UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
Form 10-Q
___________
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 1999 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 942404110
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1 Infinite Loop 95014
Cupertino, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
___________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
160,880,300 shares of Common Stock Issued and Outstanding as of July 30, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 26, June 26, June 26, June 26,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $1,558 $1,402 $4,798 $4,385
Cost of sales 1,131 1,042 3,486 3,323
Gross margin 427 360 1,312 1,062
Operating expenses:
Research and development 80 76 232 230
Selling, general, and
administrative 243 216 761 673
In-process research and
development -- 7 -- 7
Restructuring costs -- -- 9 --
Total operating expenses 323 299 1,002 910
Operating income 104 61 310 152
Gain from sales of investment 101 40 188 40
Interest and other income
(expense), net 24 8 53 23
Total interest and other
income (expense), net 125 48 241 63
Income before provision
for income taxes 229 109 551 215
Provision for income taxes 26 8 61 12
Net income $ 203 $ 101 $ 490 $ 203
Earnings per common share:
Basic $1.41 $0.76 $3.54 $1.55
Diluted $1.20 $0.65 $2.99 $1.40
Shares used in computing earnings
per share (in thousands):
Basic 144,054 133,068 138,571 130,971
Diluted 174,650 171,786 173,330 145,177
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share amounts)
<TABLE>
<CAPTION>
ASSETS
June 26, 1999 September 25,1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,773 $1,481
Short-term investments 1,333 819
Accounts receivable, less allowances of
$69 and $81, respectively 896 955
Inventories 7 78
Deferred tax assets 137 182
Other current assets 152 183
Total current assets 4,298 3,698
Property, plant, and equipment, net 313 348
Other assets 408 243
Total assets $5,019 $4,289
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 792 $ 719
Accrued expenses 747 801
Total current liabilities 1,539 1,520
Long-term debt 300 954
Deferred tax liabilities 210 173
Total liabilities 2,049 2,647
Commitments and contingencies
Shareholders' equity:
Series A non-voting convertible preferred
stock, no par value; 150,000 shares
authorized, issued and outstanding 150 150
Common stock, no par value; 320,000,000
shares authorized; 160,126,525 and
135,192,769 shares issued and
outstanding, respectively 1,340 633
Retained earnings 1,388 898
Accumulated other comprehensive
income (loss) 92 (39)
Total shareholders' equity 2,970 1,642
Total liabilities and
shareholders' equity $5,019 $4,289
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 26, 1999 June 26, 1998
<S> <C> <C>
Cash and cash equivalents,
beginning of the period $1,481 $1,230
Operating:
Net income 490 203
Adjustments to reconcile net income to
cash generated by operating activities:
Depreciation and amortization 66 88
Provision for deferred income taxes 15 6
Gain on sales of ARM shares (188) (40)
In-process research and development -- 7
Changes in operating assets and liabilities:
Accounts receivable 59 112
Inventories 71 308
Other current assets 31 68
Other assets 6 41
Accounts payable 73 (112)
Other current liabilities (43) (188)
Cash generated by operating activities 580 493
Investing:
Purchase of short-term investments (3,039) (1,620)
Proceeds from sales and maturities
of short-term investments 2,525 1,059
Net proceeds from property, plant, and
equipment retirements 21 79
Purchase of property, plant, and equipment (31) (29)
Cash paid for acquisition of technology -- (10)
Proceeds from sales of ARM shares 201 24
Other (6) (14)
Cash used for investing activities (329) (511)
Financing:
Decrease in notes payable to banks -- (25)
Increase in long-term borrowings -- 2
Increases in common stock 41 14
Cash generated (used) by financing activities 41 (9)
Total cash generated (used) 292 (27)
Cash and cash equivalents, end of the period $1,773 $1,203
Supplemental cash flow disclosures:
Cash paid for interest $ 49 $ 50
Cash received for income taxes, net $ (1) $ (14)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
APPLE COMPUTER, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments of a normal recurring nature necessary for a fair
statement of interim periods presented have been included. The results for
interim periods are not necessarily indicative of results to be expected for
the entire year. These condensed consolidated financial statements and
accompanying notes should be read in conjunction with the Company's annual
consolidated financial statements and the notes thereto for the fiscal year
ended September 25, 1998, included in its Annual Report on Form 10-K for the
year ended September 25, 1998 (the 1998 Form 10-K).
During the first quarter of 1999, the Company amended its By-laws to provide
that beginning with the first fiscal quarter of 1999 each of the Company's
fiscal quarters would end on Saturday rather than Friday. Accordingly, one day
was added to the first quarter of 1999 so that the quarter ended on Saturday,
December 26, 1998. This change did not have a material effect on the
Company's revenue or results of operations for the first, second, or third
quarters of fiscal 1999 or on the aggregate revenue or results of operations
for the nine months ended June 26, 1999.
Note 2 - Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common
shares outstanding during the period increased to include the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. The dilutive effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method. The dilutive effect of convertible securities is
reflected using the if-converted method.
5
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except net income and per share amounts):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
6/26/99 6/26/98 6/26/99 6/26/98
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic
earnings per share -
Net income (in millions) $ 203 $ 101 $ 490 $ 203
Interest expense on
convertible debt 7 11 28 --
Numerator for diluted
earnings per share - Adjusted
net income (in millions) $ 210 $ 112 $ 518 $ 203
Denominator:
Denominator for basic earnings
per share - weighted-average
shares outstanding 144,054 133,068 138,571 130,971
Effect of dilutive securities:
Convertible preferred stock 9,091 9,091 9,091 9,091
Convertible debt 15,717 22,642 20,333 --
Dilutive options 5,788 6,985 5,335 5,115
Dilutive potential
common shares 30,596 38,718 34,759 14,206
Denominator for diluted
earnings per share - adjusted
weighted-average shares and
assumed conversions 174,650 171,786 173,330 145,177
Basic earnings per share $ 1.41 $ 0.76 $ 3.54 $ 1.55
Diluted earnings per share $ 1.20 $ 0.65 $ 2.99 $ 1.40
</TABLE>
Options to purchase approximately 80,000 weighted-average shares of
common stock were outstanding during the quarter ended June 26, 1999, that
were not included in the computation of diluted earnings per share for the
three months ended June 26, 1999, because the options' exercise price was
greater than the average market price of the Company's common stock during
the period and, therefore, the effect would be antidilutive.
As of the beginning of the third quarter of fiscal 1999, the Company had
outstanding $661 million of unsecured convertible subordinated debentures (the
Debentures) which were convertible by their holders into approximately 22.6
million shares of common stock at a conversion price of $29.205 per share. The
6
<PAGE>
weighted average common shares represented by the Debentures upon
conversion were included in the computation of diluted earnings per share for
the three and nine month periods ended June 26, 1999, and the three month
period ended June 26, 1998, as the effect of using the if-converted method was
dilutive for these periods. The common shares represented by the Debentures
were not included in the computation of diluted earnings per share for the nine
month periods ended June 26, 1998, because the effect of using the if-converted
method for that period was anti-dilutive. For additional disclosures regarding
the Debentures, see the 1998 Form 10-K and footnote 6 of these Notes to
Condensed Consolidated Financial Statements. For additional disclosures
regarding the outstanding preferred stock and employee stock options, see the
1998 Form 10-K.
Note 3 - Consolidated Financial Statement Details (in millions)
<TABLE>
<CAPTION>
Inventories 06/26/99 9/25/98
<S> <C> <C>
Purchased parts $ 1 $ 32
Work in process 0 5
Finished goods 6 41
Total inventories $ 7 $ 78
</TABLE>
<TABLE>
<CAPTION>
Property, Plant, and Equipment 06/26/99 9/25/98
<S> <C> <C>
Land and buildings $ 320 $ 338
Machinery and equipment 250 277
Office furniture and equipment 73 80
Leasehold improvements 124 129
Accumulated depreciation and amortization (454) (476)
Net property, plant, and equipment $ 313 $ 348
</TABLE>
<TABLE>
<CAPTION>
Accrued Expenses 06/26/99 9/25/98
<S> <C> <C>
Accrued compensation and employee benefits $ 92 $ 99
Accrued marketing and distribution 182 205
Accrued warranty and related costs 116 132
Other current liabilities 357 365
Total accrued expenses $ 747 $ 801
</TABLE>
<TABLE>
<CAPTION>
Interest and Other Income (Expense) Nine Months Ended
06/26/99 06/26/98
<S> <C> <C>
Interest income $ 102 $ 71
Interest expense (42) (47)
Other income (expense), net (7) (1)
Interest and other income (expense), net $ 53 $ 23
</TABLE>
7
<PAGE>
Note 4 - Equity Investment Gains
As of September 25, 1998, the Company owned 25.9% of the outstanding stock
of ARM Holdings plc (ARM), a publicly held company in the United Kingdom
involved in the design of high performance microprocessors and related
technology. All share figures for the sale of ARM stock are adjusted for a 4
for 1 stock split effected by ARM in April of 1999. During the third quarter
of fiscal 1999, the Company sold approximately 10 million shares of ARM
stock for net proceeds of approximately $105 million, recorded a gain before
taxes of approximately $101 million as other income, and recognized related
income tax expense of approximately $12 million. During the nine months
ended June 26, 1999, the Company has sold a total of 29.6 million shares of
ARM stock for net proceeds of approximately $201 million, recorded a gain
before taxes of approximately $188 million, and recognized related income tax
expense of approximately $20 million. During the third quarter of fiscal 1998,
the Company sold 11.4 million shares of ARM stock which resulted in a total
gain before taxes of approximately $40 million and related income tax of
approximately $7 million. As of June 26, 1999, the Company continues to hold
19 million shares of ARM stock.
Through September 25, 1998, the Company accounted for its investment in
ARM using the equity method. As a result of the sale of ARM stock in
October 1998, the Company's ownership interest in ARM fell to 19%.
Consequently, beginning in the first quarter of fiscal 1999, the Company
ceased accounting for its remaining investment in ARM using the equity
method and has categorized its remaining shares as available for sale
requiring the shares be carried at fair value, with unrealized gains and
losses net of taxes reported as a component of accumulated other
comprehensive income in shareholders' equity. As of June 26, 1999, the
carrying value of the Company's remaining shares in ARM included in other
assets was approximately $213 million, and the total unrealized gains net of
taxes included in equity as a component of accumulated other comprehensive
income was approximately $134 million.
Note 5 - Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income", beginning with the Company's
first quarter of 1999. SFAS No. 130 separates comprehensive income into two
components, net income and other comprehensive income. Other comprehensive
income refers to revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of shareholders'
equity but are excluded from net income. While SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income, it has no impact
on the Company's net income or total shareholders' equity. The Company's
other comprehensive income is comprised of foreign currency translation
adjustments from those subsidiaries not using the U.S. dollar as their
functional currency and from unrealized gains and losses on marketable
securities categorized as available for sale. See Note 4 regarding unrealized
gains on available for sale securities.
