- $ --
Foreign exchange
instruments
Spot/Forward
contracts $2,035 $ 9 $ 16 $1,211 $ 16 $ 23
Purchased
options $1,475 $ 9 $ 9 $1,441 $ 32 $ 32
Transactions
Other Than
Accounting
Hedges
Interest rate
instruments
Swaps $ -- $ -- $ -- $ 10 $ -- $ --
Sold options $ -- $ -- $ -- $ 100 $ (1) $ --
Foreign
exchange
instruments
Spot/Forward
contracts $ 182 $ -- $ -- $ -- $ -- $ --
Purchased
options $ 606 $ 8 $ 8 $3,046 $ 134 $ 134
Sold options $ 506 $ (6) $ -- $6,082 $ (83) $ --
</TABLE>
The interest rate swaps 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. As a result, these swaps effectively convert the
Company's fixed-rate ten-year debt to floating-rate debt and generally
qualify for hedge accounting treatment. Maturity dates for these swaps
currently range from one to seven years. At September 27, 1996, and
September 29, 1995, interest rate swaps classified as receive-fixed swaps
had weighted average receive rates of 6.04% and 5.89%, respectively.
Weighted average pay rates on these swaps were 5.82% and 5.88% at
September 27, 1996, and September 29, 1995, respectively. The
unrealized gains and losses on these swaps are generally deferred and
recognized in income in the same period as the hedged transaction.
Deferred losses on such contracts totaled approximately $13 million and
$9 million at September 27, 1996, and September 29, 1995, respectively.
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. Purchased floors limit the
Company's exposure to falling interest rates on its cash equivalents and
short-term investments by locking in a minimum interest rate. The
Company receives a payment when interest rates fall below a
predetermined level. A purchased floor generally qualifies for hedge
accounting treatment and is reported on the balance sheet at its premium
cost, which is amortized over the life of the floor. The interest rate collars
and purchased floors are generally designated and effective as hedges
against interest rate risk on the Company's debt securities classified as
available-for-sale and are carried at fair value as an adjustment to the basis
of the underlying security. The related unrealized gains and losses,net of
taxes, are reported as a component of shareholders' equity and are
recognized in income in the same period as the hedged transaction.
Unrealized gains and losses on such contracts were immaterial at
September 27, 1996, and September 29, 1995.
35
<PAGE>
Interest rate option contracts require the Company to make payments
should certain interest rates either fall below or rise above predetermined
levels. These contracts are generally not accounted for as hedges and are
carried at fair value with gains and losses recorded currently in income as a
component of interest and other income (expense), net.
The foreign exchange forward contracts not accounted for as hedges are
carried at fair value with gains and losses recorded currently in income as a
component of interest and other income (expense), net. The foreign
exchange forward contracts that are designated and effective as hedges are
also carried at fair value with gains and losses recorded currently in
income as a component of interest and other income (expense), net, against
the losses and gains on the hedged transactions. All foreign exchange
forward contracts expire within one year.
The premium costs of purchased foreign exchange option contracts that are
designated and effective as hedges are amortized over the life of the
option. If the option contract is designated and effective as a hedge of a
firmly committed transaction, or a probable but not firmly committed
transaction, then any gain or loss is deferred until the occurrence of the
hedged transaction. Deferred gains and losses on such contracts were
immaterial at September 27, 1996, and September 29, 1995. If the option
contract is used to hedge an asset or liability, then the hedge is carried at
fair value with gains or losses recorded currently in income as a
component of interest and other income (expense), net, against the losses
or gains on the hedged transaction. As of September 27, 1996, maturity
dates for purchased foreign exchange option contracts ranged from one to
twelve months.
The purchased and sold foreign exchange option contracts not accounted
for as hedges are carried at fair value with gains and losses recorded
currently in income as a component of interest and other income
(expense), net. As of September 27, 1996, maturity dates for 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.
Notes Payable to Banks
The weighted average interest rates for Japanese yen-denominated notes
payable to banks at September 27, 1996, and September 29, 1995, were
approximately 1.3% and 2.2%, respectively. The Company had no U.S.
dollar-denominated notes payable to banks at September 27, 1996. The
weighted average interest rate for U.S. dollar-denominated notes payable
to banks at September 29, 1995, was approximately 6.2%.
The carrying amount of notes payable to banks approximates their fair
value due to their short-term maturities.
36
<PAGE>
Long-Term Debt
During 1996, the Company issued $661 million aggregate principal
amount of 6% unsecured convertible subordinated notes (the "Notes") to
certain qualified parties in a private placement. The Notes were sold at
100% of par. The Notes pay interest semi-annually and mature on June 1,
2001. The Notes are convertible by their holders at any time after
September 5, 1996 at a conversion price of $29.205 per share subject to
adjustments as defined in the Note agreement. The Notes are redeemable
by the Company at 102.4% of the principal amount, plus accrued interest,
for the twelve-month period beginning June 1, 1999, and at 101.2% of the
principal amount, plus accrued interest, for the twelve-month period
beginning June 1, 2000. The Notes are subordinated to all present and
future senior indebtedness of the Company as defined in the Note
agreement. In addition, the Company incurred approximately $15 million
of costs associated with the issuance of the Notes. These costs are
accounted for as a deduction from the face amount of the Notes and are
being amortized over the life of the Notes. In October 1996, the Company
registered with the Securities and Exchange Commission $569 million of
the aggregate principal amount of the Notes, including the related common
shares issuable upon conversion of these Notes.
During 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.
The carrying amounts and estimated fair values of the Company's long-
term debt are as follows:
(In millions)
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Ten-year unsecured
notes $300 $259 $300 $289
Convertible
subordinated notes (1) $661 $656 $ -- $ --
Other $ 3 $ 3 $ 3 $ 3
</TABLE>
(1) The carrying amount of the convertible subordinated note is prior to
consideration of the related issuance costs.
The fair value of the ten-year unsecured notes is based on their listed
market value as of September 27, 1996. The fair value of the convertible
subordinated notes is based on estimates from several financial
institutions.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, consists of the following:
(In millions)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income $ 60 $100 $ 43
Interest expense (60) (48) (40)
Foreign currency gain (loss) 30 (15) 9
Net premiums and discounts earned (paid) on foreign
exchange instruments (13) (46) (34)
Realized gains on the sale of available-for-sale and
other securities 74 1 --
Other income (expense), net (3) (2) --
$ 88 $(10) $(22)
</TABLE>
37
<PAGE>
Concentrations of Risk
Concentrations of Credit Risk
The Company distributes its products principally through third-party
computer resellers and various education and consumer channels.
Concentrations of credit risk with respect to trade receivables are limited
because of flooring arrangements for selected customers with third-party
financing companies and because the Company's customer base consists of
large numbers of geographically diverse customers dispersed across
several industries. As such, the Company generally does not require
collateral from its customers.
The counterparties to the agreements relating to the Company's
investments and foreign exchange and interest rate instruments consist of a
number of major international financial institutions. To date, no such
counterparty has failed to meet its financial obligations to the Company.
The Company does not believe that there is significant risk of
nonperformance by these counterparties because the Company continually
monitors its positions and the credit ratings of such counterparties, and
limits the financial exposure and the 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 ten-year unsecured
notes. 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.
Concentrations in the Available Sources of Supply of Materials and Product
Although certain components essential to the Company's business are
generally available from multiple sources, other key components
(including microprocessors and application-specific integrated circuits, or
"ASICs") are currently obtained by the Company from single sources. If
the supply of a key single-sourced component to the Company were to be
delayed or curtailed, the Company's ability to ship the related product
utilizing such component in desired quantities and in a timely manner
could 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. In addition, the Company
uses some components that are not common to the rest of the personal
computer industry. Continued availability of these components may be
affected if producers were to decide to concentrate on the production of
common components instead of components customized to meet the
Company's requirements. Finally, a significant portion of the Company's
CPUs and logic boards are now manufactured by SCI Systems, Inc.
("SCI"). Although the Company works closely with SCI on manufacturing
schedules and levels, the Company's operating results could be adversely
affected if SCI were unable to meet its production obligations.
Significant Customers
No customer accounted for more than 10% of the Company's net sales in
1996, 1995, or 1994.
Advertising Costs
Advertising expense was $183 million, $205 million, and $158 million for
1996, 1995, and 1994, respectively.
38
<PAGE>
Restructuring of Operations
In the second quarter of 1996, the Company announced and began to
implement a restructuring plan aimed at reducing costs and restoring
profitability to the Company's operations. The restructuring plan was
necessitated by decreased demand for Company products and the
Company's adoption of a new strategic direction. The Company's
restructuring actions consist primarily of terminating approximately 1,500
full-time employees (down from an initial planned termination of
approximately 2,800), approximately 900 of whom have been terminated
through September 27, 1996, excluding employees who were hired by SCI
Systems, Inc. and MCI Systemhouse, the purchasers of the Company's
Fountain, Colorado, manufacturing facility and the Napa, California, data
center facility, respectively);canceling or vacating certain facility leases as
a result of these employee terminations; writing down certain land,
buildings and equipment to be sold as a result of downsizing operations
and outsourcing various operational functions; and canceling contracts as a
result of terminating eWorld, Apple's on-line service. These actions
resulted in an initial charge of $207 million. The charge was adjusted
downward by $28 million in the fourth quarter of 1996, primarily as a
result of greater than expected voluntary terminations, which led to fewer
than planned involuntary terminations, as well as lower than expected
costs to cancel or vacate certain facility leases, partially offset by greater
than expected costs to cancel certain contracts and to write down certain
operating assets sold or to be sold. The restructuring actions have resulted
in cash expenditures of $55 million and noncash asset write-downs of $7
million through September 27, 1996. The Company expects that the
remaining $117 million accrued balance at September 27, 1996, will result
in cash expenditures of approximately $60 million over the next twelve
months and approximately $10 million thereafter. The Company expects
that most of the contemplated restructuring actions will be completed
within the next six months and will be financed through current working
capital and continued short-term borrowings.
The following table depicts the restructuring activity through September
27, 1996:
(In millions)
<TABLE>
<CAPTION>
Total Adjustments: Balance at
Restructuring Increase/ September 27,
Category Charge Spending (Decrease) 1996
<S> <C> <C> <C> <C>
Payments to employees
involuntarily
terminated (C) $115 $(48) $(34) $ 33
Payments on canceled
or vacated facility
leases (C) 26 (4) (7) 15
Write-down of operating
assets to be sold (N) 48 (7) 6 47
Payments on canceled
contracts (C) 18 (3) 7 22
$207 $(62) $(28) $117
</TABLE>
(C): Cash; (N): Noncash.
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. In connection with this plan, the Company
recorded a $321 million charge to operating expenses. In 1995 and 1994,
the Company lowered its estimate of the total costs associated with this
restructuring and recorded an adjustment that increased income by $23
million and $127 million, respectively. These adjustments 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.
39
<PAGE>
Income Taxes
The provision (benefit) for income taxes consists of
the following: (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal:
Current $(125) $ 26 $ 61
Deferred (279) 113 20
(404) 139 81
State:
Current (2) 1 6
Deferred (71) 15 20
(73) 16 26
Foreign:
Current (1) 89 71
Deferred (1) 6 12
(2) 95 83
Provision (benefit) for
income taxes $(479) $ 250 $ 190
</TABLE>
The foreign provision (benefit) for income taxes is based on foreign pretax
earnings (loss) of approximately $(141) million, $572 million, and $474
million in 1996, 1995, and 1994, respectively. 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 on 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 of certain of the
Company's foreign subsidiaries that are intended to be indefinitely
reinvested in operations outside the United States. U.S. income taxes have
not been provided on a cumulative total of $395 million of such earnings.
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 reinvested earnings, the Company provides for federal and
state income taxes currently on undistributed earnings of foreign
subsidiaries.
40
<PAGE>
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 and 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.
At September 27, 1996, and September 29, 1995, the significant
components of the Company's deferred tax assets and liabilities were:
(In millions)
<TABLE>
<CAPTION>
September 27, 1996 September 29, 1995
<S> <C> <C>
Deferred tax assets:
Accounts receivable and
inventory reserves $105 $ 87
Accrued liabilities and other
reserves 139 85
Basis of capital assets and
investments 82 82
Tax losses and credits 175 --
Total deferred tax assets 501 254
Less: Valuation allowance 14 14
Net deferred tax assets 487 240
Deferred tax liabilities:
Unremitted earnings of
subsidiaries 467 648
Other 11 27
Total deferred tax liabilities 478 675
Net deferred tax asset (liability) $ 9 $(435)
</TABLE>
At September 27, 1996, the Company had operating loss carryforwards for
tax purposes of approximately $273 million, which expire principally in
2011. Substantially all of the remaining benefits from tax losses and
credits do not expire.
The net change in the total valuation allowance was negligible in 1996 and
an increase of $3 million in 1995.
A reconciliation of the provision (benefit) for income taxes, with the
amount computed by applying the statutory federal income tax rate (35%
in 1996, 1995, and 1994) to income (loss) before provision (benefit) for
income taxes, is as follows:
(In millions)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed expected tax $(453) $236 $175
State taxes, net of federal benefit (48) 10 17
Research and development tax credit -- (1) (1)
Indefinitely invested earnings of foreign
subsidiaries -- (21) (49)
Valuation allowance -- 3 9
Other individually immaterial items 22 23 39
Provision (benefit) for income taxes $(479) $250 $190
Effective tax rate 37% 37% 38%
</TABLE>
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.
41
<PAGE>
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").
The 1981 Stock Option Plan terminated in October 1990 and the 1987
Executive Long Term Stock Option Plan (the "1987 Plan") terminated in
July 1995. Options granted before those plan termination dates remain
outstanding in accordance with their terms. Options may be granted under
the 1990 Plan to employees, including officers and directors who are
employees, at not less than the fair market value on the date of grant.
These options generally become exercisable over 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.
In December 1996, the Board of Directors adopted an amendment to the
1990 Plan to increase the number of shares reserved for issuance by 1
million, subject to shareholder approval at the Company's Annual Meeting
of Shareholders scheduled for February 1997. 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. In December 1995, the
Board of Directors adopted a new amendment to reduce this increase to 4.2
million shares. This new amendment was approved by the Company's
shareholders in January 1996. Also in July 1995, the Board of Directors
resolved to terminate the 1987 Plan and transfer all unused shares
remaining under the 1987 Plan to the 1990 Plan. This resolution was
approved by the Company's shareholders in January 1996.
In March 1996, the Board of Directors approved the issuance of options to
purchase 1 million shares of common stock to the Chief Executive Officer
of the Company, subject to shareholder approval at the Company's Annual
Meeting of Shareholders scheduled for February 1997. These options will
have an exercise price of $26.25 per share and will become exercisable
over five years. As the issuance of these options is pending shareholder
approval, they are not included as outstanding in the table below.
On May 14, 1996, the Board of Directors adopted a resolution allowing
employees up to and including the level of Vice President to exchange
1.25 options at their existing option price for 1.0 new options having an
exercise price of $26.375 per share, the fair market value of the Company's
common stock at May 29, 1996. Options received under this program are
subject to one year of additional vesting such that the new vesting date for
each vesting portion will be the later of May 29, 1997, and the original
vesting date plus one year. Approximately 2.9 million options were
exchanged under this program.
42
<PAGE>
Summarized information regarding the Company's stock option plans as of
September 27, 1996, is as follows:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Number of Shares Price per Share
<S> <C> <C>
Outstanding at September 29, 1995 13,877 $ 7.50- $68.00
Granted 8,873
Exercised (450) $ 7.50- $37.00
Expired or canceled (8,188)
Outstanding at September 27, 1996 14,112 $14.83- $68.00
Exercisable 4,284
Reserved for issuance 20,598
Available for future grant 6,486
</TABLE>
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 and 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 27, 1996, approximately 400,000 shares were reserved for
future issuance under the Purchase Plan. In December 1996, the Board of
Directors adopted an amendment to the Purchase Plan to increase the
number of shares reserved for issuance by 3.5 million, subject to
shareholder approval at the Company's Annual Meeting of Shareholders
scheduled for February 1997. In July 1995, the Board of Directors
adopted an amendment to the Purchase Plan to increase the number of
shares reserved for issuance by 3 million. In December 1995, the Board of
Directors adopted a new amendment to reduce this increase to 1.5 million
shares. This new amendment was approved by the Company's
shareholders in January 1996.
Chief Executive Officer Performance Shares
In February of 1996, the Board of Directors approved the issuance of up to
1 million shares of common stock (the "Performance Shares") to the Chief
Executive Officer of the Company, subject to shareholder approval at the
Company's Annual Meeting of Shareholders scheduled for February 1997.
The Company may issue up to 200,000 Performance Shares for each full
fiscal year during the five-year term of the Chief Executive Officer's
employment agreement, which began on February 2, 1996. For each partial
fiscal year during the term of this agreement, the number of shares that
may be issued shall be prorated to reflect that partial year. The issuance of
the Performance Shares is subject to the achievement of certain
performance goals established by the Board of Directors at the beginning
of the employment agreement and at the beginning of each subsequent
fiscal year during the term of the employment agreement. As these
Performance Shares are pending shareholder approval, they are not
included as outstanding on the accompanying balance sheet. However, the
related estimated compensation expense is included in the 1996 results of
operations and is immaterial. The Performance Shares for years after 1996
will become part of the Senior Officers Restricted Performance Share Plan
(refer to discussion below) upon approval of the Senior Officers Restricted
Performance Share Plan by the Company's shareholders at the Annual
Meeting of Shareholders scheduled for February 1997.
43
<PAGE>
Senior Officers Restricted Performance Share Plan
In December 1996, the Company's Board of Directors approved a Senior
Officers Restricted Performance Share Plan (the "Performance Share
Plan") for which officers of the Company at the level of Senior Vice
President and above, and other key employees as recommended by
management and designated by the Compensation Committee of the
Board, will be eligible. The Performance Share Plan provides for a grant
of shares to each eligible participant, with annual vesting conditioned on
the achievement of performance goals established in advance by the
Compensation Committee and subject to such other terms as may be
determined by the Committee. The Performance Share Plan is intended to
provide an incentive for superior performance, to promote the maintenance
of substantial stock ownership levels by officers of the Corporation, and to
enable the Corporation to attract and retain highly qualified executive
officers. The Company's Board of Directors has reserved 2 million shares
for issuance under the provisions of the Performance Share Plan. The
Performance Share Plan is subject to shareholder approval at the Annual
Meeting of Shareholders scheduled for February 1997.
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.
Approximately 6.6 million shares remain authorized for repurchase. No
shares were repurchased under this authorization in 1996, 1995, or 1994.
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 ($9,500 for calendar year 1996).
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 $22 million, $15 million, and $11 million in 1996, 1995,
and 1994, respectively.
Commitments and Contingencies
Lease Commitments
The Company leases various facilities and equipment under noncancelable
operating lease arrangements. The major facilities leases are for terms of
five to ten years and generally provide renewal options for terms of up to
five additional years. Rent expense under all operating leases was
approximately $129 million, $127 million, and $122 million in 1996,
1995, and 1994, respectively. Future minimum lease payments under
these noncancelable operating leases having remaining terms in excess of
one year as of September 27, 1996, are as follows:
(In millions)
<TABLE>
<CAPTION>
<S> <C>
1997 $ 47
1998 44
1999 32
2000 24
2001 16
Later years 25
Total minimum lease payments $188
</TABLE>
Purchase Commitment
In connection with the sale of its Fountain, Colorado, manufacturing
facility to SCI Systems, Inc. ("SCI"), the Company is obligated to purchase
certain percentages of its total annual volumes of CPUs and logic boards
from SCI over each of the next three years. The Company has met these
obligations through September 27, 1996, and believes it will meet them in
the future.
44
<PAGE>
Litigation
Abraham and Evelyn Kostick Trust v. Peter Crisp et al.
In January 1996, a purported shareholder class action was filed in the
California Superior Court for Santa Clara County naming the Company
and its directors as defendants. The complaint sought injunctive relief and
damages and alleged that acts of mismanagement resulted in a depressed
price for the Company. In February 1996, the complaint was amended to
add a former director as a defendant and to add purported class and
derivative claims based on theories such as breach of fiduciary duty,
misrepresentation, and insider trading. In July 1996, the Court sustained
defendants' demurrer and dismissed the amended complaint on a variety of
grounds and granted plaintiffs leave to amend the complaint. In October
1996, the plaintiffs filed a second amended complaint naming the
Company's directors and certain former directors as defendants and again
alleging purported class and derivative claims, seeking injunctive relief
and damages (compensatory and punitive) based on theories such as
breach of fiduciary duty, misrepresentation, and insider trading. In
November 1996, the Company filed a demurrer seeking dismissal of the
second amended complaint.
Derek Pritchard v. Michael Spindler et al.
In March 1996, a purported shareholder class action was filed in the
California Superior Court for Santa Clara County naming certain current
and former directors of the Company as defendants. The complaint sought
damages and alleged that the defendants breached their fiduciary duty by
allegedly rejecting an offer from a computer company (not named in the
complaint) to acquire the Company at a price in excess of $50 per share. In
August 1996, the Court sustained defendants' demurrer and dismissed the
complaint on a variety of grounds, and granted plaintiff leave to amend the
complaint. In October 1996, the plaintiff filed his first amended complaint
in which he asserted the same purported cause of action as the original
complaint, alleged additional facts purportedly in support thereof, and
added the Company as a defendant. The Company intends to file a
demurrer seeking dismissal of the first amended complaint.