8
<PAGE>
The components of comprehensive income, net of tax, are as
follows (in millions):
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
6/26/99 6/26/98 6/26/99 6/26/98
<S> <C> <C> <C> <C>
Net income $ 203 $ 101 $ 490 $ 203
Other comprehensive income:
Change in accumulated
translation adjustment (5) (5) (3) (11)
Unrealized gain on investments, net 18 -- 273 --
Reclassification adjustment for
gain included in net income (89) -- (139) --
Total comprehensive income $ 127 $ 96 $ 621 $ 192
</TABLE>
Note 6 - Conversion of Debt
On April 14, 1999, the Company called for redemption its outstanding 6
percent convertible subordinated debentures due June 1, 2001. Not including
approximately $7 million of unamortized debt issuance costs, debentures in an
aggregate principal amount outstanding totaled approximately $661 million as
of March 27, 1999. During the third quarter of 1999, debenture holders chose
to convert virtually all of the outstanding debentures to common stock at a
rate of $29.205 per share resulting in the issuance of approximately 22.6
million shares of the Company's common stock.
Note 7 - Restructuring Costs
During the second quarter of 1999, the Company took certain actions to
improve the flexibility and efficiency of its manufacturing operations by
moving final assembly of certain of its products to third-party manufacturers.
These restructuring actions resulted in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999
which was comprised of $6 million for severance benefits to be paid to
employees involuntarily terminated, $2 million for the write-down of operating
assets to be disposed of, and $1 million for payments on cancelled contracts.
As of June 26, 1999, $8 million had been spent. The remaining $1 million is
expected to be spent before the end of fiscal 1999.
Note 8 - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and in
June 1998 issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." A discussion of these accounting standards is included in
the notes to consolidated financial statements included in the 1998 Form 10-K
under the subheading "Recent Accounting Pronouncements." Although the
Company continues to review the effect of the implementation of SFAS No. 133,
9
<PAGE>
the Company does not currently believe its adoption will have a material impact
on its consolidated results of operations or financial position and does not
believe adoption will result in significant changes to its financial risk
management practices. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000.
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the costs of computer
software intended for internal use. SOP 98-1 must be adopted by the Company
effective as of fiscal 2000 and is not expected to have a material impact on
the Company's consolidated results of operations or financial position.
During the first quarter of 1999, the Company adopted AICPA SOP 97-2,
"Software Revenue Recognition." SOP 97-2 established standards relating to the
recognition of software revenue. SOP 97-2 was effective for transactions
entered into by the Company beginning in the first quarter of fiscal 1999. The
adoption of this accounting standard did not have a material impact on the
Company's results of operations.
Note 9 - Contingencies
The Company is subject to various legal proceedings and claims which are
discussed in detail in the 1998 Form 10-K. The Company is also subject to
certain other legal proceedings and claims which have arisen in the ordinary
course of business and which have not been fully adjudicated. The results of
legal proceedings cannot be predicted with certainty; however, in the opinion
of management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
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 by filing
petitions with the United States Tax Court, and most of the issues in dispute
have now been resolved. On June 30, 1997, the IRS proposed income tax
adjustments for the years 1992 through 1994. Although a substantial number of
issues for these years have been resolved, certain issues still remain in
dispute and are being contested by the Company. Management believes that
adequate provision has been made for any adjustments that may result from tax
examinations.
Note 10 - Reclassifications
Certain amounts in the Condensed Consolidated Statement of Cash Flows for
the nine months ended June 26, 1998, have been reclassified to conform to the
1999 presentation.
10
<PAGE>
Note 11 - Subsequent Events
On July 14, 1999, the Company announced that its board of directors had
authorized a plan for the Company to repurchase up to $500 million of its
common stock. The repurchase plan does not obligate the Company to acquire
any specific number of shares or acquire shares over any specified period of
time.
On July 28, 1999, the Company announced that it would invest $100 million in
Samsung Electronics Co., Ltd (Samsung) to further expand Samsung's TFT-
LCD flat-panel display production capacity. The investment is in the form of
three year senior unsecured bonds which are convertible into approximately
550,000 shares of Samsung common stock beginning in July of 2000. The bonds
carry an annual coupon rate of 2% and pay a total yield to maturity of 5% if
redeemed at their maturity. The Company is subject to a "lock-up" agreement
under which it is restricted from selling the bonds for one year.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Factors That May
Affect Future Results and Financial Condition" below. The following discussion
should be read in conjunction with the 1998 Form 10-K and the condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q. All information is based on the Company's fiscal calendar.
11
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Tabular information (dollars in millions, except per share amounts):
Three Months Ended Nine Months Ended
6/26/99 6/26/98 Change 6/26/99 6/26/98 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,558 $1,402 11% $4,798 $4,385 9%
Macintosh CPU
unit sales 905,000 644,000 41% 2,676,000 1,929,000 39%
Gross margin $427 $360 19% $1,312 $1,062 24%
Percentage of net sales 27.4% 25.7% 27.3% 24.2%
Research and development $ 80 $ 76 5% $232 $230 1%
Percentage of net sales 5% 5% 5% 5%
Selling, general and
administrative $243 $216 12% $761 $673 13%
Percentage of net sales 16% 15% 16% 15%
In-process research and
development $ -- $ 7 $ -- $ 7
Restructuring costs $ -- $ -- $ 9 $ --
Gain from sales of investment $101 $ 40 153% $188 $ 40 370%
Other income (expense), net $ 24 $ 8 200% $ 53 $ 23 130%
Provision for income taxes $ 26 $ 8 225% $ 61 $ 12 408%
Effective tax rate 11% 7% 11% 6%
Net income $203 $101 101% $490 $203 141%
Basic earnings per share $1.41 $0.76 86% $3.54 $1.55 128%
Diluted earnings per share $1.20 $0.65 85% $2.99 $1.40 114%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
6/26/99 3/27/99 Change
<S> <C> <C> <C>
Net sales $1,558 $1,530 2%
Macintosh CPU
unit sales 905,000 827,000 9%
Gross margin $427 $403 6%
Percentage of net sales 27.4% 26.3%
Research and development $ 80 $ 76 5%
Percentage of net sales 5% 5%
Selling, general and
administrative $243 $239 2%
Percentage of net sales 16% 16%
Restructuring costs $ -- $ 9
Gain from sales of investment $101 $ 55 84%
Other income (expense), net $ 24 $ 19 26%
Provision for income taxes $ 26 $ 18 44%
Effective tax rate 11% 12%
Net income $203 $135 50%
Basic earnings per share $1.41 $0.99 42%
Diluted earnings per share $1.20 $0.84 43%
</TABLE>
12
<PAGE>
Net Sales
Information regarding net sales and Macintosh CPU unit sales by geography
and product family follows:
Net Sales (in millions)
<TABLE>
<CAPTION>
Three Months Ended
6/26/99 3/27/99 6/26/98
<S> <C> <C> <C>
U.S., Canada, South America (Americas) $ 907 $ 806 $ 873
Europe, Middle East & Africa (EMEA) 297 374 270
Japan 272 267 186
Asia Pacific 82 83 73
Totals for Geographies $ 1,558 $ 1,530 $ 1,402
iMac and Performa $ 516 $ 358 $ 272
Power Macintosh G3 601 756 640
PowerBook 177 146 250
Non-CPU Revenue 264 270 240
Totals for Product Families $ 1,558 $ 1,530 $ 1,402
</TABLE>
Macintosh Units (in thousands)
<TABLE>
<CAPTION>
Three Months Ended
6/26/99 3/27/99 6/26/98
<S> <C> <C> <C>
U.S., Canada, South America (Americas) 519 421 405
Europe, Middle East & Africa (EMEA) 167 203 118
Japan 175 156 88
Asia Pacific 44 47 33
Totals for Geographies 905 827 644
iMac and Performa 487 351 182
Power Macintosh G3 346 401 344
PowerBook 72 75 118
Non-CPU Revenue - - -
Totals for Product Families 905 827 644
</TABLE>
Net sales for the third quarter of 1999 were $1.56 billion, an 11% increase
over the same quarter in 1998. The increase in net sales is primarily
attributable to a year-over-year 41% increase in quarterly Macintosh CPU unit
volume. Volumes were favorably affected by sales of iMac, the Company's
moderately priced Macintosh system designed for education and consumer
markets introduced during the fourth quarter of 1998, which represented 54%
or 487,000 of the total Macintosh CPU units sales during the third quarter
of 1999. The growth in iMac unit sales is primarily due to strong seasonal
sales in the U.S. education market and continued acceptance of the product
13
<PAGE>
in consumer markets around the world. The increase in overall unit sales
was somewhat mitigated by a sequential decrease in Power Macintosh G3 unit
sales during the third quarter of 1999 resulting from the introduction of
redesigned Power Macintosh G3 models during the second quarter of 1999. The
positive effect of increased unit volume on third quarter 1999 net sales was
partially offset by a decline in the average revenue per Macintosh system, a
function of total net sales related to hardware shipments and total Macintosh
CPU unit sales, which fell 21% from $2,129 to $1,683 during the third quarter
of 1999 as compared to the same quarter in 1998. The decline in the average
revenue per Macintosh system was the result of lower priced iMac systems
comprising a significant portion of third quarter 1999 net sales, the decline
in net sales from the phase out of certain peripheral products, and the
overall industry trend towards lower priced products.
Net sales for the first nine months of 1999 increased $413 million or 9% over
the same period in 1998. A 39% increase in Macintosh CPU unit volume was
the principal cause of the year-over-year increase in net sales. The impact
of the increase in unit volume was partially offset by a decline in the
average revenue per Macintosh system described above.
International net sales for the third quarter of 1999 represented 45% of
consolidated net sales compared to 43% for the same quarter in 1998 and 50%
for the second quarter of fiscal 1999. In total, international net sales
during the third quarter of 1999 increased approximately 18% or $109 million
over the same period in 1998 as a result of year over year increases in
Macintosh unit shipments in every major international geography. On a year-
over-year basis, total Macintosh unit sales during the third quarter of 1999
increased 99% in Japan, 33% in Asia Pacific, and 42% in EMEA. Sequentially,
international net sales declined $60 million or 8% during the third quarter
of 1999 as compared to the second quarter reflecting the effect of Power
Macintosh G3 product transitions during the second quarter of 1999 mentioned
above and the lessor impact of education sales in markets outside of the
United States. Net sales in the Americas during the third quarter of 1999
increased 4% or $34 million over the same period in 1998 and increased $101
million or 13% over the second quarter of 1999. The significant sequential
increase was due primarily to a 23% rise in unit shipments in the Americas
during the third quarter of 1999 as compared to the second quarter which was
the result of seasonal patterns experienced in the Company's domestic
education and consumer markets. The smaller year over year increase in net
sales in the Americas reflects a 28% growth in Macintosh unit shipments
offset by a decline in the average revenue per Macintosh system caused by
lower priced iMac systems comprising a significant portion of third quarter
1999 net sales in the Americas.
14
<PAGE>
Gross Margin
Gross margin for the third quarter of 1999 was 27.4% compared to 25.7% for
the same quarter in 1998 and 26.3% for the second quarter of 1999. Gross
margin for the first nine months of 1999 was 27.3% as compared to 24.2% for
the same period in 1998. The year-over-year increase in gross margin for both
the third quarter and the first nine months of the fiscal year is attributable
to various operational changes made by the Company throughout fiscal 1998 and
the first nine months of fiscal 1999 that improved operational efficiency and
reduced product costs. These changes included simplification of the Company's
product line, reductions in overall inventory levels, focus on the use of
industry standard parts, outsourcing of various aspects of product
manufacturing, and streamlining of product distribution channels and policies.
Margins have also been favorably impacted during the last year by the
declining cost of various components of the Company's products. The sequential
increase in gross margin from the second quarter of 1999 to the third quarter
of 1999 is primarily attributable to lower component prices, particularly for
DRAM and microprocessors, and strong demand for the Company's products
which allowed pricing to remain stable.
There can be no assurance that current or targeted consolidated gross margin
levels will be achieved or that current margins on existing individual products
will be maintained. In general, gross margins and margins on individual
products will remain under significant downward pressure due to a variety of
factors, including continued industry wide global pricing pressures, increased
competition, compressed product life cycles, potential increases in the cost
of raw material and outside manufacturing services, and potential changes to
the Company's product mix, including higher unit sales of consumer products
with lower average selling prices and lower gross margins. In response to
these downward pressures, the Company expects that it will continue to take
pricing actions with respect to its products. Gross margins could also be
affected by the Company's ability to effectively manage quality problems and
warranty costs, to stimulate demand for certain of its products, and to
effectively manage the final assembly of certain of its products by third
parties. The Company's operating strategy and pricing take into account
anticipated changes in foreign currency exchange rates over time; however, the
Company's results of operations can be significantly affected in the short
term by fluctuations in exchange rates.
Operating Expenses
Selling, general and administrative expenses, not including restructuring
costs, increased approximately $27 million or 12% during the third quarter of
1999 as compared to the same period in 1998 and increase sequentially $4
million or 2% from the second quarter of 1999. Selling, general and
administrative expenses for the first nine months of 1999 increased $88
million or 13% as compared to same period in 1998. The year-over-year
increases for both the third quarter and the first nine months of the fiscal
year, were due primarily to higher advertising and marketing costs.
Expenditures for research and development increased slightly in terms of
absolute dollars between the third quarter of 1999, the same quarter in 1998,
and the second quarter of 1999.
15
<PAGE>
During the second quarter of 1999, the Company took certain actions to improve
the flexibility and efficiency of its manufacturing operations by moving final
assembly of certain of its products to third party manufacturers. These
restructuring actions resulted in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999
primarily for severance benefits to be paid to employees to be involuntarily
terminated.
Total Interest and Other Income (Expense), Net
Interest and other income (expense), net, is comprised of interest income on
the Company's cash and investment balances, interest expense on the Company's
debt, gains and losses recognized on investments accounted for using the
equity method, realized gains and losses on the sale of securities, certain
foreign exchange gains and losses, and other miscellaneous income and expense
items. Net interest income increased during the three and nine month periods
ended June 26, 1999, compared to the same periods during the prior year as a
result of increased interest earning cash and investment balances. Also, the
conversion to common stock of the Company's 6 percent convertible
subordinated debentures discussed below under the heading "Liquidity" resulted
in a reduction in interest expense during the third quarter of fiscal 1999
of $4 million. The conversion of the convertible subordinated debentures will
reduce quarterly interest expense in future quarters by approximately $11
million.
As of September 25, 1998, the Company owned 25.9% of the outstanding stock
of ARM Holdings plc (ARM), a publicly held company in the United Kingdom
involved in the design of high performance microprocessors and related
technology. All share figures for the sale of ARM stock are adjusted for a 4
for 1 stock split effected by ARM in April of 1999. During the third quarter
of fiscal 1999, the Company sold approximately 10 million shares of ARM stock
for net proceeds of approximately $105 million, recorded a gain before taxes
of approximately $101 million as other income, and recognized related income
tax expense of approximately $12 million. During the nine months ended June
26, 1999, the Company has sold a total of 29.6 million shares of ARM stock for
net proceeds of approximately $201 million, recorded a gain before taxes of
approximately $188 million, and recognized related income tax expense of
approximately $20 million. During the third quarter of fiscal 1998, the
Company sold 11.4 million shares of ARM stock which resulted in a total gain
before taxes of approximately $40 million and related income tax of
approximately $7 million. As of June 26, 1999, the Company continues to hold
19 million shares of ARM stock.
16
<PAGE>
Provision for Income Taxes
As of June 26, 1999, the Company had deferred tax assets arising from
deductible temporary differences, tax losses, and tax credits of $590 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.
As of June 26, 1999, a valuation allowance of $87 million was recorded against
the deferred tax asset for the benefits of tax losses which may not be
realized. A substantial portion of the valuation allowance is for deferred tax
assets arising from tax loss carryforwards whose utilization is limited by
provisions of the tax code. Realization of approximately $73 million of the
asset representing tax loss and credit carryforwards is dependent on the
Company's ability to generate approximately $209 million of future U.S.
taxable income. Management believes that it is more likely than not that
forecasted U.S. income, including income that may be generated as a result of
certain tax planning strategies, will be sufficient to utilize the tax
carryforwards prior to their expiration in 2011 and 2012 to fully recover this
asset. However, there can be no assurance that the Company will meet its
expectations of future U.S. taxable 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 consolidated
financial results. The Company will continue to evaluate the realizability of
the deferred tax assets quarterly by assessing the need for and amount of the
valuation allowance.
The Company's effective tax rate for the three and nine months ended June 26,
1999, was approximately 11%. This effective rate is less than the statutory
federal income tax rate of 35% due primarily to the reversal of a portion of
the previously established valuation allowance for tax loss and credit
carryforwards and certain undistributed foreign earnings for which no U.S.
taxes were provided.
The Company anticipates that its tax rate for the remainder of fiscal 1999
will be comparable to that recognized for the nine months ended June 26, 1999.
The Company anticipates that its tax rate will increase significantly in
fiscal 2000. The foregoing statements are forward looking. The Company's
actual results could differ because of several factors, including those set
forth below in the subsection entitled "Factors That May Affect Future Results
and Financial Condition."
17
<PAGE>
Liquidity and Capital Resources
The following table presents selected financial information and statistics for
each of fiscal quarters ending on the dates indicated (dollars in millions):
<TABLE>
<CAPTION>
6/26/99 9/25/98 6/26/98
<S> <C> <C> <C>
Cash, cash equivalents,
and short-term investments $3,106 $ 2,300 $1,993
Accounts receivable, net $896 $955 $915
Inventory $ 7 $ 78 $129
Working capital $2,759 $2,178 $1,986
Long-term debt $300 $954 $953
Days sales in accounts receivable (a) 52 56 59
Days of supply in inventory (b) 1 6 11
Days payables outstanding (c) 64 60 57
Operating cash flow $ 88 $240 $156
</TABLE>
(a) Based on ending net trade receivables and most recent quarterly net sales
for each period
(b) Based on ending inventory and most recent quarterly cost of sales for each
period
(c) Based on ending accounts payable and most recent quarterly cost of sales
adjusted for the change in inventory
As of June 26, 1999, the Company had approximately $3.1 billion in cash, cash
equivalents, and short-term investments, an increase of more than $800 million
over the same balances at the end of fiscal 1998. For the nine months ended
June 26, 1999, the most significant sources of cash included $368 million of
net income excluding a $188 million gain from the sale of ARM stock and $66
million of depreciation and amortization, a decrease in accounts receivable of
$59 million, a decrease in inventories of $71 million, an increase in accounts
payable of $73 million, proceeds from the sale of ARM stock of $201 million,
and proceeds from the sale of common stock of $41 million. These sources of
cash were partially offset by the net purchase of short-term investments
of $514 million and a decrease in other current liabilities of $43 million.
The Company's cash and cash equivalent balances as of June 26, 1999, and
September 25, 1998, include $4 million and $56 million, respectively, pledged
as collateral to support letters of credit.
During the third quarter of fiscal 1999, the Company called for redemption its
outstanding 6 percent convertible subordinated debentures due June 1, 2001.
Not including approximately $7 million of unamortized debt issuance costs,
debentures in an aggregate principal amount outstanding totaled approximately
$661 million as of March 27, 1999. During the third quarter of 1999, debenture
holders chose to convert virtually all of the outstanding debentures to common
stock at a rate of $29.205 per share resulting in the issuance of
approximately 22.6 million shares of the Company's common stock.
18
<PAGE>
Through September 25, 1998, the Company accounted for its investment in
ARM using the equity method. As a result of the sale of ARM stock in October
1998, the Company's ownership interest in ARM fell to 19%. Consequently,
beginning in the first quarter of fiscal 1999, the Company ceased accounting
for its remaining investment in ARM using the equity method and has
categorized its remaining shares as available for sale requiring the shares be
carried at fair value, with unrealized gains and losses net of taxes reported
as a component of accumulated other comprehensive income in shareholders'
equity. As of June 26, 1999, the carrying value of the Company's remaining
shares in ARM included in other assets was approximately $213 million, and the
total unrealized gains net of taxes included in equity as a component of
accumulated other comprehensive income was approximately $134 million.
On July 14, 1999, the Company announced that its board of directors had
authorized a plan for the Company to repurchase up to $500 million of its
common stock. The repurchase plan does not obligate the Company to acquire
any specific number of shares or acquire shares over any specified period of
time.
On July 28, 1999, the Company announced that it would invest $100 million in
Samsung Electronics Co., Ltd (Samsung) to further expand Samsung's TFT-
LCD flat-panel display production capacity. The investment is in the form of
three year senior unsecured bonds which are convertible into approximately
550,000 shares of Samsung common stock beginning in July of 2000. The bonds
carry an annual coupon rate of 2% and pay a total yield to maturity of 5% if
redeemed at their maturity. The Company is subject to a "lock-up" agreement
under which it is restricted from selling the bonds for one year.
The Company believes that its balances of cash, cash equivalents, and short-
term investments will be sufficient to meet its cash requirements over the
next twelve months, including any cash that may be utilized to repurchase
common stock. However, given the Company's current non-investment grade
debt ratings, if the Company should need to obtain short-term borrowings, there
can no assurance that such borrowings could be obtained at favorable rates. The
inability to obtain such borrowings at favorable rates could materially
adversely affect the Company's results of operations, financial condition, and
liquidity.
19
<PAGE>
Year 2000 Compliance
The information presented below related to Year 2000 (Y2K) compliance
contains forward looking statements that are subject to risks and
uncertainties. The Company's actual results may differ significantly from
those discussed below and elsewhere in this Form 10-Q regarding Year 2000
compliance.
Year 2000
The Year 2000 (Y2K) issue is the result of certain computer hardware, operating
system software and software application programs having been developed using
two digits rather than four to define a year. For example the clock circuit
in the hardware may be incapable of holding a date beyond the year 1999; some
operating systems may recognize a date using "00" as the year 1900 rather than
2000 and certain applications may have limited date processing capabilities.
These problems could result in the failure of major systems or miscalculations,
which could have a material impact on companies through business interruption
or shutdown, financial loss, damage to reputation, and legal liability to third
parties.
State of Readiness
The Company's Information Systems and Technology department (IS&T) began
addressing the Y2K issue in 1996 as part of its Next Generation strategy,
which addressed the need for ongoing enhancement and replacement of the
Company's various disparate legacy information technology (IT) Systems. In
1998, the Company established a Year 2000 Executive Steering Committee
(Steering Committee) comprised of senior executives of the Company and the
Company's Year 2000 Project Management Office (PMO). The PMO reports to
the Executive Vice President and Chief Financial Officer, the Steering
Committee, and the Audit and Finance Committee of the Board of Directors.