LS Men's Clothing Defined Benefit Pension Fund v. Michael Spindler et al.
In May 1996, an action was filed in the California Superior Court for
Alameda County naming as defendants the Company and certain of its
current and former officers and directors. The complaint seeks
compensatory and punitive damages and generally alleges that the
defendants misrepresented or omitted material facts about the Company's
operations and financial results, which plaintiff contends artificially
inflated the price of the Company's stock. The case has been transferred to
the California Superior Court for Santa Clara County. None of the
defendants has yet responded to the complaint.
"Repetitive Stress Injury" Litigation
The Company is named in numerous lawsuits (fewer than 100) alleging
that the plaintiff incurred so-called "repetitive stress injury" to the upper
extremities as a result of using keyboards and/or mouse input devices sold
by the Company. On October 4, 1996, in a trial of one of these cases
(Dorsey v. Apple) in the United States District Court for the Eastern
District of New York, the jury rendered a verdict in favor of the Company,
and final judgement in favor of the Company has been entered. The other
cases are in various stages of pretrial activity. These suits are similar to
those filed against other major suppliers of personal computers. Ultimate
resolution of the litigation against the Company may depend on progress in
resolving this type of litigation in the industry overall.
45
<PAGE>
Monitor-Size Litigation
In August 1995, the Company was named, along with 41 other entities,
including computer manufacturers and computer monitor vendors, in a
putative nationwide class action filed in the California Superior Court for
Orange County, styled Keith Long et al. v. AAmazing Technologies Corp.
et al. The complaint alleges that each of the defendants engaged in false or
misleading advertising with respect to the size of computer monitor
screens. Also in August 1995, the Company was named as the sole
defendant in a purported class action alleging similar claims filed in the
New Jersey Superior Court for Camden County, entitled Mahendri Shah v.
Apple Computer, Inc. Subsequently, in November 1995, the Company,
along with 26 other entities, was named in a purported class action alleging
similar claims filed in the New Jersey Superior Court for Essex County,
entitled Maizes & Maizes v. Apple Computer, Inc. et al. Similar putative
class actions have been filed in other California counties in which the
Company was not named as a defendant. The complaints in all of these
cases seek restitution in the form of refunds or product exchange, damages,
punitive damages, and attorneys fees. In December 1995, the California
Judicial Council ordered all of the California actions, including Long,
coordinated for purposes of pretrial proceedings and trial before a single
judge, the Honorable William Cahill, sitting in the County of San
Francisco. All of the California actions were subsequently coordinated
under the name In re Computer Monitor Litigation and a master
consolidated complaint filed superseding all of the individual complaints
in those actions. On July 3, 1996, Judge Cahill ordered all of the California
cases dismissed without leave to amend as to plaintiffs residing in
California on the ground that a stipulated judgment entered in September
1995 in a prior action brought by the California Attorney General alleging
the same cause of action was res judicata as to the plaintiffs in the
consolidated California class action suits. This order may be subject to
appellate review at a later stage of the proceedings. Both the New Jersey
cases and the consolidated California cases are at a preliminary stage, with
no discovery having taken place.
The Company has various claims, lawsuits, disputes with third parties,
investigations, and pending actions involving allegations of false or
misleading advertising, product defects, discrimination, infringement of
intellectual property rights, and breach of contract and other matters
against the Company and its subsidiaries incident to the operation of its
business. The liability, if any, associated with these matters is not
determinable.
The Company believes the resolution of the foregoing actions will not
have a material adverse effect on its financial condition. However,
depending on the amount and timing of any unfavorable resolution of these
lawsuits, it is possible that the Company's results of operations could be
materially affected in a particular period.
46
<PAGE>
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)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Americas $ 5,256 $ 6,356 $5,440
EMEA 2,222 2,365 2,096
Japan 1,792 1,822 1,234
Asia Pacific 563 519 419
Total net sales $ 9,833 $11,062 $9,189
Transfers between geographic areas (eliminated in
consolidation):
Americas $ 517 $ 511 $ 409
EMEA 121 178 234
Japan -- -- --
Asia Pacific 3,035 3,619 2,618
Total transfers $ 3,673 $ 4,308 $3,261
Operating income (loss):
Americas $(1,198)$ (26) $ (27)
EMEA (186) 245 27
Japan (4) 47 47
Asia Pacific 3 388 245
Eliminations 2 30 (19)
Corporate income (expense), net 88 (10) (22)
Income (loss) before income taxes $(1,295)$ 674 $ 500
Identifiable assets:
Americas $ 2,106 $ 3,112 $2,393
EMEA 648 927 824
Japan 559 686 522
Asia Pacific 312 581 364
Eliminations (26) (34) (67)
Corporate assets 1,765 959 1,267
Total assets $ 5,364 $ 6,231 $5,303
</TABLE>
"Americas" comprises North and South America. "EMEA" is an
abbreviation for Europe, the Middle East, and Africa. "Asia Pacific" does
not include Japan. 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 charges recorded in 1996, and the adjustments
recorded in 1995 and 1994 to the restructuring charges recorded in 1993,
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, short-term investments, equity securities, and
joint venture investments.
47
<PAGE>
A large portion of the Company's revenue is derived from its international
operations, and a majority of the products sold internationally are
manufactured in the Company's facilities in Cork, Ireland; and Singapore.
As a result, the Company is subject to risks associated with foreign
operations, such as obtaining governmental permits and approvals,
currency exchange fluctuations, currency restrictions, political instability,
labor problems, trade restrictions, and changes in tariff and freight charges.
48
<PAGE>
Selected Quarterly Financial Information (Unaudited)
(Tabular amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1996
<S> <C> <C> <C> <C>
Net sales $2,321 $2,179 $2,185 $3,148
Gross margin $ 511 $ 403 $ (421) $ 475
Net income(loss)$ 25 $ (32) $ (740) $ (69)
Earnings (loss)
per common and
common equivalent
share $ 0.20 $(0.26) $(5.99) $(0.56)
Cash dividends
declared per
common share $ --- $ --- $ --- $ 0.12
Price range per
common share $25.00 -$16.00 $28.88 -$19.63 $35.50 -$23.00 $42.50 -$31.44
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 $49.88-$ 34.69 $50.13-$ 33.63 $48.00 -$ 33.88 $43.75-$ 32.50
</TABLE>
At September 27, 1996, there were 30,008 shareholders of record.
The Company began declaring quarterly cash dividends on its common
stock in April 1987. The dividend policy is determined by the Board of
Directors and is dependent on the Company's earnings, capital
requirements financial condition and other factors. The Company
suspended paying dividends on its common stock beginning in the second
quarter of 1996. The Company anticipates that, for the foreseeable future,
it will retain any earnings for use in the operation of its business.
The price range per common share represents the highest and lowest prices
for the Company's common stock on the Nasdaq National Market during
each quarter.
Net income for the fourth quarter of 1996 includes an adjustment to the
1996 restructuring charge that increased income by $28 million. Net loss
for the second quarter of 1996 includes a $616 million charge for the
write-down of certain inventory and related actions, as well as a $207
million restructuring charge. Net income for the third and first quarters of
1995 includes adjustments to the 1993 restructuring charge that increased
income by $6 million and $17 million, respectively.
49
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
50
<PAGE>
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.
51
<PAGE>
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 Schedule
The financial statement schedule of the Company as set forth in
the Index to Consolidated Financial Statements under Part II, Item 8 of
this Form 10-K is 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
1996.
(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.
4.1.1 96-S3/A Indenture, dated as of June 1,
1996, between the Company
and Marine Midland Bank, as
Trustee, relating to the 6% Convertible
Subordinated Notes due June 1, 2001.
4.2 94/2Q Indenture dated as of February 1,
1994, between the Company
and Morgan Guaranty Trust
Company of New York (the "Indenture").
4.2.1 96-S3/A Form of 6% Convertible Subordinated Notes
due June 1, 2001 included in Exhibit 4.1.1.
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.
4.3.1 96-S3/A Specimen Certificate of
Common Stock of Apple
Computer, Inc. (Incorporated by
reference to Exhibit 4.5 to the
Company's Registration
Statement on Form S-3 (file no.
33-62310) filed with the
Securities and Exchange
Commission on May 6, 1993).
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.
* Footnotes appear on page 56.
52
<PAGE>
(c) Exhibits (continued)
Exhibit
Number Notes* Description
4.5 94/2Q Form of the Company's 6 1/2%
Notes due 2004.
4.8 96-S3/A Registration Rights Agreement,
dated June 7, 1996 among the
Company and Goldman, Sachs
& Co. and Morgan Stanley &
Co. Incorporated.
10.A.1 93/3Q** 1981 Stock Option Plan, as amended.
10.A.2 91K** 1987 Executive Long Term
Stock Option Plan.
10.A.3 91K** Apple Computer, Inc. Savings
and Investment Plan, as
amended and restated effective as
of October 1, 1990.
10.A.3-1 92K** Amendment of Apple
Computer, Inc. Savings and
Investment Plan dated March 1,
1992.
10.A.4 88K** Form of Director Warrant.
10.A.5 ** 1990 Stock Option Plan, as
amended through September 9,
1996.
10.A.6 ** Apple Computer, Inc.
Employee Stock Purchase Plan,
as amended through September
9, 1996.
10.A.7 96/1Q** 1996 Senior / Executive
Incentive Bonus Plan.
10.A.8 91K** Form of Indemnification
Agreement between the
Registrant and each officer of
the Registrant.
10.A.15-1 93K-10.A.15** 1993 Executive Restricted Stock
Plan
10.A.19 96/1Q** Executive Severance Plan as
amended and restated effective as
of January 15, 1996
10.A.19-1 95/3Q** Supplement to the Executive
Severance Plan effective as of
June 9, 1995.
10.A.21 95/3Q** Form of Senior Executive
Retention Agreement dated June
9, 1995.
10.A.23 96/1Q** Separation Agreement dated
December 1, 1995, between
Registrant and Daniel Eilers.
10.A.24 96/1Q** Separation Agreement dated
October 31, 1995, between
Registrant and Joseph A.
Graziano.
10.A.25 96/1Q** Summary of Principal Terms of
Employment between Registrant and
Gilbert F. Amelio.
10.A.26 96/2Q** Employment Agreement dated
February 28, 1996, between
Registrant and Gilbert F.
Amelio.
10.A.27 96/2Q** Employment Agreement dated
February 26, 1996, between
Registrant and George M.
Scalise.
* Footnotes appear on page 56.
** Represents a management contract or compensatory plan or
arrangement.
53
<PAGE>
(c) Exhibits (continued)
Exhibit
Number Notes* Description
10.A.28 96/2Q** Employment Agreement dated
March 4, 1996, between
Registrant and Fred D.
Anderson, Jr.
10.A.29 96/2Q** Retention Agreement dated
March 4, 1996, between
Registrant and Fred D.
Anderson, Jr.
10.A.30 96/2Q** Employment Agreement dated
April 2, 1996, between
Registrant and John Floisand.
10.A.31 96/2Q** Employment Agreement dated
April 3, 1996, between Apple
Japan, Inc. and John Floisand.
10.A.32 96/3Q** Employment Agreement dated
June 13, 1996, between
Registrant and Robert M.
Calderoni.
10.A.33 96/3Q** Employment Agreement dated
June 25, 1996, between
Registrant and Ellen M.
Hancock.
10.A.34 96/3Q** Retention Agreement dated June
25, 1996, between Registrant
and Ellen M. Hancock.
10.A.35 96/3Q** Retention Agreement dated June
27, 1996, between Registrant
and George M. Scalise.
10.A.36 96/3Q** Airplane Use Agreement dated
June 27, 1996, among
Registrant, Gilbert F. Amelio
and Aero Ventures.
10.A.37 96/3Q** Letter Agreement dated May 1,
1996, between Registrant and
Jeanne Seeley.
10.A.38 96/3Q** Separation Agreement effective
March 28, 1996, between
Registrant and Michael H.
Spindler.
10.A.39 96/3Q** Letter Agreement effective June
3, 1996, between Registrant and
James J. Buckley.
10.A.40 ** Employment Agreement
effective June 3, 1996, between
Registrant and G. Frederick
Forsyth.
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.
* Footnotes appear on page 56.
** Represents a management contract or compensatory plan or
arrangement.
54
<PAGE>
(c) Exhibits (continued)
Exhibit
Number Notes* Description
10.B.12 92K Microprocessor Requirements
Agreement dated January 31,
1992 between the Registrant and
Motorola, Inc.
10.B.13 96/2Q Restructuring Agreement dated
December 14, 1995, among
Registrant, Taligent, Inc. and
International Business Machines
Corporation.
10.B.14 96/2Q Stock Purchase Agreement dated
April 4, 1996 between
Registrant and SCI Systems,
Inc.
10.B.16 96/3Q Fountain Manufacturing
Agreement dated May 31, 1996
between Registrant and SCI
Systems, Inc.
11 Computation of earnings (loss)
per common share.
21 Subsidiaries of the Company.
23 Consent of Independent
Auditors.
24 Power of Attorney.
27 Financial Data Schedule.
* Footnotes appear on page 56.
55
<PAGE>
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.
95/3Q 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.
96/1Q Incorporated by reference to the exhibit of that
number in the Company's Quarterly Report on
Form 10-Q for the quarter ended December 29, 1995.
96/2Q Incorporated by reference to the exhibit of that
number in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1996.
96/3Q Incorporated by reference to the exhibit of that
number in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 28, 1996.
96-S3/A-4.1.1,
- -4.2.1, -4.3.1,
- -4.8 Incorporated by reference to exhibits 4.1, 4.2, 4.3,
and 4.8, respectively, in the Company's Registration
Statement on Form S-3/A (file no. 333-10961)
filed October 30, 1996.
(d) Financial Statement Schedule
See Item 14(a)(2) of this Form 10-K.
56
<PAGE>
(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, 33-60279,33-60281, and 333-07437) 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
Form S-3/A No. 333-10961 in the related Prospectuses of our report dated
October 14, 1996 with respect to the consolidated financial statements and
schedule of Apple Computer, Inc. included in this Annual Report (Form
10-K) for the year ended September 27, 1996.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
December 18, 1996
57
<PAGE>
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/Gilbert F. Amelio
GILBERT F. AMELIO
Chairman and Chief Executive Officer
December 18, 1996
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Gilbert F. Amelio and
George M. Scalise, 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/ Gilbert F. Amelio /s/ Fred D. Anderson
GILBERT F. AMELIO FRED D. ANDERSON
Chairman and Executive Vice President, and
Chief Executive Officer Chief Financial Officer
(Principal Executive Officer), (Principal Financial Officer)
and Director December 18, 1996
December 18, 1996
/s/ A. C. Markkula, Jr. /s/ Delano E. Lewis
A. C. MARKKULA, JR. DELANO E. LEWIS
Director Director
December 18, 1996 December 18, 1996
/s/ Bernard Goldstein /s/ Edgar S. Woolard, Jr.
BERNARD GOLDSTEIN EDGAR S. WOOLARD, JR.
Director Director
December 18, 1996 December 18, 1996
/s/ B. Jurgen Hintz /s/ Gareth C. C. Chang
B. JURGEN HINTZ GARETH C. C. CHANG
Director Director
December 18, 1996 December 18, 1996
/s/ Katherine M.Hudson
KATHERINE M. HUDSON
Director
December 18, 1996
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.
58
<PAGE>
SCHEDULE II
APPLE COMPUTER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
Charged to
Allowance for Beginning Costs and Ending
Doubtful Accounts: Balance Expenses Deductions (1) Balance
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year Ended
September 27,1996 $87 $28 $24 $91
Year Ended
September 29,1995 $91 $17 $21 $87
Year Ended
September 30,1994 $84 $25 $18 $91
</TABLE>
(1) Represents amounts written off against the allowance, net of
recoveries.
S-1
<PAGE>
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. 52
3.2 (1) Amendment to Restated Articles of
Incorporation, filed with the Secretary of State of
the State of California on February 5, 1990. 52
3.2 (1) By-Laws of the Company, as amended through
April 20, 1994. 52
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. 52
4.1.1 (1) Indenture, dated as of June 1, 1996, between the
Company and Marine Midland Bank, as Trustee,
relating to the 6% Convertible Subordinated Notes
due June 1, 2001. 52
4.2 (1) Indenture dated as of February 1, 1994, between
the Company and Morgan Guaranty Trust
Company of New York (the "Indenture"). 52
4.2.1 (1) Form of the 6% Convertible Subordinated Notes
due June 1, 2001 included in Exhibit 4.1.1. 52
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. 52
4.3.1 (1) Specimen Certificate of Common Stock of
Apple Computer, Inc. (Incorporated by reference
to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (file no. 33-62310) filed
with the Securities and Exchange Commission
on May 6, 1993.). 52
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. 52
4.5 (1) Form of the Company's 6 1/2% Notes due 2004. 53
4.8 (1) Registration Rights Agreement, dated June 7,
1996 among the Company and Goldman, Sachs
& Co. and Morgan Stanley & Co. Incorporated. 53
10.A.1 (1) 1981 Stock Option Plan, as amended. 53
10.A.2 (1) 1987 Executive Long Term Stock Option Plan. 53
10.A.3 (1) Apple Computer, Inc. Savings and Investment
Plan, as amended and restated effective as of
October 1, 1990. 53
10.A.3.1(1) Amendment of Apple Computer, Inc. Savings
and Investment Plan dated March 1, 1992. 53
10.A.4 (1) Form of Director Warrant. 53
10.A.5 1990 Stock Option Plan, as amended through
September 9, 1996. 62
10.A.6 Apple Computer, Inc. Employee Stock Purchase
Plan, as amended through September 9, 1996. 70
(1) Incorporated by reference at page indicated.
59
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.A.7 (1) 1996 Senior / Executive Incentive Bonus Plan. 53
10.A.8 (1) Form of Indemnification Agreement between the
Registrant and each officer of the Registrant. 53
10.A.15.1(1) 1993 Executive Restricted Stock Plan. 53
10.A.19 (1) Executive Severance Plan as amended and restated
effective as of January 15, 1996. 53
10.A.19.1(1) Supplement to the Executive Severance Plan
effective as of June 9, 1995. 53
10.A.21 (1) Form of Senior Executive Retention Agreement
dated June 9, 1995. 53
10.A.23 (1) Separation Agreement dated December 1, 1995,
between Registrant and Daniel Eilers. 53
10.A.24 (1) Separation Agreement dated October 31, 1995,
between Registrant and Joseph A. Graziano. 53
10.A.25 (1) Summary of Principal Terms of Employment
between Registrant and Gilbert F. Amelio. 53
10.A.26 (1) Employment Agreement dated February 28,
1996, between Registrant and Gilbert F. Amelio. 53
10.A.27 (1) Employment Agreement dated February 26,
1996, between Registrant and George M.
Scalise. 53
10.A.28 (1) Employment Agreement dated March 4, 1996,
between Registrant and Fred D. Anderson, Jr. 54
10.A.29 (1) Retention Agreement dated March 4, 1996,
between Registrant and Fred D. Anderson, Jr. 54
10.A.30 (1) Employment Agreement dated April 2, 1996,
between Registrant and John Floisand. 54
10.A.31 (1) Employment Agreement dated April 3, 1996,
between Apple Japan, Inc. and John Floisand. 54
10.A.32 (1) Employment Agreement dated June 13, 1996,
between Registrant and Robert M. Calderoni. 54
10.A.33 (1) Employment Agreement dated June 25, 1996,
between Registrant and Ellen M. Hancock. 54
10.A.34 (1) Retention Agreement dated June 25, 1996,
between Registrant and Ellen M. Hancock. 54
(1) Incorporated by reference at page indicated.
60
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Index
Number Notes Description Page
10.A.35 (1) Retention Agreement dated June 27, 1996,
between Registrant and George M. Scalise. 54
10.A.36 (1) Airplane Use Agreement dated June 27, 1996,
among Registrant, Gilbert F. Amelio and
Aero Ventures. 54
10.A.37 (1) Letter Agreement dated May 1, 1996, between
Registrant and Jeanne Seeley. 54
10.A.38 (1) Separation Agreement effective March 28,
1996, between Registrant and Michael H.
Spindler. 54
10.A.39 (1) Letter Agreement effective June 3, 1996,
between Registrant and James J. Buckley. 54
10.A.40 Employment Agreement effective June 3,
1996, between Registrant and G. Frederick
Forsyth. 75
10.B.1 (1) Master OEM Agreement dated as of January
26, 1988 between the Company and Tokyo
Electric Co. Ltd. 54
10.B.7 (1) Know-how and Copyright License Agreement
(Power PC Architecture) dated as of September
30, 1991 between IBM and the Registrant. 54
10.B.8 (1) Participation in the Customer Design Center
by the Registrant dated as of September 30,
1991 between IBM and the Registrant. 54
10.B.9 (1) Agreement for Purchase of IBM Products
(Original Equipment Manufacturer) dated as of
September 30, 1991 between IBM and the
Registrant. 54
10.B.11 (1) Agreement dated October 9, 1991 between
Apple Corps Limited and the Registrant. 54
10.B.12 (1) Microprocessor Requirements Agreement dated
January 31, 1992 between the Registrant and
Motorola, Inc. 55
10.B.13 (1) Restructuring Agreement dated December 14,
1995, among Registrant, Taligent, Inc. and
International Business Machines Corporation. 55
10.B.14 (1) Stock Purchase Agreement dated April 4, 1996
between Registrant and SCI Systems, Inc. 55
10.B.16 (1) Fountain Manufacturing Agreement dated May
31, 1996 between Registrant and SCI
Systems, Inc. 55
11 Computation of earnings (loss) per common
share. 78
21 Subsidiaries of the Company. 79
23 Consent of Independent Auditors. 57
24 Power of Attorney. 58
27 Financial Data Schedule. 80
(1) Incorporated by reference at page indicated.