The PMO developed and manages the Company's worldwide Y2K strategic plan
(Y2K Plan) to address the potential impact of Y2K on the Company's operations
and business processes. In particular, the Y2K Plan addresses four principal
areas that may be impacted by the Y2K issue: Apple Branded Products; Third
Party Relationships; Non-IT Business Systems; and IT Systems. With respect to
the IT Systems and Non-IT Business Systems, the Y2K Plan consists of four
separate but overlapping phases: Phase I - Inventory and Risk Assessment;
Phase II - Remediation Cost Estimation; Phase III - Remediation; and Phase IV -
Remediation Testing. In addition, the Company has an ongoing Y2K Awareness
Program designed to keep employees informed about Y2K issues.
The Company's goal is to substantially complete Phase III- Remediation during
the fourth quarter of fiscal 1999; substantially complete Phase IV -
Remediation Testing during the first quarter of fiscal 2000, and to continue
compliance efforts throughout the remainder of calendar year 1999. The current
schedule reflects management's best estimate of the current status of its Y2K
Plan. Regardless of the planned or actual status of any of the principal areas
of the Y2K Plan, the Company continues to review information developed as the
result of its overall Y2K effort, and all areas of the Y2K Plan remain under
review and subject to modification as deemed necessary throughout the
remainder of calendar 1999.
20
<PAGE>
The foregoing statements are forward looking. The Company's actual results
could differ because of several factors, including those set forth throughout
this subsection entitled "Year 2000 Compliance. "
Apple Branded Products
The Company designs and manufactures microprocessor-based personal
computers, related peripherals, operating system software and application
software, including Macintosh personal computers and the Mac OS which are
marketed under the "Apple" brand (collectively "Apple Branded Products").
The Company tested certain Apple Branded Products to determine Y2K
compliance, although such testing did not include third party products bundled
with Apple Branded Products and certain Apple Branded Products no longer
distributed and/or supported by the Company. For purposes of this discussion,
Y2K compliant means that a product will not produce errors processing date
data in connection with the year change from December 31, 1999, to January 1,
2000, when used with accurate date data in accordance with its documentation,
provided all other products (including other software, firmware and hardware)
used with it properly exchange date data with it. A Y2K compliant product will
recognize the Year 2000 as a leap year. Information about testing and Y2K
compliance of Apple Branded Products is available on the Apple corporate web
site under the heading "Year 2000 Readiness Disclosure", at
www.apple.com/about/year/. Such information, which is updated on an ongoing
basis, is not to be considered part of this quarterly report. The Company
believes that the unsupported Apple Branded Products that do not incorporate
software code from third parties are generally Y2K compliant because, unlike
other company's personal computers and related products, products designed
and manufactured by the Company do not rely upon the two digit date format
but use a long word approach which allows the correct representation of dates
well beyond the year 2000. Because the Company does not control the design of
non-Apple Branded Products or third party products that are bundled with Apple
Branded Products, it cannot assure that such products are Y2K compliant.
For those few Apple Branded Products that are not currently Y2K compliant, the
Company is in the process of evaluating and providing recommendations as to
how users may address possible Y2K issues regarding such products. Some
Apple Branded Products installed at customer sites may require upgrades or
other remediation. While the Company believes its customers are responsible
for the Y2K readiness of their IT and business environments, the Company is in
the process of implementing steps to assist customers in achieving their
readiness goals. Apple is issuing software updates (at no additional charge)
for most, but not all, known issues.
Third Party Relationships
The Company's business operations are heavily dependent on third party
corporate service vendors, materials suppliers, outsourced operations partners,
distributors and others. The Company is working with key external parties to
identify and attempt to mitigate the potential risks to it of Y2K. The failure
of external parties to resolve their own Y2K issues in a timely manner could
result in a material financial risk to the Company. As part of its overall
Y2K program and to establish the state of readiness of certain third parties,
the Company is actively communicating on an ongoing basis with certain third
21
<PAGE>
parties whose lack of Y2K compliance would present a high degree of risk to
the Company. Based on information obtained from various sources, the
Company believes that it is reasonably possible there will be interruptions
around the world in critical services such as air traffic control, airfreight
transportation, customs clearance, telecommunications, and power utilities
early in calendar year 2000 that could result in shipping delays of raw
material and finished goods. Such interruptions could result in material
adverse effects on the Company's consolidated results of operations and
financial position. See further discussion regarding this issue below under
the heading "Contingency Plans." The Company believes that its review of
certain third parties is approximately 65% complete as of the end of the third
quarter of fiscal 1999. Although numerous third parties have advised the
Company that they are addressing their Y2K issues, the readiness of third
parties overall varies widely. Because the Company's Y2K compliance is
dependent on the timely Y2K compliance of third parties, there can be no
assurances that the Company's efforts alone will resolve all Y2K issues. The
Company continues to communicate with and conduct compliance assessments
of key third parties. The Company expects to continue these efforts with key
third parties throughout the remainder of calendar 1999.
IT Systems and Non-IT Business Systems
Phase I - Inventory and Risk Assessment:
This Phase requires an inventory and assessment of the Non-IT Business
systems used by the Company including systems with embedded technology,
building access systems, and health and safety systems. This Phase also
includes inventory and assessment of IT Systems used by the Company which
include large IS&T systems, desktop hardware and software, and network
hardware and software. Each such system is evaluated and the business risk is
quantified as being High, Medium or Low Risk to the Company's business.
Systems which are High Risk are those which if uncorrected would cause an
interruption of or complete failure to conduct the Company's business. Medium
Risks are those which would negatively impact the business but complete
cessation could be avoided with some inconvenience. Low Risks are those where
the risk to business interruption or cessation are remote. The Company intends
that High and Medium Risk items will be remediated or replaced, and Low Risk
items will likely not be addressed prior to the Year 2000. As of the end of
the third quarter of fiscal 1999, the Company had substantially completed this
Phase for both IT Systems and Non-IT Systems. However, the Company continues
to review information developed as the result of its overall Y2K effort which
could result in additional items being added to its Y2K inventory.
Phase II - Remediation Cost Estimation:
This Phase involves the analysis of each High and Medium Risk to determine
how such risks may be remediated and the cost of such remediation. The
Company has substantially completed this Phase for the IT Systems and is
approximately 90% complete for the identified Non-IT Business Systems. The
Company anticipates that this Phase will be substantially completed during the
fourth quarter of fiscal 1999.
22
<PAGE>
Phase III - Remediation:
This Phase includes the replacement or correction of the High and Medium Risk
Non-IT Business Systems and IT Systems. A detailed project plan for such
remediation has been developed and is currently being implemented. This Phase
is substantially complete for the IT Systems and is approximately 70% complete
for the Non-IT Business Systems. The Company anticipates that this Phase will
be substantially completed during the fourth quarter of fiscal 1999.
Phase IV - Remediation Testing:
This Phase includes the future date testing of the remediation efforts made in
Phase III to confirm that the changes made bring the affected systems into
compliance, no new problems have arisen as a result of the remediation, and
that new systems which replaced noncompliant systems are Y2K compliant.
This Phase is approximately 50% complete for the IT Systems and 65%
complete for the Non-IT Systems. The Company anticipates that this Phase will
be completed during the first quarter of fiscal 2000.
Costs to Address Y2K
The costs of the Y2K program are primarily costs associated with the
utilization of existing internal resources and incremental external spending.
The Company's current estimate of total incremental external spending over the
life of its Y2K plan to address those risks identified as High or Medium is
approximately $13 million of which approximately $8.5 million had been spent
as of June 26, 1999. As the Company's Y2K Plan continues, the actual future
incremental spending may prove to be higher. Also, this estimate does not
include the costs that could be incurred by the Company if one or more of its
significant third party vendors fails to achieve Y2K compliance. The Company
is not separately identifying and including in these estimates the Y2K costs
incurred that are the result of utilization of the Company's existing internal
resources.
Contingency Plans.
Under the guidance and management of the PMO, the Company is in the process
of preparing Y2K contingency plans to mitigate the potential impact of various
Y2K failures. The Company's contingency plans, which will be based in part on
the assessment of the magnitude and probability of potential risks, will
primarily focus on proactive steps to prevent Y2K failures from occurring, or
if they should occur, to detect them quickly, minimize their impact and
expedite their repair. The Y2K contingency plans will supplement existing
disaster recovery and business continuity plans, and are expected to consider
measures such as building finished goods and raw material inventories in
anticipation of shortages and shipping delays at the beginning of calendar
2000. The Company believes development of its Y2K contingency plans is
approximately 15% complete as of the end of the third quarter of fiscal 1999
and expects such plans to be substantially complete during the first quarter of
fiscal 2000.
As noted above, the Company believes that it is reasonably possible there will
be interruptions in air traffic control, airfreight transportation, customs
clearance, telecommunications, and power utilities early in calendar year 2000
23
<PAGE>
that could result in shipping delays of raw material and finished goods and
other business interruptions. The Company currently believes it can develop
and implement contingency plans to mitigate the effects of a short-term
interruption in such services. However, if the Company fails to develop and
implement adequate contingency plans, if the interruption in these services
last for an extended period of time, or if alternative Y2K compliant services
are not readily available at reasonable cost, there could be material adverse
effects on the Company's consolidated results of operations and financial
position.
Risk Factors
The Company has substantially completed its initial assessment of reasonably
likely worst case scenarios of Non-IT Business Systems and/or IT Systems
failures and related consequences. Based on current information, the Company
believes that the most likely worst case scenario is that it will experience
minor malfunctions and failures of its IT Systems and Non-IT Business Systems
at the beginning of the Year 2000 that were not previously detected during the
Company's inventory and risk assessment and remediation activities. The
Company currently believes these malfunctions and failures will not have a
material impact on its consolidated results of operations or financial
condition. However, there can be no assurance that the Y2K remediation by the
Company or third parties will be properly and timely completed, and the failure
to do so could have a material adverse effect on the Company, its business, its
consolidated results of operations, and its financial condition.
In particular, the Company believes that a lack of Y2K readiness by its
significant third party vendors could cause material interruption in the
Company's operations. Completion of third party Y2K assessment may result in
the identification of additional issues which could have a material adverse
effect on the Company's results of operations. In addition, important factors
that could cause results to differ materially include, but are not limited to,
the ability of the Company to successfully identify systems and vendors which
have a Y2K issue, the nature and amount of remediation effort required to fix
the affected systems, the adequacy of such remediation efforts, the production-
related contingency plans of competitors with the Company's third party
suppliers, and the costs and availability of labor and resources to
successfully address the Y2K issues and/or to execute on any required
contingency plans.
Factors That May Affect Future Results and Financial Condition
The Company operates in a rapidly changing environment that involves a
number of uncertainties, some of which are beyond the Company's control. In
addition to the uncertainties described elsewhere in this report, there are
many factors that will affect the Company's future results and business which
may cause the actual results to differ from those currently expected. The
Company's future operating results and financial condition are dependent upon
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 a favorable financial condition.