61
<PAGE>
EXHIBIT 10.A.5
APPLE COMPUTER, INC.
1990 STOCK OPTION PLAN
(as amended through 9/9/96)
1. Purposes of the Plan. The purposes of this 1990 Stock
Option Plan are to attract and retain high quality personnel for positions of
substantial responsibility, to provide additional incentive to Employees of
the Company, its Subsidiaries and its Affiliated Companies and to promote
the success of the Company's business. This Plan succeeds to and replaces
the Company's 1981 Stock Option Plan. Options granted under the Plan
may be incentive stock options (as defined under Section 422 of the Code)
or non-statutory stock options, as determined by the Administrator at the
time of grant of an option and subject to the applicable provisions of
Section 422 of the Code, and the regulations promulgated thereunder.
Stock appreciation rights ("SARs") may be granted under the Plan in
connection with Options or independently of Options.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its
Committees, as shall be administering the Plan from time to time
pursuant to Section 4 of the Plan.
(b) "Affiliated Company" means a corporation which is not
a Subsidiary but with respect to which the Company owns, directly or
indirectly through one or more Subsidiaries, at least 20% of the total
voting power, unless the Administrator determines in its discretion that
such corporation is not an Affiliated Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Common Stock" means the Common Stock, no par
value, of the Company.
(e) "Company" means Apple Computer, Inc., a California
corporation, or its successor.
(f) "Committee" means a Committee, if any, appointed by
the Board in accordance with paragraph (a) of Section 4 of the Plan.
(g) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(h) "Continuous Status as an Employee" means the absence
of any interruption or termination of the employment relationship with the
Company or any Subsidiary or Affiliated Company. Continuous Status as
an Employee shall not be considered interrupted in the case of: (i) medical
leave, provided that such leave is for a period of not more than four
months; (ii) military leave; (iii) family leave, provided that such leave is
for a period of not more than four months; (iv) any other leave of absence
approved by the Administrator, provided that such leave is for a period of
not more than four months, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to formal policy adopted from time to time by the Company and
issued and promulgated to Employees in writing; or (v) in the case of
transfers between locations of the Company or between the Company, its
Subsidiaries,its successor or its Affiliated Companies.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including Officers and
Directors, employed by and on the payroll of the Company, any Subsidiary
or any Affiliated Company. The payment of Directors' fees by the
Company shall not be sufficient to constitute "employment" by the
Company.
(k) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(l) "Fair Market Value" means the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system (including
without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System), its Fair Market Value shall be the closing
sales price for such stock or the closing bid if no sales were
reported, as quoted on such system or exchange (or the exchange
with the greatest volume of trading in Common Stock) for the
last market trading day prior to the time of determination, as
reported in the Wall Street Journal or such other source as the
Administrator deems reliable.
62
<PAGE>
(ii) If the Common Stock is regularly quoted on the NASDAQ
System (but not on the National Market System) or quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high and low
asked prices for the Common Stock for the last day on which
there are quoted prices prior to the time of determination.
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Administrator.
(m) "Officer" means an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(n) "Nonstatutory Stock Option" means an Option that is
not an Incentive Stock Option.
(o) "Incentive Stock Option" means an Option that satisfies
the provisions of Section 422 of the Code and is expressly designated by
the Administrator at the time of grant as an incentive stock option.
(p) "Option" means an Option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to
an Option or SAR.
(r) "Optionee" means an Employee who receives an Option
or SAR.
(s) "Parent" corporation shall have the meaning defined in
Section 424(e) of the Code.
(t) "Plan" means this 1990 Stock Option Plan.
(u) "SAR" means a stock appreciation right granted pursuant
to Section 9 below.
(v) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 12 of the Plan.
(w) "Subsidiary" corporation has the meaning defined in
Section 424(f) of the Code.
In addition, the terms "Rule 16b-3" and "Applicable Laws", the
term "Insiders", the term "Tax Date" and the terms "Change in Control"
and "Change in Control Price", shall have the meanings set forth,
respectively, in Sections 4, 9, 10 and 12 below.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares which
may be optioned and sold under the Plan or for which SARs may be
granted and exercised is 51,200,000 Shares (including Shares issued under
the 1981 Stock Option Plan, to which this Plan is a successor).
The Shares may be authorized but unissued or reacquired Common
Stock.
In the discretion of the Administrator, any or all of the Shares
authorized under the Plan may be subject to SARs issued pursuant to the
Plan.
If an Option or SAR issued under this Plan or under the
Company's 1981 Stock Option Plan should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless this Plan shall
have been terminated, become available for other Options or SARs under
this Plan. However, should the Company reacquire Shares which were
issued pursuant to the exercise of an Option or SAR, such Shares shall not
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(1) Multiple Administrative
Bodies. If permitted by Rule 16b-3 promulgated under the Exchange Act
or any successor rule thereto, as in effect at the time that discretion is
being exercised with respect to the Plan ("Rule 16b-3"), and by the legal
requirements relating to the administration of stock plans such as the Plan,
if any, of applicable securities laws, California corporate law and the Code
(collectively, "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to (A) Directors
who are not Employees, (B) Directors who are Employees, (C) Officers
who are not Directors and (D) Employees who are neither Directors nor
Officers.
63
<PAGE>
(2) Administration with respect
to Directors and Officers. With respect to grants and awards to Employees
who are also Officers or Directors of the Company, the Plan may be
administered by (A) the Board, if the Board may administer the Plan in
compliance with Rule 16b-3 as it applies to grants to Officers and
Directors, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted (I) in such a manner as to
permit the Plan and grants and awards thereunder to comply with Rule 16b-
3 as it applies to grants to Officers and Directors and (II) in such a manner
as to satisfy the Applicable Laws.
(3) Administration with respect
to Other Persons. With respect to grants and awards to Employees who are
neither Directors nor Officers of the Company, the Plan may be
administered by (A) the Board or (B) a Committee designated by the Board,
which Committee shall be constituted in such a manner as to satisfy the
Applicable Laws.
(4) General. Once a Committee
has been appointed pursuant to subsection (2) or (3) of this Section 4(a),
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of any Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (2) to the extent permitted by Rule 16b-3 as it
applies to grants to Officers and Directors.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and, in the case of a Committee, subject to the
specific duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion: (i) to determine
the Fair Market Value of the Common Stock in accordance with Section
2(l) of the Plan; (ii) to determine, in accordance with Section 8(a) of the
Plan, the exercise price per Share of Options and SARs to be granted; (iii)
to determine the Employees to whom, and the time or times at which,
Options and SARs shall be granted and the number of Shares to be
represented by each Option or SAR (including without limitation whether
or not a corporation shall be excluded from the definition of Affiliated
Company under Section 2(b)); (iv) to interpret the Plan; (v) to determine
the terms and conditions, not inconsistent with the terms of the Plan, of
any Option or SAR granted hereunder (including, but not limited to, any
restriction or limitation, or any vesting acceleration or waiver of forfeiture
restrictions regarding any Option or SAR and/or the Shares relating
thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion); (vi) to approve forms of agreement for
use under the Plan; (vii) to prescribe, amend and rescind rules and
regulations relating to the Plan; (viii) to modify or amend each Option or
SAR (with the consent of the Optionee) or accelerate the exercise date of
any Option or SAR; (ix) to reduce the exercise price of any Option or SAR
to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or SAR shall have declined since
the date the Option or SAR was granted; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option or SAR previously granted by the Administrator; and
(xi) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of Decisions by the Administrator. All
decisions, determinations and interpretations of the Administrator shall be
final and binding on all Optionees and any other holders of any Options.
5. Eligibility. Options and SARs may be granted only to
Employees. An Employee who has been granted an Option or SAR may,
if he or she is otherwise eligible, be granted an additional Option or
Options, SAR or SARs. Each Option shall be evidenced by a written
Option agreement, which shall expressly identify the Options as Incentive
Stock Options or as Nonstatutory Stock Options, and which shall be in
such form and contain such provisions as the Administrator shall from
time to time deem appropriate. However, notwithstanding such
designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Options designated as Incentive Stock
Options and options granted under other plans of the Company or any
Parent or Subsidiary that are designated as incentive stock options are
exercisable for the first time by an Optionee during any calendar year
exceeds $100,000, such excess Options shall be treated as Nonstatutory
Stock Options. For purposes of the preceding sentence, (i) Options shall
be taken into account in the order in which they were granted, and (ii) the
Fair Market Value of the Shares shall be determined as of the time the
Option or other incentive stock option with respect to such Shares is
granted. Without limiting the foregoing, the Administrator may, at any
time, or from time to time, authorize the Company, with the consent of
the respective recipients, to issue new Options or Options in exchange for
the surrender and cancellation of any or all outstanding Options, other
options, SARs or other stock appreciation rights.
Neither the Plan nor any Option or SAR agreement shall confer
upon any Optionee any right with respect to continuation of employment
by the Company (or any Parent, Subsidiary or Affiliated Company), nor
shall it interfere in any way with the Optionee's right or the right of the
Company (or any Parent, Subsidiary or Affiliated Company) to terminate
the Optionee's employment at any time or for any reason.
6. Term of Plan. The Plan shall become effective upon its
adoption by the Board or its approval by vote of the holders of a majority
of the outstanding Shares of the Company entitled to vote on the adoption
of the Plan, whichever is earlier. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option agreement. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive
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Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from
the date of grant thereof or such shorter time as may be provided in the
Option agreement.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for
the Shares issuable pursuant to an Option shall be such price as is
determined by the Administrator, but shall in no event be less than 100%
of the Fair Market Value of Common Stock, determined as of the date of
grant of the Option. In the event that the Administrator shall reduce the
exercise price, the exercise price shall be no less than 100% of the Fair
Market Value as of the date of that reduction. In no event shall the per
Share exercise price be less than 110% of the Fair Market Value per Share
as of the date of grant in the case of an Incentive Stock Option granted to
an Optionee who, immediately before the grant of such Option, owns
Shares representing more than 10% of the voting power or value of all
classes of stock of the Company or any Parent or Subsidiary.
(b) Method of Payment. The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the
case of an Incentive Stock Option, shall be determined at the time of grant)
and may consist of (i) cash, (ii) check, (iii) promissory note, (iv) other
Shares which have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (v) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price, or
(vi) any combination of the foregoing methods of payment and/or any
other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Stock Appreciation Rights.
(a) Granted in Connection with Options. At the
sole discretion of the Administrator, SARs may be granted in connection
with all or any part of an Option, either concurrently with the grant of the
Option or at any time thereafter during the term of the Option. The
following provisions apply to SARs that are granted in connection with
Options:
(i) The SAR shall entitle the Optionee to
exercise the SAR by surrendering to the Company unexercised a portion of
the related Option. The Optionee shall receive in exchange from the
Company an amount equal to the excess of (x) the Fair Market Value on
the date of exercise of the SAR of the Common Stock covered by the
surrendered portion of the related Option over (y) the exercise price of the
Common Stock covered by the surrendered portion of the related Option.
Notwithstanding the foregoing, the Administrator may place limits on the
amount that may be paid upon exercise of an SAR; provided, however, that
such limit shall not restrict the exercisability of the related Option.
(ii) When an SAR is exercised, the related
Option, to the extent surrendered, shall no longer be exercisable.
(iii) An SAR shall be exercisable only
when and to the extent that the related Option is exercisable and
shall expire no later than the date on which the related Option
expires.
(iv) An SAR may only be exercised at a
time when the Fair Market Value of the Common Stock covered by the
related Option exceeds the exercise price of the Common Stock covered by
the related Option.
(b) Independent SARs. At the sole discretion of the
Administrator, SARs may be granted without related Options. The
following provisions apply to SARs that are not granted in connection
with Options:
(i) The SAR shall entitle the Optionee,
by exercising the SAR, to receive from the Company an amount
equal to the excess of (x) the Fair Market Value of the Common
Stock covered by exercised portion of the SAR, as of the date of
such exercise, over (y) the Fair Market Value of the Common
Stock covered by the exercised portion of the SAR, as of the date
on which the SAR was granted; provided, however, that the
Administrator may place limits on the amount that may be paid
upon exercise of an SAR.
(ii) SARs shall be exercisable, in whole or
in part, at such times as the Administrator shall specify in the
Optionee's SAR agreement.
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(c) Form of Payment. The Company's obligation
arising upon the exercise of an SAR may be paid in Common Stock or in
cash, or in any combination of Common Stock and cash, as the
Administrator, in its sole discretion, may determine. Shares issued upon
the exercise of an SAR shall be valued at their Fair Market Value as of the
date of exercise.
(d) Rule 16b-3. SARs granted to persons who are
subject to Section 16 of the Exchange Act ("Insiders") shall contain such
additional restrictions as may be required to be contained in the plan or
SAR agreement in order for the SAR to qualify for the maximum
exemption provided by Rule 16b-3.
10. Method of Exercise.
(a) Procedure for Exercise; Rights as a Shareholder.
Any Option or SAR granted hereunder shall be exercisable at such times
and under such conditions as determined by the Administrator and as shall
be permissible under the terms of the Plan.
An Option or SAR shall be deemed to be exercised when
written notice of such exercise has been given to the Company in
accordance with the terms of the Option or SAR by the person entitled to
exercise the Option or SAR and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Administrator (and, in the case of an
Incentive Stock Option, determined at the time of grant) and permitted by
the Option agreement, consist of any consideration and method of payment
allowable under Section 8(b) of the Plan. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Section 12 of the Plan.
An Option or SAR may not be exercised with respect to a fraction of a
Share.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter shall be available, both
for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised. Exercise of an SAR in any
manner shall, to the extent the SAR is exercised, result in a decrease in the
number of Shares which thereafter shall be available for purposes of the
Plan, and the SAR shall cease to be exercisable to the extent it has been
exercised.
(b) Rule 16b-3. Options and SARs granted to
Insiders must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to be contained in
the Plan or the agreement to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
(c) Termination of Continuous Employment.
Upon termination of an Optionee's Continuous Status as Employee (other
than termination by reason of the Optionee's death), the Optionee may, but
only within ninety (90) days after the date of such termination, exercise his
or her Option or SAR to the extent that it was exercisable at the date of
such termination. Notwithstanding the foregoing, however, an Option or
SAR may not be exercised after the date the Option or SAR would
otherwise expire by its terms due to the passage of time from the date of
grant.
(d) Death of Optionee. In the event of the death of
an Optionee:
(1) Who is at the time of death an
Employee and who shall have been in Continuous Status as an
Employee since the date of grant of the Option, the Option or
SAR may be exercised at any time within six (6) months (or such
other period of time not exceeding twelve (12) months as
determined by the Administrator) following the date of death by
the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living and terminated his or her employment
six (6) months (or such other period of time not exceeding twelve
(12) months as determined by the Administrator) after the date of
death; or
(2) Within ninety (90) days after the
termination of Continuous Status as an Employee, the Option or
SAR may be exercised, at any time within six (6) months (or
such other period of time not exceeding twelve (12) months as
determined by the Administrator) following the date of death by
the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of
termination.
Notwithstanding the foregoing, however, an Option or
SAR may not be exercised after the date the Option or SAR would
otherwise expire by its terms due to the passage of time from the date of
grant.
(e) Stock Withholding to Satisfy Withholding Tax
Obligations. When an Optionee incurs tax liability in connection with the
exercise of an Option or SAR, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay
the Company an amount required to be withheld under applicable tax laws,
the Optionee may satisfy the withholding tax obligation (including, at the
election of the Optionee, any additional amount which the Optionee desires
to have withheld in order to satisfy in whole or in part the Optionee's full
estimated tax in connection with the exercise) by electing to have the
Company withhold from the Shares to be issued
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upon exercise of the Option, or the Shares to be issued upon exercise of
the SAR, if any, that number of Shares having a Fair Market Value equal
to the amount required to be withheld (and any additional amount desired to
be withheld, as aforesaid). The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior
to the applicable Tax Date; and
(ii) all elections shall be subject to the
consent or disapproval of the Administrator.
In the event the election to have Shares withheld is made
by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee
shall receive the full number of Shares with respect to which the Option or
SAR is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
11. Non-Transferability of Options. Options and SARs may
not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, provided, however, that the Adminstrator may grant non-
qualified stock options that are freely transferable. The designation of a
beneficiary by an Optionee or holder of an SAR does not constitute a
transfer. An Option or an SAR may be exercised, during the lifetime of
the Optionee or SAR holder, only by the Optionee or SAR holder or by a
transferee permitted by this Section 11.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option and SAR, and the number of Shares
which have been authorized for issuance under the Plan but as to which no
Options or SARs have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option or SAR, as well as the
price per Share covered by each such outstanding Option or SAR, shall be
proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the aggregate number of issued Shares effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in
that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option or SAR.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, all outstanding
Options and SARs will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Administrator.
The Administrator may, in the exercise of its sole discretion in such
instances, declare that any Option or SAR shall terminate as of a date fixed
by the Administrator and give each Optionee the right to exercise his or her
Option or SAR as to all or any part of the Optioned Stock or SAR,
including Shares as to which the Option or SAR would not otherwise be
exercisable.
(c) Sale of Assets or Merger. Subject to the
provisions of paragraph (d) hereof, in the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding Option and
SAR shall be assumed or an equivalent option or stock appreciation right
shall be substituted by such successor corporation or a parent or subsidiary
of such successor corporation, unless the Administrator determines, in the
exercise of its sole discretion and in lieu of such assumption or
substitution, that the Optionee shall have the right to exercise the Option
or SAR as to all of the Optioned Stock, including Shares as to which the
Option or SAR would not otherwise be exercisable. If the Administrator
makes an Option or SAR fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option or SAR shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option or
SAR will terminate upon the expiration of such period. For purposes of
this paragraph, an Option granted under the Plan shall be deemed to be
assumed if, following the sale of assets or merger, the Option confers the
right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the sale of assets or merger was not solely Common Stock of
the successor corporation or its parent, the Administrator may, with the
consent of the successor corporation and the participant, provide for the per
share consideration to be received upon exercise of the Option to be solely
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Common Stock of the successor corporation or its parent equal in Fair
Market Value to the per share consideration received by holders of
Common Stock in the sale of assets or merger.
(d) Change in Control. In the event of a "Change
in Control" of the Company, as defined in paragraph (e) below, unless
otherwise determined by the Administrator prior to the occurrence of such
Change in Control, the following acceleration and valuation provisions
shall apply:
(1) Any Options and SARs outstanding as
of the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become
fully exercisable and vested; and
(2) The value of all outstanding Options
and SARs shall, unless otherwise determined by the Administrator
at or after grant, be cashed-out. The amount at which such
Options and SARs shall be cashed out shall be equal to the excess
of (x) the Change in Control Price (as defined below) over (y) the
exercise price of the Common Stock covered by the Option or
SAR. The cash-out proceeds shall be paid to the Optionee or, in
the event of death of an Optionee prior to payment, to the estate
of the Optionee or to a person who acquired the right to exercise
the Option or SAR by bequest or inheritance.
(e) Definition of "Change in Control". For
purposes of this Section 12, a "Change in Control" means the happening
of any of the following:
( i ) When any "person", as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, a Subsidiary or a Company employee benefit plan,
including any trustee of such plan acting as trustee) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) The occurrence of a transaction
requiring shareholder approval, and involving the sale of all or
substantially all of the assets of the Company or the merger of
the Company with or into another corporation.
(f) Change in Control Price. For purposes of this
Section 12, "Change in Control Price" shall be, as determined by the
Administrator, (i) the highest Fair Market Value at any time within the 60-
day period immediately preceding the date of determination of the Change
in Control Price by the Administrator (the "60-Day Period"), or (ii) the
highest price paid or offered, as determined by the Administrator, in any
bona fide transaction or bona fide offer related to the Change in Control of
the Company, at any time within the 60-Day Period.
13. Time of Granting Options and SARs. The date of grant
of an Option or SAR shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option or SAR.
Notice of the determination shall be given to each Employee to whom an
Option or SAR is so granted within a reasonable time after the date of such
grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may
at any time amend, alter, suspend or terminate the Plan, as it may deem
advisable; provided that, to the extent necessary and desirable to comply
with Applicable Laws, regulatons or rules, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such
a degree as is required.
(b) Effect of Amendment or Termination. Any
such amendment, alteration, suspension or termination of the Plan shall
not impair the rights of any Optionee or SAR holder under any grant
theretofore made without his or her consent. Such Options and SARs
shall remain in full force and effect as if this Plan had not been amended or
terminated.
15. Conditions Upon Issuance of Shares. Shares shall not
be issued with respect to an Option or SAR unless the exercise of such
Option or SAR and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange
Act, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or quotation system upon which the Shares may
then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or SAR or
the issuance of Shares upon exercise of an Option or SAR, the Company
may require the person exercising such Option or SAR to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions
of law.
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Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the non-issuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
16. Reservation of Shares. The Company, during the term
of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
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EXHIBIT 10.A.6
APPLE COMPUTER, INC.
EMPLOYEE STOCK PURCHASE PLAN
(as amended through September 9, 1996)
The following constitute the provisions of the Employee Stock
Purchase Plan (herein called the "Plan") of Apple Computer, Inc. (herein
called the "Company").