24
<PAGE>
Potential risks and uncertainties that could affect the Company's future
operating results and financial condition include, among other things,
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; risks associated with international operations,
including economic and labor conditions, the continuing economic problems
being experienced in Asia and Latin America, political instability, tax laws,
and currency fluctuations; increasing dependence on third-parties for
manufacturing and other outsourced functions such as logistics; the
availability of key components on terms acceptable to the Company; the
continued availability of certain components and services essential to the
Company's business currently obtained by the Company from sole or limited
sources, including PowerPC RISC microprocessors developed by and obtained
from IBM and Motorola and the final assembly of certain of the Company's
products; the Company's ability to supply products in certain categories; the
Company's ability to supply products free of latent defects or other faults;
the Company's ability to make timely delivery to the marketplace of
technological innovations, including its ability to continue to make timely
delivery of planned enhancements to the current Mac OS and timely delivery of
future versions of the Mac OS; the availability of third-party software for
particular applications; the Company's ability to attract, motivate and retain
key employees; the effect of Y2K compliance issues; managing the continuing
impact of the European Union's transition to the Euro as its common legal
currency; and the Company's ability to retain the operational and cost
benefits derived from its recently completed restructuring program.
For a discussion of these and other factors affecting the Company's future
results and financial condition, see "Item 7 -- Management's Discussion and
Analysis -- Factors That May Affect Future Results and Financial Condition"
in the Company's 1998 Form 10-K.
25
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information presented below regarding Market Risk contains forward
looking statements that are subject to risks and uncertainties. The Company's
actual results may differ significantly from those discussed below and
elsewhere in this Form 10-Q regarding market risk. The following discussion
should be read in conjunction with the 1998 Form 10-K and the condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investments and long-term debt obligations and
related derivative financial instruments. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of credit
exposure to any one issuer. The Company's general policy is to limit the risk
of principal loss and ensure the safety of invested funds by limiting market
and credit risk. 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. As of June 26, 1999, there are no investments
with maturities greater than 12 months.
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 its fixed-rate interest expense
on 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. The Company does not hold or
transact in such financial instruments for purposes other than risk management.
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.
The Company enters into foreign exchange forward and option contracts with
financial institutions primarily to protect against currency exchange risks
associated with existing assets and liabilities, certain firmly committed
transactions, and 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 the related currency's historically high correlation with
the U.S. dollar. Foreign exchange forward contracts are carried at fair value
in other current liabilities. The premium costs of purchased foreign exchange
option contracts are recorded in other current assets and amortized over the
life of the option.
26
<PAGE>
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 and
the anticipatory nature of the exposures intended to hedge, 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 consolidated operating results and financial position.
For a complete description of the Company's interest rate and foreign currency
related market risks, see the discussion in Part II, Item 7A of the Company's
1998 Form 10-K. There has not been a material change in the Company's
exposure to interest rate and foreign currency risks since the date of the
1998 Form 10-K.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings and claims which are
discussed in the 1998 Form 10-K. The Company is also subject to certain other
legal proceedings and claims which have arisen in the ordinary course of
business and which have not been fully adjudicated. The results of legal
proceedings cannot be predicted with certainty; however, in the opinion of
management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.3 By-Laws of the Company, as amended through May 25, 1999
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated July 16, 1999, to report
under Item 5 (Other Events) that the Company had approved a plan to repurchase
up to $500 million of its common stock. The repurchase plan does not obligate
the Company to acquire any specific number of shares or acquire shares over any
specified period of time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLE COMPUTER, INC.
(Registrant)
By: /s/ Fred D. Anderson
Fred D. Anderson
Executive Vice President and Chief Financial Officer
August 6, 1999
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INDEX TO EXHIBITS
Exhibit
Index
Number Description Page
3.3 By-Laws of the Company, as amended through May 25, 1999 31
27 Financial Data Schedule. 55
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EXHIBIT 3.3
BY-LAWS
OF
APPLE COMPUTER, INC.
(a California corporation)
(as amended through May 25, 1999)
Article I
OFFICES
Section 1.1: Principal Office. The principal executive office for the
transaction of the business of this corporation shall be 1 Infinite Loop,
Cupertino, California 95014. The Board of Directors is hereby granted full
power and authority to change the location of the principal executive office
from one location to another.
Section 1.2: Other Offices. One or more branch or other subordinate
offices may at any time be fixed and located by the Board of Directors at
such place or places within or without the State of California as it deems
appropriate.
Article II
DIRECTORS
Section 2.1: Exercise of Corporate Powers. Except as otherwise
provided by these By-Laws, by the Articles of Incorporation of this
corporation or by the laws of the State of California now or hereafter in
force, the business and affairs of this corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
Section 2.2: Number. The number of directors of the corporation
shall be not less than five (5) nor more than nine (9). The exact number of
directors shall be seven (7) until changed within the limits specified above,
by a by-law amending this section, duly adopted by the Board of Directors or
by the shareholders. The indefinite number of directors may be changed, or a
definite number fixed without provision for an indefinite number, by a duly
adopted amendment to the Articles of Incorporation or by an amendment to this
by-law duly adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
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reducing the fixed number or the minimum number of directors to a number
less than five (5) cannot be adopted if the votes cast against its adoption at
a meeting of the shareholders, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3% of the outstanding
shares entitled to vote. No amendment may change the stated maximum
number of authorized directors to a number greater than two times the stated
minimum number of directors minus one.
Section 2.3: Need Not Be Shareholders. The directors of this
corporation need not be shareholders of this corporation.
Section 2.4: Compensation. Directors and members of committees may
receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving this corporation in
any other capacity and receiving compensation therefor.
Section 2.5: Election and Term of Office. Through and until
immediately prior to the annual meeting of shareholders to be held in fiscal
year 2000, the directors shall be divided into two classes, designated Class I
and Class II, each consisting of one-half of the directors or as close an
approximation as possible, and each director shall serve for a term running
until the second annual meeting of shareholders succeeding his or her election
and until his or her successor shall have been duly elected and qualified;
provided, however, that the terms of all directors shall expire at the annual
meeting of shareholders to be held in fiscal year 2000. Commencing at the
annual meeting of shareholders to be held in fiscal year 2000, each director
shall be elected to serve until the annual meeting of shareholders held in the
following fiscal year or until his or her successor shall have been duly
elected and qualified.
Section 2.6: Vacancies. A vacancy or vacancies on the Board of
Directors shall exist in case of the death, resignation or removal of any
director, or if the authorized number of directors is increased, or if the
shareholders fail, at any annual meeting of shareholders at which any director
is elected, to elect the full authorized number of directors to be voted for
at that meeting. The Board of Directors may declare vacant the office of a
director if he or she is declared of unsound mind by an order of court or
convicted of a felony or if, within 60 days after notice of his or her
election, he or she does not accept the office. Any vacancy, except for a
vacancy created by removal of a director as provided in Section 2.7 hereof,
may be filled by a person selected by a majority of the remaining directors
then in office, whether or not less than a quorum, or by a sole remaining
director. Vacancies occurring in the Board of Directors by reason of removal
of directors shall be filled only by approval of shareholders. The shareholders
may elect a director at any time to fill any vacancy not filled by the
directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote. If, after the filling of
any vacancy by the directors, the directors then in office who have been
elected by the shareholders shall constitute less than a majority of the
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directors then in office, any holder or holders of an aggregate of 5% or more
of the total number of shares at the time outstanding having the right to vote
for such directors may call a special meeting of shareholders to be held to
elect the entire Board of Directors. The term of office of any director shall
terminate upon such election of a successor. Any director may resign effective
upon giving written notice to the Chairman of the Board, if any, the Chief
Executive Officer, the President, the Secretary or the Board of Directors of
this corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective. A reduction of the authorized number of directors shall not remove
any director prior to the expiration of such director's term of office.
Section 2.7: Removal. The entire Board of Directors or any individual
director may be removed without cause from office by an affirmative vote of a
majority of the outstanding shares entitled to vote; provided that, unless the
entire Board of Directors is removed, no director shall be removed when the
votes cast against removal, or not consenting in writing to such removal,
would be sufficient to elect such director if voted cumulatively (without
regard to whether such shares may be voted cumulatively) at an election at
which the same total number of votes were cast, or, if such action is taken by
written consent, all shares entitled to vote were voted, and either the number
of directors elected at the most recent annual meeting of shareholders, or if
greater, the number of directors for whom removal is being sought, were then
being elected. If any or all directors are so removed, new directors may be
elected at the same meeting or at a subsequent meeting. If at any time a
class or series of shares is entitled to elect one or more directors under
authority granted by the Articles of Incorporation of this corporation, the
provisions of this Section 2.7 shall apply to the vote of that class or series
and not to the vote of the outstanding shares as a whole.
Section 2.8: Powers and Duties. Without limiting the generality or
extent of the general corporate powers to be exercised by the Board of
Directors pursuant to Section 2.1 of these By-Laws, it is hereby provided
that the Board of Directors shall have full power with respect to the
following matters:
(a) To purchase, lease, and acquire any and all kinds of property,
real, personal or mixed, and at its discretion to pay therefor in money, in
property and/or in stocks, bonds, debentures or other securities of this
corporation.
(b) To enter into any and all contracts and agreements which in its
judgment may be beneficial to the interests and purposes of this corporation.
(c) To fix and determine and to vary from time to time the amount or
amounts to be set aside or retained as reserve funds or as working capital of
this corporation or for maintenance, repairs, replacements or enlargements
of its properties.
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(d) To declare and pay dividends in cash, shares and/or property
out of any funds of this corporation at the time legally available for the
declaration and payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of its
meetings and the management of the affairs of this corporation as it may
deem proper.
(f) To prescribe the manner in which and the person or persons by
whom any or all of the checks, drafts, notes, bills of exchange, contracts
and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the
office of a director as provided in Section 2.6 hereof; and, in case of
vacancy in the office of directors, to fill the same to the extent provided in
Section 2.6 hereof.
(h) To create offices in addition to those for which provision is
made by law or these By-Laws; to elect and remove at pleasure all officers of
this corporation, fix their terms of office, prescribe their powers and
duties, limit their authority and fix their salaries in any way it may deem
advisable which is not contrary to law or these By-Laws; and, if it sees fit,
to require from the officers or any of them security for faithful service.
(i) To designate some person to perform the duties and exercise
the powers of any officer of this corporation during the temporary absence or
disability of such officer.
(j) To appoint or employ and to remove at pleasure such agents and
employees as it may see fit, to prescribe their titles, powers and duties,
limit their authority, and fix their salaries in any way it may deem advisable
which is not contrary to law or these By-Laws; and, if it sees fit, to require
from them or any of them security for faithful performance.
(k) To fix a time in the future, which shall not be more than 60
days nor less than 10 days prior to the date of the meeting nor more than
sixty (60) days prior to any other action for which it is fixed, as a record
date for the determination of the shareholders entitled to notice of and to
vote at any meeting, or entitled to receive any payment of any dividend or
other distribution, or allotment of any rights, or entitled to exercise any
rights in respect of any other lawful action; and in such case only
shareholders of record on the date so fixed shall be entitled to notice of
and to vote at the meeting or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of this corporation
after any record date fixed as aforesaid. The Board of Directors may close
the books of this corporation against transfers of shares during the whole or
any part of such period.