1. Purpose. The purpose of the Plan is to provide
employees of the Company and its subsidiaries with an opportunity to
purchase Common Stock of the Company through payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986. The provisions of the Plan shall, accordingly, be construed so as to
extend and limit participation in a manner consistent with the requirements
of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of
the Company.
(b) "Common Stock" shall mean the Common
Stock, no par value, of the Company.
(c) "Company" shall mean Apple Computer, Inc.,
a California corporation.
(d) "Compensation" shall mean all regular straight
time earnings, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and commissions (except to
the extent that the exclusion of any such items is specifically directed by
the Board or its committee).
(e) "Designated Subsidiaries" shall mean the
Subsidiaries which have been designated by the Board from time to time in
its sole discretion as eligible to participate in the Plan.
(f) "Employee" means any person, including an
officer, who is customarily employed for at least twenty (20) hours per
week and more than five (5) months in a calendar year by the Company or
one of its Designated Subsidiaries.
(g) "Plan" shall mean this Employee Stock
Purchase Plan.
(h) "Section 16 Person" shall mean any person
participating in the Plan who has been designated by the Board of Directors
as having authority to carry out policy-making functions such that the
person is subject to the reporting and short-swing profit regulations of
Section 16 of the Securities Exchange Act of 1934.
(i) "Subsidiary" shall mean a corporation, domestic
or foreign, of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or
is hereafter organized or acquired by the Company or a Subsidiary.
(j) "1934 Act Section 16" shall mean Section 16
of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder.
3. Eligibility.
(a) Any Employee as defined in Section 2 who
shall be employed by the Company or one of its Designated Subsidiaries
on the date his or her participation in the Plan is effective shall be eligible
to participate in the Plan, subject to the limitations imposed by Section
423(b) of the Internal Revenue Code of 1986, as amended.
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(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i)
if, immediately after the grant, such Employee would own shares and/or
hold outstanding options to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of shares
of the Company or of any Subsidiary of the Company, or (ii) which
permits his or her rights to purchase shares under all employee stock
purchase plans of the Company and its Subsidiaries to accrue at a rate
which exceeds Twenty-Five Thousand Dollars ($25,000) of the fair market
value of the shares (determined at the time such option is granted) for each
calendar year in which such stock option is outstanding at any time.
4. Offering Dates. The Plan shall be implemented by one
offering during each six-month period of the Plan, commencing on or
about January 1, 1981 and continuing thereafter until terminated in
accordance with Section 19 hereof. The Board of Directors of the
Company shall have the power to change the duration of offering periods
with respect to future offerings without shareholder approval if such change
is announced at least fifteen (15) days prior to the scheduled beginning of
the first offering period to be affected.
5. Participation.
(a) An eligible Employee may become a participant
in the Plan by completing a subscription agreement authorizing payroll
deductions on the form provided by the Company and filing it with the
Company's payroll office prior to the applicable offering date. Once filed,
the subscription agreement shall remain effective for all subsequent
offering periods until the participant withdraws from the Plan as provided
in Section 10 hereof or files another subscription agreement.
(b) Payroll deductions for a participant shall
commence on the first payroll following the commencement offering date
and shall continue at the same rate until such time as the participant
withdraws from the Plan as provided in Section 10 hereof or another
subscription agreement is filed which changes the rate of payroll
deductions.
6. Payroll Deductions.
(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions
made on each payday during subsequent offering periods at a rate not
exceeding ten percent (10%) of the Compensation which he or she received
on such payday, and the aggregate of such payroll deductions during any
offering period shall not exceed ten percent (10%) of his or her aggregate
Compensation during said offering period.
(b) All payroll deductions made by a participant
shall be credited to his or her account under the Plan. A participant may
not make any additional payments into such account.
(c) A participant may discontinue his or her
participation in the Plan as provided in Section 10, or may lower, but not
increase, the rate of his or her payroll deductions (within the limitations set
forth in subsection (a) above) during an offering period by completing and
filing with the Company a new authorization for payroll deductions. The
change in rate shall be effective within fifteen (15) days following the
Company's receipt of the new authorization.
(d) A participant may increase his or her rate of
payroll deductions (within the limitations set forth in subsection (a)
above) to be effective for the next offering period by completing and filing
with the Company a new authorization for payroll deductions at least
fifteen (15) days before the beginning of said offering period.
7. Grant of Option.
(a) At the beginning of each six-month offering
period, each eligible Employee participating in the Plan shall be granted an
option to purchase (at the per share option price) up to a number of shares
of the Company's Common Stock determined by dividing the Employee's
accumulated payroll deductions (not to exceed an amount equal to ten
percent (10%) of his or her Compensation during the applicable offering
period) by the lower of (i)eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the date of the
commencement of said offering period, or (ii)eighty-five percent (85%) of
the fair market value of a share of the Company's Common Stock on the
date of the expiration of the offering period, subject to the limitations set
forth in Sections 3(b) and 12 hereof, and subject to the following
limitation: The number of shares of the Company's Common Stock
subject to any option granted to an Employee pursuant to this Plan shall
not exceed two hundred percent (200%) of the number of shares of the
Company's Common Stock determined by dividing an amount equal to ten
percent (10%) of the Employee's semi-annual Compensation as of the date
of the commencement of the applicable offering period by eighty-five
percent (85%) of the fair market value of a share of the Company's
Common Stock on the date of the commencement of said offering period.
Fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
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(b) The option price per share of such shares shall
be the lower of: (i) 85% of the fair market value of a share of the
Common Stock of the Company at the commencement of the six-month
offering period; or (ii) 85% of the fair market value of a share of the
Common Stock of the Company at the time the option is exercised at the
termination of the six-month offering period. The fair market value of the
Company's Common Stock on a given date shall be the mean of the
reported bid and asked prices for that date, or if the Common Stock is listed
on an exchange or quoted on the Nasdaq National Market, the closing sale
price on such exchange or quotation system for that date.
8. Exercise of Option. Unless a participant withdraws from
the Plan as provided in Section 10, his or her option for the purchase of
shares will be exercised automatically at the end of the offering period, and
the maximum number of full shares subject to option will be purchased for
him or her at the applicable option price with the accumulated payroll
deductions in his or her account. During his or her lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
9. Delivery; Roll-Over of Fractional Share Interests.
As promptly as practicable after the termination of each
offering, the Company shall arrange for the delivery to each participant, as
appropriate, of a certificate representing the number of full shares purchased
upon exercise of his or her option. No fractional shares shall be issued.
Any cash remaining to the credit of a participant's account under the Plan
after a purchase by him or her of shares at the termination of each offering
period which is insufficient to purchase a full share of Common Stock of
the Company subject to option shall remain in such participant's account
and shall be applied to the next succeeding offering period unless the
participant has withdrawn as to future offering periods, in which case such
cash shall be returned to said participant. Any cash attributable to shares in
excess of the number of shares subject to option to the participant (as
determined in accordance with Section 7(a) hereof) shall be returned to the
participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less
than all the payroll deductions credited to his or her account under the Plan
at any time prior to the end of the offering period by giving written notice
to the Company. All of the participant's payroll deductions credited to his
or her account will be paid to him or her promptly after receipt of his or
her notice of withdrawal and his or her option for the current period will be
automatically terminated, and no further payroll deductions for the purchase
of shares will be made during the offering period.
(b) Upon termination of the participant's
employment prior to the end of the offering period for any reason,
including retirement or death, the payroll deductions credited to his or her
account will be returned to him or her or, in the case of his or her death, to
the person or persons entitled thereto under Section 14, and his or her
option will be automatically terminated.
(c) In the event an Employee fails to remain in the
continuous employ of the Company or one of its Designated Subsidiaries
for at least twenty (20) hours per week during the offering period in which
the employee is a participant, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to his or her
account will be returned to him or her and his or her option terminated.
(d) Except as provided in Section 3(a) with respect
to Section 16 Persons, a participant's withdrawal from an offering will not
have any effect upon his or her eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the
Company. However, a new subscription agreement will have to be filed in
such case.
11. No Interest. No interest shall accrue on the payroll
deductions of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the
Company's Common Stock which shall be made available for sale under
the Plan shall be eleven million five hundred thousand (11,500,000)
shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 18. The shares to be sold to participants
under the Plan may, at the election of the Company, be either treasury
shares or shares authorized but unissued. If at the termination of any
offering period the total number of shares which would otherwise be
subject to options granted pursuant to Section 7(a) hereof exceeds the
number of shares then available under the Plan (after deduction of all share
for which options have been exercised or are then outstanding), the
Company shall promptly notify the participants, and shall, in its sole
discretion
72
<PAGE>
(i) make a pro rata allocation of the shares remaining available for option
grant in as uniform a manner as shall be practicable and as it shall
determine to be equitable, (ii) terminate the offering period without
issuance of any shares or (iii) obtain shareholder approval of an increase in
the number of shares authorized under the Plan such that all options could
be exercised in full. The Company may delay determining which of (i),
(ii) or (iii) above it shall decide to effect, and may accordingly delay
issuances of any shares under the Plan, for such time as is necessary to
attempt to obtain shareholder approval of any increase in shares authorized
under the Plan. The Company shall promptly notify participants of its
determination to effect (i), (ii) or (iii) above upon making such decision.
A participant may withdraw all but not less than all the payroll deductions
credited to his or her account under the Plan at any time prior to such
notification from the Company. In the event the Company determines to
effect (i) or (ii) above, it shall promptly upon such determination return to
each participant all payroll deductions not applied towards the purchase of
shares.
(b) The participant will have no interest or voting
right in shares covered by his or her option until such option has been
exercised.
(c) Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or in the name of the
participant and the spouse of the participant.
13. Administration. The Plan shall be administered by a
committee of members of the Board of Directors, which committee shall
be appointed by the Board. The administration, interpretation or
application of the Plan by such committee shall be final, conclusive and
binding upon all participants. Members of the committee shall not be
permitted to participate in the Plan.
14. Designation of Beneficiary.
(a) A participant may indicate in his or her
subscription agreement, or may file a written designation of beneficiary
with respect to, a person who is to receive any shares and cash, if any,
from the participant's account under the Plan in the event of such
participant's death subsequent to the end of the offering period but prior to
delivery to him or her of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash
from the participant's account under the Plan in the event of such
participant's death prior to the end of the offering period.
(b) Such designation of beneficiary may be changed
by the participant at any time by written notice. In the event of the death
of a participant and in the absence of a beneficiary validly designated under
the Plan who is living at the time of such participant's death, the
Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent
and distribution or as provided in Section 14 hereof) by the participant.
Any such attempt at assignment, transfer, pledge or other disposition shall
be without effect, except that the Company may treat such act as an
election to withdraw funds in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by
the Company under the Plan may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate
such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to
participating Employees semi-annually within a reasonable period of time
following the stock purchase date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased, the amount of cash rolled over into the next offering
period and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject
to any required action by the shareholders of the Company, the number of
shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which
have been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the "Reserves"), as well as the price per
share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split or the payment of a stock dividend (but only on the Common
Stock) or any other increase or decrease in the number of shares of
Common Stock
73
<PAGE>
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into or exercisable for shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock
subject to an Option.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option
under the Plan, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, and in the event of
the Company being consolidated with or merged into any other
corporation.
19. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may
at any time amend, alter, suspend or discontinue the Plan, but no
amendment, alteration, suspension or discontinuation shall be made which
would impair the rights of any participant under any option theretofore
granted without his or her consent.
(b) Shareholder Approval. The Company shall
obtain shareholder approval of any Plan amendment to the extent necessary
and desirable to comply with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or with Section 423 of the Internal
Revenue Code of 1986, as amended (or any successor statute or rule or
other applicable law, rule or regulation), such shareholder approval to be
obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any
such amendment or termination of the Plan shall not affect options already
granted hereunder and such options shall remain in full force and effect as if
this Plan had not been amended or terminated.
20. Notices. All notices or other communications by a
participant to the Company under or in connection with the Plan shall be
deemed to have been duly given when received in the form specified by the
Company at the location, or by the person, designated by the Company for
the receipt thereof. All notices or other communications to a participant
by the Company shall be deemed to have been duly given when sent by the
Company by regular mail to the address of the participant on the human
resources records of the Company or when posted on AppleLink or any
substitute general electronic messaging and bulletin board system utilized
by the Company.
21. Conditions Upon Issuance of Shares. Shares shall not
be issued with respect to an option unless the exercise of such option and
the issuance and delivery of such shares pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or automated
quotation system upon which the shares may then be listed or quoted, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the
Company may require the person exercising such option to represent and
warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute
such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable
provisions of law.
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EXHIBIT 10.A.40
August 19, 1996
Mr. Gerald F. Forsyth
120 Teresita Way
Los Gatos, CA 95032
Employment Agreement
Dear Fred:
The following sets forth our agreement regarding the
terms and provisions of your employment as an officer and employee of
Apple Computer, Inc. (the" Company"). Capitalized words which are not
otherwise defined herein shall have the meanings assigned to such words in
Section 5 of this Agreement.
1. Commencement of Employment. Your
employment under this Agreement commenced on July 1, 1996 (the
"Effective Date").
2. Position. You shall be employed as Senior
Vice President, General Manager of the Macintosh Products Group and
shall report directly to the Chief Operating Officer of the Company, and
your duties and responsibilities to the Company shall be consistent in all
respects with such position. You shall devote substantially all of your
business time, attention, skills and efforts exclusively to the business and
affairs of the Company, other than de minimis amounts of time devoted
by you to the management of your personal finances or to engaging in
charitable or community services. Your principal place of employment
shall be the executive offices of the Company in Cupertino, California,
although you understand and agree that you will be required to travel from
time to time for business purposes.
3. Compensation.
(a) Base Salary. As compensation to you for all
services rendered to the Company and its subsidiaries, the Company will
pay you a base salary at the rate of not less than four hundred forty
thousand dollars ($440,000) per annum as of the Effective Date. Your base
salary will be paid to you in accordance with the Company's regular
payroll practices applicable to its executive employees.
(b) Bonus. You shall be eligible to participate in
the annual Senior Executive Bonus Plan (domestic) sponsored by the
Company or any successor plan thereto. Such bonus program shall afford
you the opportunity to earn an annual bonus for each fiscal year of the
Company during your employment. During the Company's Fiscal Year
1996 only, your target annual bonus will be three hundred thirty thousand
dollars ($330,000). The amount of your target annual bonus thereafter
shall be reviewed annually by the Company. Each annual bonus shall be
paid to you in accordance with the terms and conditions of the bonus plan
then in effect.
(c) Stock Options. In consideration of this
Agreement, we will recommend to the Apple Computer, Inc. Board of
Directors a stock option grant of 150,000 shares of Apple Computer, Inc.
common stock. Each grant vests over a three year period at 33%
increments beginning one year from the grant date and shall at all times be
subject to the terms and conditions of the Apple Computer, Inc. 1990
Stock Option Plan, as amended, and any successor plans thereto ("1990
Stock Plan").
(d) Benefits. You shall be eligible to participate in
all employee benefit plans and arrangements that the Company provides to
its executive employees in accordance with the terms of such plans and
arrangements, which shall be no less favorable to you, in the aggregate,
than the terms and provisions available to other executive employees of the
Company.
4. Termination.
(a) Termination for Cause. If your employment is
terminated by the Company for Cause, the Company shall pay you the full
amount of the accrued but unpaid base salary you have earned through the
date of your termination, plus a cash payment (calculated on the basis of
your base salary then in effect) for all unused accrued vacation. In addition,
you shall be entitled to benefits under the employee plans and arrangements
described in Section 3(d) above in accordance with terms and provisions of
such plans and arrangements.
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<PAGE>
(b) Termination Other than for Cause. During the
three (3) year period following the Effective Date only, if your
employment is terminated by the Company for reasons other than for
Cause, the Company shall pay you the full amount of the accrued but
unpaid base salary you have earned through the date of your termination,
plus a cash payment (calculated on the basis of your base salary then in
effect) for all unused accrued vacation. In addition, the Company shall pay
you a lump sum amount and benefits as follows:
Lump Sum Payout
Termination Date Amount
During 3-year period 100% of annual base salary
following Effective Date ($440,000)
Additional Benefits
Continued Company-paid medical and dental insurance
benefits for a maximum of 12 months after employment
termination date.
Outplacement assistance by a vendor of the Company's
choosing and/or administrative assistance, the costs of which
shall not exceed $15,000.
The computer and printer in your office.
There shall be no other payments or benefits on termination.
5. Definitions. For purposes of this Agreement,
the following capitalized words shall have the meanings set forth below:
"Cause" shall mean a termination of your employment
which is a result of (i) your felony conviction, (ii) your willful disclosure
of material trade secrets or other material confidential information related to
the business of the Company and its subsidiaries or (iii) your willful and
continued failure substantially to perform your duties with the Company
(other than any such failure resulting from your incapacity due to physical
or mental illness or any such actual or anticipated failure resulting from a
resignation by you) after a written demand for substantial performance is
delivered to you by the Company's Chief Administrative Officer, which
demand specifically identifies the manner in which the Company believes
that you have not substantially performed your duties, and which
performance is not substantially corrected by you within 10 days of receipt
of such demand. For purposes of the previous sentence, no act or failure
to act on your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that your
action or omission was in the best interest of the Company.
6. Notice. For the purpose of this Agreement,
notices and all other communications provided for in this Agreement shall
be in writing and shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the Apple Computer, Inc., 1 Infinite Loop, MS 75-
8A, Cupertino, California 95014, Attn.: George Scalise, Chief
Administrative Officer, with a copy to the General Counsel of the
Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
7. Miscellaneous.
(a) Amendments, Waivers, Retention Agreement,
Etc. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement and this Agreement shall supersede all prior agreements,
negotiations, correspondence, undertakings and communications of the
parties, oral or written, with respect to the subject matter hereof; provided,
however, that the Retention Agreement between you and the Company
shall supersede this Agreement in its entirety upon the Change in Control
Date as specified in the Retention Agreement.
(b) Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
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<PAGE>
(c) Counterparts. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
(d) Withholding. Amounts paid to you hereunder
shall be subject to all applicable federal, state and local withholding taxes.
(e) Source of Payments. All payments provided
under this Agreement, other than payments made pursuant to a plan which
provides otherwise, shall be paid in cash from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. You will have no right,
title or interest whatsoever in or to any investments which the Company
may make to aid it in meeting its obligations hereunder. To the extent
that any person acquires a right to receive payments from the Company
hereunder, such right shall be no greater than the right of an unsecured
creditor of the Company.
(f) Headings. The headings contained in this
Agreement are intended solely for convenience of reference and shall not
affect the rights of the parties to this Agreement.
(g) Governing Law. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
laws of the State of California applicable to contracts entered into and
performed in such State.
* * * *
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of
this letter which will then constitute our agreement on this subject.
Sincerely,
APPLE COMPUTER, INC.
By__________________________
Marco Landi
Executive Vice President and
Chief Operating Officer
Agreed to as of this ____ day of August, 1996.
_______________________________
Gerald F. Forsyth
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
APPLE COMPUTER, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Dollars in millions, except per share amounts)
Fiscal Years Ended
September 27, September 29, September 30,
1996 1995 1994
<S> <C> <C> <C>
Primary Earnings
(Loss) Per Share
Net income(loss) ($816) $424 $310
Shares
Weighted average
number of common
shares
outstanding
(in thousands) 123,734 121,192 117,808
Adjustment for
dilutive effect
of outstanding
stock options
(in thousands) -- 1,855 927
Weighted average
number of
common and
common
equivalent
shares used
for primary
earnings(loss)
per share (in
thousands) 123,734 123,047 118,735
Primary earnings
(loss) per
common and
common
equivalent
share ($6.59) $3.45 $2.61
Fully Diluted
Earnings(Loss)
Per Share
Net income (loss) ($816) $424 $310
Shares
Weighted averages
number of common
shares
outstanding
(in thousands) 123,734 121,192 118,735
Adjustment for
dilutive
effect of
outstanding
stock options
(in thousands) -- 2,076 1,002
Weighted average
number of common
and common
equivalent shares
used for fully
diluted earninngs
(loss) per share
(in thousands) 123,734 123,268 118,810
Fully diluted
earnings(loss)
per common and
common
equivalent share ($6.59) $3.44 $2.61
</TABLE>
78
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF APPLE COMPUTER, INC*
Name Jurisdiction of
Incorporation
Apple Computer B.V. Netherlands
Apple Computer, Inc. Limited Ireland
Apple Computer Limited Ireland
Apple Japan, Inc. Japan
*Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other
subsidiaries of Apple Computer, Inc. are omitted because, considered in
the aggregate, they would not constitute a significant subsidiary as of
the end of the year covered by this report.
79
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-END> SEP-27-1996
<CASH> 1,552
<SECURITIES> 193
<RECEIVABLES> 1,587
<ALLOWANCES> 91
<INVENTORY> 662
<CURRENT-ASSETS> 4,515
<PP&E> 1,348
<DEPRECIATION> 750
<TOTAL-ASSETS> 5,364
<CURRENT-LIABILITIES> 2,003
<BONDS> 949
<COMMON> 439
0
0
<OTHER-SE> 1,619
<TOTAL-LIABILITY-AND-EQUITY> 6,234
<SALES> 9,833
<TOTAL-REVENUES> 9,833
<CGS> 8,865
<TOTAL-COSTS> 8,865
<OTHER-EXPENSES> 2,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> (1,295)
<INCOME-TAX> (479)
<INCOME-CONTINUING> (816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (816)
<EPS-PRIMARY> (6.59)
<EPS-DILUTED> (6.59)