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(l) To fix and locate from time to time the principal office for the
transaction of the business of this corporation and one or more branch or
other subordinate office or offices of this corporation within or without the
State of California; to designate any place within or without the State of
California for the holding of any meeting or meetings of the shareholders or
the Board of Directors, as provided in Sections 10.1 and 11.1 hereof; to
adopt, make and use a corporate seal, and to prescribe the forms of
certificates for shares and to alter the form of such seal and of such
certificates from time to time as in its judgment it may deem best, provided
such seal and such certificates shall at all times comply with the provisions
of law now or hereafter in effect.
(m) To authorize the issuance of shares of stock of this corporation
in accordance with the laws of the State of California and the Articles of
Incorporation of this corporation.
(n) Subject to the limitation provided in Section 14.2 hereof, to
adopt, amend or repeal from time to time and at any time these By-Laws and
any and all amendments thereof.
(o) To borrow money and incur indebtedness on behalf of this
corporation, including the power and authority to borrow money from any of
the shareholders, directors or officers of this corporation, and to cause to
be executed and delivered therefor in the corporate name promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other
evidences of debt and securities therefor, and the note or other obligation
given for any indebtedness of this corporation, signed officially by any
officer or officers thereunto duly authorized by the Board of Directors shall
be binding on this corporation.
(p) To designate and appoint committees of the Board of Directors
as it may see fit, to prescribe their names, powers and duties and limit their
authority in any way it may deem advisable which is not contrary to law or
these By-Laws.
(q) Generally to do and perform every act and thing whatsoever that
may pertain to the office of a director or to a board of directors.
Article III
OFFICERS
Section 3.1: Election and Qualifications. The officers of this
corporation shall consist of a Chief Executive Officer, a President, one or
more Vice Presidents, a Secretary, a Chief Financial Officer and such other
officers, including, but not limited to, a Chairman of the Board of Directors,
a Treasurer, and Assistant Secretaries and Assistant Treasurers as the Board
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of Directors shall deem expedient, who shall be chosen in such manner and
hold their offices for such terms as the Board of Directors may prescribe.
Any two or more of such offices may be held by the same person. Any Vice
President, Assistant Treasurer or Assistant Secretary, respectively, may
exercise any of the powers of the Chief Executive Officer, the President, the
Chief Financial Officer, or the Secretary, respectively, as directed by the
Board of Directors, and shall perform such other duties as are imposed upon
him or her by the By-Laws or the Board of Directors.
Section 3.2: Term of Office and Compensation. The term of office and
salary of each of said officers and the manner and time of the payment of such
salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board from time to time at its pleasure, subject to the
rights, if any, of an officer under any contract of employment. Any officer
may resign at any time upon written notice to this corporation, without
prejudice to the rights, if any, of this corporation under any contract to
which the officer is a party. If any vacancy occurs in any office of this
corporation, the Board of Directors may elect a successor to fill such vacancy.
Article IV
CHAIRMAN OF THE BOARD
Section 4.1: Powers and Duties. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings of
the Board of Directors and shall have such other powers and shall be subject
to such other duties as the Board of Directors may from time to time prescribe.
Article V
CHIEF EXECUTIVE OFFICER
Section 5.1: Powers and Duties. The powers and duties of the Chief
Executive Officer are:
(a) To act as the general manager and chief executive officer of
this corporation and, subject to the control of the Board of Directors, to have
general supervision, direction and control of the business and affairs of this
corporation.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board or if there be no Chairman, at all
meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the Board
of Directors to be held at such times and, subject to the limitations
prescribed by law or by these By-Laws, at such places as he or she shall
deem proper.
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(d) To affix the signature of this corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of this corporation; to sign certificates for shares of
stock of this corporation; and, subject to the direction of the Board of
Directors, to have general charge of the property of this corporation and to
supervise and control all officers, agents and employees of this corporation.
Article VA
PRESIDENT
Section 5A.1: Powers and Duties. The powers and duties of the
President are:
(a) To act as the general manager of this corporation and, subject
to the control of the Board of Directors, to have general supervision,
direction and control of the business and affairs of this corporation.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board and the Chief Executive Officer or if
there be no Chairman or Chief Executive Officer, at all meetings of the Board
of Directors.
(c) To affix the signature of this corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which, in the judgment of the President, should be executed on
behalf of this corporation; to sign certificates for shares of stock of this
corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of this corporation and to supervise and
control all officers, agents and employees of this corporation.
Section 5A.2: President Pro Tem. If neither the Chairman of the
Board, the Chief Executive Officer, the President, nor any Vice President is
present at any meeting of the Board of Directors, a President pro tem may be
chosen to preside and act at such meeting. If neither the Chief Executive
Officer, the President nor any Vice President is present at any meeting of the
shareholders, a President pro tem may be chosen to preside at such meeting.
Article VI
VICE PRESIDENT
Section. 6.1: Powers and Duties. The titles, powers and duties of the
Vice President or Vice Presidents shall be prescribed by the Board of
Directors. In case of the absence, disability or death of the Chief Executive
Officer, the President, the Vice President, or one of the Vice Presidents,
shall exercise all his or her powers and perform all his or her duties. If
there is more than one Vice President, the order in which the Vice Presidents
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shall succeed to the powers and duties of the Chief Executive Officer or
President shall be as fixed by the Board of Directors.
Article VII
SECRETARY
Section 7.1: Powers and Duties. The powers and duties of the
Secretary are:
(a) To keep a book of minutes at the principal executive office of
this corporation, or such other place as the Board of Directors may order, of
all meetings of its directors and shareholders with the time and place of
holding, whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings and the
proceedings thereof.
(b) To keep the seal of this corporation and to affix the same to
all instruments which may require it.
(c) To keep or cause to be kept at the principal executive office
of this corporation, or at the office of the transfer agent or agents, a
record of the shareholders of this corporation, giving the names and
addresses of all shareholders and the number and class of shares held by each,
the number and date of certificates issued for shares and the number and date
of cancellation of every certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of this corporation,
to fill in all certificates issued, and to make a proper record of each such
issuance; provided that so long as this corporation shall have one or more
duly appointed and acting transfer agents of the shares, or any class or
series of shares, of this corporation, such duties with respect to such shares
shall be performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of this corporation any and all
shares of this corporation; provided that so long as this corporation shall
have one or more duly appointed and acting transfer agents of the shares, or
any class or series of shares, of this corporation, such duties with respect
to such shares shall be performed by such transfer agent or transfer agents,
and the method of transfer of each certificate shall be subject to the
reasonable regulations of the transfer agent to which the certificate is
presented for transfer and, also, if this corporation then has one or more
duly appointed and acting registrars, subject to the reasonable regulations of
the registrar to which a new certificate is presented for registration; and
provided, further, that no certificate for shares of stock shall be issued or
delivered or, if issued or delivered, shall have any validity whatsoever until
and unless it has been signed or authenticated in the manner provided in
Section 12.3 hereof.
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(f) To make service and publication of all notices that may be
necessary or proper and without command or direction from anyone. In case of
the absence, disability, refusal or neglect of the Secretary to make service or
publication of any notices, then such notices may be served and/or published
by the Chief Executive Officer, the President or a Vice President, or by any
person thereunto authorized by either of them or by the Board of Directors or
by the holders of a majority of the outstanding shares of this corporation.
(g) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
Article VIII
CHIEF FINANCIAL OFFICER
Section 8.1: Powers and Duties. The powers and duties of the Chief
Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate
and correct accounts of this corporation's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of
account shall at all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of this corporation and, at his or
her discretion, to cause any or all thereof to be deposited for the account of
this corporation with such depository as may be designated from time to time
by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to be
given, receipts and acquittances for moneys paid in for the account of this
corporation.
(d) To disburse, or cause to be disbursed, all funds of this
corporation as may be directed by the Chief Executive Officer, the President
or the Board of Directors, taking proper vouchers for such disbursements.
(e) To render to the Chief Executive Officer, the President or to the
Board of Directors, whenever either may require, accounts of all transactions
as Chief Financial Officer and of the financial condition of this corporation.
(f) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
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Article VIIIA
APPOINTED VICE PRESIDENTS, ETC.
Section 8A.l: Appointed Vice Presidents, Etc.; Appointment, Duties,
etc. The Chief Executive Officer of the corporation shall have the power, in
the exercise of his or her discretion, to appoint additional persons to hold
positions and titles such as vice president of the corporation or a division
of the corporation or president of a division of the corporation, or similar
such titles, as the business of the corporation may require, subject to such
limits in appointment power as the Board may determine. The Board shall be
advised of any such appointment at a meeting of the Board, and the
appointment shall be noted in the minutes of the meeting. The minutes shall
clearly state that such persons are non-corporate officers appointed pursuant
to this Section 8A.l of these By-laws.
Each such appointee shall have such title, shall serve in such
capacity and shall have such authority and perform such duties as the Chief
Executive Officer of the corporation shall determine.
Appointees may hold titles such as "president" of a division or
other group within the corporation, or "vice president" of the corporation or
of a division or other group within the corporation. However, any such
appointee, absent specific election by the Board as an elected corporate
officer, (i) shall not be considered an officer elected by the Board of
Directors pursuant to Article III of these By-Laws and shall not have the
executive powers or authority of corporate officers elected pursuant to such
Article III, (ii) shall not be considered (a) an "officer" of the corporation
for the purposes of Rule 3b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Act") or an "executive officer" of the corporation for the
purposes of Rule 3b-7 promulgated under the Act, and similarly shall not be
considered an "officer" of the corporation for the purposes of Section 16 of
the Act (as such persons shall not be given the access to inside information
of the corporation enjoyed by officers of the corporation) or an "executive
officer" of the corporation for the purposes of Section 14 of the Act or (b) a
"corporate officer" for the purposes of Section 312 of the California
Corporation Code (the "Code"), except in any such case as otherwise required
by law, and (iii) shall be empowered to represent himself or herself to third
parties as an appointed vice president, etc., only, and shall be empowered to
execute documents, bind the corporation or otherwise act on behalf of the
corporation only as authorized by the Chief Executive Officer or the President
of the Corporation or by resolution of the Board of Directors.
An elected officer of the corporation may also serve in an
appointed capacity hereunder.
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Article IX
EXECUTIVE COMMITTEE
Section 9.1: Appointment and Procedure. The Board of Directors may,
by resolution adopted by a majority of the authorized number of directors,
appoint from among its members an Executive Committee of two or more
members. The Executive Committee may make its own rules of procedure
subject to Section 11.9 hereof, and shall meet as provided by such rules or by
a resolution adopted by the Board of Directors (which resolution shall take
precedence). A majority of the members of the Executive Committee shall
constitute a quorum, and in every case the affirmative vote of a majority of
all members of the Committee shall be necessary to the adoption of any
resolution by such Committee.
Section 9.2: Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, in all cases in which specific
directions shall not have been given by the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of this corporation in such manner as
the Committee may deem best for the interests of this corporation, except with
respect to:
(a) any action for which California law also requires shareholder
approval,
(b) the filling of vacancies on the Board of Directors or in the
committee,
(c) the fixing of compensation of the directors for serving on the
Board of Directors or on any committee,
(d) the amendment or repeal of By-Laws or the adoption of new By-
Laws,
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable,
(f) a distribution to the shareholders of this corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board of Directors,
(g) the appointment of other committees of the Board of Directors or
the members thereof.
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Article X
MEETINGS OF SHAREHOLDERS
Section 10.1: Place of Meetings. Meetings (whether regular, special or
adjourned) of the shareholders of this corporation shall be held at the
principal executive office for the transaction of business of this corporation,
or at any place within or without the State which may be designated by written
consent of all the shareholders entitled to vote thereat, or which may be
designated by resolution of the Board of Directors. Any meeting shall be
valid wherever held if held by the written consent of all the shareholders
entitled to vote thereat, given either before or after the meeting and filed
with the Secretary of this corporation.
Section 10.2: Annual Meetings. The annual meeting of the shareholders
shall be held at the hour of 10:00 a.m. on the last Wednesday in January in
each year , if not a legal holiday, and if a legal holiday, then on the next
succeeding business day not a legal holiday or at such other time in a
particular year as may be designated by written consent of all the shareholders
entitled to vote thereat or which may be designated by resolution of the Board
of Directors. Such annual meetings shall be held at the place provided
pursuant to Section 10.1 hereof. Said annual meetings shall be held for the
purpose of the election of directors, for the making of reports of the affairs
of this corporation and for the transaction of such other business as may come
before the meeting.
Section 10.3: Special Meetings. Special meetings of the shareholders
for any purpose or purposes whatsoever may be called at any time by the
President or by the Board of Directors, or by two or more members thereof, or
by one or more holders of shares entitled to cast not less than ten percent
(10%) of the votes on the record date established pursuant to Section 10.8.
Upon request in writing sent by registered mail to the Chief Executive Officer,
President, Vice President or Secretary, or delivered to any such officer in
person, by any person or persons entitled to call a special meeting of
shareholders (such request, if sent by a shareholder or shareholders, to
include the information required by Section 10.13), it shall be the duty of
such officer, subject to the immediately succeeding sentence, to cause notice
to be given to the shareholders entitled to vote that a meeting will be
requested by the person or persons calling the meeting, the date of which
meeting, which shall be set by such officer, to be not less than 35 days nor
more than 60 days after such request or, if applicable, determination of the
validity of such request pursuant to the immediately succeeding sentence.
Within seven days after receiving such a written request from a shareholder or
shareholders of the corporation, the Board of Directors shall determine
whether shareholders owning not less than ten percent (10%) of the shares as
of the record date established pursuant to Section 10.8 for such request
support the call of a special meeting and notify the requesting party or
parties of its finding.
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Section 10.4: Notice of Meetings. Notice of any meeting of
shareholders shall be given in writing not less than 10 nor more than 60 days
before the date of the meeting to each shareholder entitled to vote thereat by
the Secretary or an Assistant Secretary, or other person charged with that
duty, or if there be no such officer or person, or in case of his or her
neglect or refusal, by any director or shareholder. The notice shall state the
place, date and hour of the meeting and (i) in the case of a special meeting,
the general nature of the business to be transacted, and no other business may
be transacted, or (ii) in the case of the annual meeting, those matters which
the Board of Directors, at the time of the mailing of the notice, intends to
present for action by the shareholders, but any proper matter may be presented
at the meeting for such action except that notice must be given or waived in
writing of any proposal relating to approval of contracts between the
corporation and any director of this corporation, amendment of the Articles
of Incorporation, reorganization of this corporation or winding up of this
corporation. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election. Written notice shall be given by this
corporation to any shareholder, either (i) personally or (ii) by mail or
other means of written communication, charges prepaid, addressed to such
shareholder at such shareholder's address appearing on the books of this
corporation or given by such shareholder to this corporation for the purpose
of notice. If a shareholder gives no address or no such address appears on the
books of this corporation, notice shall be deemed to have been given if sent
by mail or other means of written communication addressed to the place where
the principal executive office of this corporation is located, or if
published at least once in a newspaper of general circulation in the county
in which such office is located. The notice shall be deemed to have been given
at the time when delivered personally or deposited in the United States mail,
postage prepaid, or sent by other means of written communication and
addressed as hereinbefore provided. An affidavit of delivery or mailing of
any notice in accordance with the provisions of this Section 10.4, executed
by the Secretary, Assistant Secretary or any transfer agent, shall be prima
facie evidence of the giving of the notice. If any notice addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation is returned to this corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice to the shareholder at such address, all future notices
shall be deemed to have been duly given without further mailing if the same
shall be available for the shareholder upon written demand of the shareholder
at the principal executive office of this corporation for a period of one year
from the date of the giving of the notice to all other shareholders.
Section 10.5: Consent to Shareholders' Meetings. The transactions of
any meeting of shareholders, however called and noticed, and wherever held,
are as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a consent to
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the holding of such meeting or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law to be included in the notice but not
so included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice, except as
to approval of contracts between this corporation and any of its directors,
amendment of the Articles of Incorporation, reorganization of this corporation
or winding up the affairs of this corporation.
Section 10.6: Quorum. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business. Shares
shall not be counted to make up a quorum for a meeting if voting of such
shares at the meeting has been enjoined or for any reason they cannot be
lawfully voted at the meeting. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 10.7: Adjourned Meetings. Any shareholders' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
a majority of the shares, the holders of which are either present in person or
represented by proxy thereat, but, except as provided in Section 10.6 hereof,
in the absence of a quorum, no other business may be transacted at such
meeting. When a meeting is adjourned for more than 45 days or if after
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at a meeting. Except as aforesaid, it shall not be necessary to give any
notice of the time and place of the adjourned meeting or of the business to be
transacted thereat other than by announcement at the meeting at which such
adjournment is taken. At any adjourned meeting the shareholders may transact
any business which might have been transacted at the original meeting.
Section 10.8: Voting Rights. Only persons in whose names shares
entitled to vote stand on the stock records of this corporation at the close
of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held or, if some other day be
fixed for the determination of shareholders of record pursuant to
Section 2.8(k) hereof, then on such other day, shall be entitled to vote at
such meeting. In the absence of any contrary provision in the Articles of
Incorporation or in any applicable statute relating to the election of
directors or to other particular matters, each such person shall be entitled
to one vote for each share.
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In order that the corporation may determine the shareholders entitled to
consent to corporate action in writing without a meeting or request a special
meeting of the shareholders pursuant to Section 10.3, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,
and which date shall not be more than fourteen (14) days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any shareholder of record seeking to have the shareholders
authorize or take corporate action by written consent or request a special
meeting of the shareholders pursuant to Section 10.3 shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The
Board of Directors shall promptly, but in no event later than twenty eight (28)
days after the date on which such request is received, adopt a resolution
fixing the record date.
Section 10.9: Action by Written Consents. Any action which may be
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Within fourteen (14) days after receiving
such written consent or consents from shareholders of the corporation, the
Board of Directors shall determine whether holders of outstanding shares as of
the record date established pursuant to Section 10.8 having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted have properly consented thereto in writing and notify the requesting
party of its finding. Unless the consents of all shareholders entitled to vote
have been solicited in writing, notice of any shareholder approval of (i)
contracts between this corporation and any of its directors, (ii)
indemnification of any person, (iii) reorganization of this corporation or (iv)
distributions to shareholders upon winding up of this corporation in certain
circumstances without a meeting by less than unanimous written consent shall
be given at least 10 days before the consummation of the action authorized by
such approval, and prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have not
consented in writing. All notices given hereunder shall conform to the
requirements of Section 10.4 hereto and applicable law. When written consents
are given with respect to any shares, they shall be given by and accepted from
the persons in whose names such shares stand on the books of this corporation
at the time such respective consents are given, or any shareholder's proxy
holder, or a transferee of the shares or a personal representative of the
shareholder or their respective proxy holders, may revoke the consent by a
writing received by this corporation prior to the time that written consents
of the number of shares required to authorize the proposed action have been
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filed with the Secretary of this corporation, but may not do so thereafter.
Such revocation is effective upon its receipt by the Secretary of this
corporation. Notwithstanding anything to the contrary, directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
Section 10.10: Elections of Directors. In any election of directors, the
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected; votes against the directors and votes withheld with
respect to the election of the directors shall have no legal effect.
Elections of directors need not be by ballot except upon demand made by a
shareholder at the meeting and before the voting begins.
Section 10.11: Proxies. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or such person's
duly authorized agent and filed with the Secretary of this corporation. No
proxy shall be valid (l) after revocation thereof, unless the proxy is
specifically made irrevocable and otherwise conforms to this Section 10.11 and
applicable law, or (2) after the expiration of eleven months from the date
thereof, unless the person executing it specifies therein the length of time
for which such proxy is to continue in force. Revocation may be effected by a
writing delivered to the Secretary of this corporation stating that the proxy
is revoked or by a subsequent proxy executed by, or by attendance at the
meeting and voting in person by, the person executing the proxy. A proxy is
not revoked by the death or incapacity of the maker unless, before the vote is
counted, a written notice of such death or incapacity is received by this
corporation. A proxy which states that it is irrevocable is irrevocable for
the period specified therein when it is held by any of the following or a
nominee of any of the following: (l) a pledgee, (2) a person who has purchased
or agreed to purchase or holds an option to purchase the shares or a person
who has sold a portion of such person's shares in this corporation to the
maker of the proxy, (3) a creditor or creditors of this corporation or the
shareholder who extended or continued credit to this corporation or the
shareholder in consideration of the proxy if the proxy states that it was
given in consideration of such extension or continuation of credit and the
name of the person extending or continuing the credit, (4) a person who has
contracted to perform services as an employee of this corporation, if a proxy
is required by the contract of employment and if the proxy states that it was
given in consideration of such contract of employment, the name of the
employee and the period of employment contracted for, (5) a person designated
by or under a close corporation shareholder agreement or a voting trust
agreement. In addition, a proxy may be made irrevocable if it is given to
secure the performance of a duty or to protect a title, either legal or
equitable, until the happening of events which, by its terms, discharge the
obligation secured by it. Notwithstanding the period of irrevocability
specified, the proxy becomes revocable when the pledge is redeemed, the option
or agreement to purchase is terminated or the seller no longer owns any shares
of this corporation or dies, the debt of this corporation or the shareholder is
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paid, the period of employment provided for in the contract of employment has
terminated or the close corporation shareholder agreement or the voting trust
agreement has terminated. In addition, a proxy may be revoked,
notwithstanding a provision making it irrevocable, by a purchaser of shares
without knowledge of the existence of the provision unless the existence of
the proxy and its irrevocability appears on the certificate representing such
shares. Every form of proxy or written consent, which provides an opportunity
to specify approval or disapproval with respect to any proposal, shall also
contain an appropriate space marked "abstain", whereby a shareholder may
indicate a desire to abstain from voting his or her shares on the proposal. A
proxy marked "abstain" by the shareholder with respect to a particular
proposal shall not be voted either for or against such proposal. In any
election of directors, any form of proxy in which the directors to be voted
upon are named therein as candidates and which is marked by a shareholder
"withhold" or otherwise marked in a manner indicating that the authority to
vote for the election of directors is withheld shall not be voted either for
or against the election of a director.
Section 10.12: Inspectors of Election. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the Chairman of
the meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one (l) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether one (l) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
Chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
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(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
Section 10.13: Advance Notice of Shareholder Proposals and Director
Nominations. Shareholders may nominate one or more persons for election as
directors at a meeting of shareholders or propose business to be brought
before a meeting of shareholders, or both, only if such shareholder has given
timely notice in proper written form of such shareholder's intent to make such
nomination or nominations or to propose such business. To be timely, a
shareholder's notice must be received by the Secretary of the Corporation not
later than 60 days prior to such meeting; provided, however, that in the event
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper written form a
shareholder's notice to the Secretary shall set forth (i) the name and address
of the shareholder who intends to make the nominations or propose the
business and, as the case may be, of the person or persons to be nominated or
of the business to be proposed, (ii) a representation that the shareholder is a
holder of record of stock of the Corporation that intends to vote such stock
at such meeting and, if applicable, intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, (iii)
if applicable, a description of all arrangements or understandings between the
shareholder and each nominee or any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder, (iv) such other information regarding each nominee
or each matter of business to be proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 had the nominee been nominated, or intended
to be nominated, or the matter been proposed, or intended to be proposed, by
the Board of Directors of the Corporation and (v) if applicable, the consent
of each nominee as director of the Corporation if so elected. The chairman of
a meeting of shareholders may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the
foregoing procedure.
Article XI
MEETINGS OF DIRECTORS
Section 11.1: Place of Meetings. Meetings (whether regular, special
or adjourned) of the Board of Directors of this corporation shall be held at
the principal office of this corporation for the transaction of business, as
specified in accordance with Section 1.1 hereof, or at any other place within
or without the State which has been designated from time to time by resolution
of the Board or which is designated in the notice of the meeting.
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Section 11.2: Regular Meetings. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting of the
shareholders (which regular directors' meeting shall be designated the
"Regular Annual Meeting") and at such other times as may be designated from
time to time by resolution of the Board of Directors. Notice of the time and
place of all regular meetings shall be given in the same manner as for special
meetings, except that no such notice need be given if (l) the time and place
of such meetings are fixed by the Board of Directors or (2) the Regular Annual
Meeting is held at the principal place of business provided at Section 1.1
hereof and on the date specified in Section 10.2 hereof.
Section 11.3: Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, if any, or
the President, or any Vice President, or the Secretary or by any two or more
directors.
Section 11.4: Notice of Special Meetings. Special meetings of the
Board of Directors shall be held upon no less than four days' notice by mail
or 48 hours' notice delivered personally or by telephone or telegraph to each
director. Notice need not be given to any director who signs a waiver of
notice or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the home or office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. A notice
or waiver of notice need not specify the purpose of any meeting of the Board.
If the address of a director is not shown on the records and is not readily
ascertainable, notice shall be addressed to him at the city or place in which
the meetings of the directors are regularly held. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place
shall be given prior to the time of the adjourned meeting to all directors not
present at the time of adjournment.
Section 11.5: Quorum. A majority of all directors elected by the
shareholders and appointed to fill vacancies as provided in Section 2.6 hereof
shall constitute a quorum of the Board of Directors for the transaction of
business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors subject to provisions of law relating to interested
directors and indemnification of agents of this corporation. A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for such meeting.
Section 11.6: Conference Telephone. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all directors participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section 11.6 constitutes presence in person at such meeting.
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Section 11.7: Waiver of Notice and Consent. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular
call and notice, if a quorum is present, and if, either before or after the
meeting, each of the directors not present signs a written waiver of notice, a
consent to holding such meeting or an approval of the minutes thereof. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Section 11.8: Action Without a Meeting. Any action required or
permitted by law to be taken by the Board of Directors may be taken without a
meeting, if all members of the Board of Directors shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as the unanimous vote of such directors.
Section 11.9: Committees. The provisions of this Article XI apply
also to committees of the Board of Directors and action by such committees,
mutatis mutandis.
Article XII
SUNDRY PROVISIONS
Section 12.1: Instruments in Writing. All checks, drafts, demands for
money and notes of this corporation, and all written contracts of this
corporation, shall be signed by such officer or officers, agent or agents, as
the Board of Directors may from time to time designate. No officer, agent, or
employee of this corporation shall have the power to bind this corporation by
contract or otherwise unless authorized to do so by these By-Laws or by the
Board of Directors.
Section 12.2: Shares Held by the Corporation. Shares in other
corporations standing in the name of this corporation may be voted or
represented and all rights incident thereto may be exercised on behalf of the
corporation by any officer of this corporation authorized so to do by
resolution of the Board of Directors.
Section 12.3: Certificates of Stock. There shall be issued to every
holder of shares in this corporation a certificate or certificates signed in
the name of this corporation by the Chairman of the Board of Directors, if
any, or the Chief Executive Officer or the President or a Vice President and
by the Chief Financial Officer or an Assistant Chief Financial Officer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
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upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by this
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
Section 12.4: Lost Certificates. Where the owner of any certificate
for shares of this corporation claims that the certificate has been lost,
stolen or destroyed, a new certificate shall be issued in place of the original
certificate if the owner (l) so requests before this corporation has notice
that the original certificate has been acquired by a bona fide purchaser,
(2) files with this corporation an indemnity bond in such form and in such
amount as shall be approved by the Chief Executive Officer, the President or a
Vice President of this corporation, and (3) satisfies any other reasonable
requirements imposed by this corporation. The Board of Directors may adopt
such other provisions and restrictions with reference to lost certificates,
not inconsistent with applicable law, as it shall in its discretion deem
appropriate.
Section 12.5: Certification and Inspection of By-Laws. This
corporation shall keep at its principal executive or business office the
original or a copy of these By-Laws as amended or otherwise altered to date,
which shall be open to inspection by the shareholders at all reasonable times
during office hours.
Section 12.6: Annual Reports. The making of annual reports to the
shareholders is dispensed with and the requirement that such annual reports be
made to shareholders is expressly waived, except as may be directed from time
to time by the Board of Directors or the President.
Section 12.7: Fiscal Quarters. Each fiscal quarter of the Corporation
shall be comprised of 13 weeks each of which shall end at midnight on
Saturday of such week, and the fiscal months in any one calendar quarter shall
be comprised of at least four consecutive calendar weeks with one week to be
added, at management's discretion, to any one month during such fiscal year.
Section 12.8: Officer Loans and Guaranties. If the corporation has
outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money
or property to, or guarantee the obligations of, any officer of the
corporation or its parent or subsidiaries, whether or not the officer is a
director, upon the approval of the Board of Directors alone. Such approval by
the Board of Directors must be determined by a vote of a majority of the
disinterested directors, if it is determined that such a loan or guaranty may
reasonably be expected to benefit the corporation. In no event may an officer
owning 2% or more of the outstanding common shares of the corporation be
extended a loan under this provision.
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Article XIII
CONSTRUCTION OF BY-LAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 13.1: By-Law Provisions Additional and Supplemental to
Provisions of Law. All restrictions, limitations, requirements and other
provisions of these By-Laws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the subject
matter thereof and shall be fully complied with in addition to the said
provisions of law unless such compliance shall be illegal.
Section 13.2: By-Law Provisions Contrary to or Inconsistent with
Provisions of Law. Any article, section, subsection, subdivision, sentence,
clause or phrase of these By-Laws which, upon being construed in the manner
provided in Section 13.1 hereof, shall be contrary to or inconsistent with any
applicable provision of law, shall not apply so long as said provisions of law
shall remain in effect, but such result shall not affect the validity or
applicability of any other portions of these By-Laws, it being hereby declared
that these By-Laws, and each article, section, subsection, subdivision,
sentence, clause, or phrase thereof, would have been adopted irrespective of
the fact that any one or more articles, sections, subsections, subdivisions,
sentences, clauses or phrases is or are illegal.
Article XIV
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Section 14.1: By Shareholders. By-Laws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. By-Laws specifying or changing a fixed
number of directors or the maximum or minimum number or changing from a
fixed to a variable board or vice versa may only be adopted by the
shareholders; provided, however, that a By-Law or amendment of the Articles
of Incorporation reducing the number or the minimum number of directors to a
number less than five cannot be adopted if the votes cast against its adoption
at a meeting or the shares not consenting in the case of action by written
consent are equal to more than 16-2/3% of the outstanding shares entitled to
vote.
Section 14.2: By the Board of Directors. Subject to the right of
shareholders to adopt, amend or repeal By-Laws, By-Laws, other than a By-
Law or amendment thereof specifying or changing a fixed number of directors
or the maximum or minimum number or changing from a fixed to a variable
board or vice versa, may be adopted, amended or repealed by the Board of
Directors. A By-Law adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal By-Laws.
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Article XV
RESTRICTIONS ON TRANSFER OF STOCK
Section 15.1: Subsequent Agreement or By-Law. If (a) any two or more
shareholders of this corporation shall enter into any agreement abridging,
limiting or restricting the rights of any one or more of them to sell, assign,
transfer, mortgage, pledge, hypothecate or transfer on the books of this
corporation any or all of the shares of this corporation held by them, and if
a copy of said agreement shall be filed with this corporation, or if (b)
shareholders entitled to vote shall adopt any By-Law provision abridging,
limiting or restricting the aforesaid rights of any shareholders, then, and in
either of such events, all certificates of shares of stock subject to such
abridgments, limitations or restrictions shall have a reference thereto
endorsed thereon by an officer of this corporation and such certificates shall
not thereafter be transferred on the books of this corporation except in
accordance with the terms and provisions of such agreement or ByLaw, as the
case may be; provided, that no restriction shall be binding with respect to
shares issued prior to adoption of the restriction unless the holders of such
shares voted in favor of or consented in writing to the restriction.
Article XVI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 16.1: Indemnification of Directors and Officers. The
corporation shall, to the maximum extent and in the manner permitted by the
Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding (as defined in Section 317(a) of the Code), arising by reason of
the fact that such person is or was an agent of the corporation. For purposes
of this Article XVI, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
Section 16.2: Indemnification of Others. The corporation shall have
the power, to the extent and in the manner permitted by the Code, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation.
For purposes of this Article XVI, an "employee" or "agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
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employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
Section 16.3: Payment of Expenses in Advance. Expenses incurred in
defending any civil or criminal action or proceeding for which indemnification
is required pursuant to Section 16.1 or for which indemnification is permitted
pursuant to Section 16.2 following authorization thereof by the Board of
Directors, shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or
on behalf of the indemnified party to repay such amount if it shall ultimately
be determined that the indemnified party is not entitled to be indemnified as
authorized in this Article XVI.
Section 16.4: Indemnity Not Exclusive. The indemnification provided
by this Article XVI shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office, to the extent that such additional rights to
indemnification are authorized in the Articles of Incorporation.
Section 16.5: Insurance Indemnification. The corporation shall have
the power to purchase and maintain insurance on behalf of any person who is
or was an Agent of the corporation against any liability asserted against or
incurred by such person in such capacity or arising out of such person's
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article XVI.
Section 16.6: Conflicts. No indemnification or advance shall be made
under this Article XVI, except where such indemnification or advance is
mandated by law or the order, judgment or decree of any court of competent
jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles
of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
54
<PAGE>
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