<PAGE>
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 April 1, 2000 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
Cupertino, California 95014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
-----------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
162,743,706 shares of Common Stock Issued and Outstanding as of May 5, 2000
<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 Six Months Ended
------------------ ----------------
April 1, 2000 March 27, 1999 April 1, 2000 March 27, 1999
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 1,945 $ 1,530 $ 4,288 $ 3,240
Cost of sales 1,396 1,127 3,132 2,355
-------- -------- -------- --------
Gross margin 549 403 1,156 885
-------- -------- -------- --------
Operating expenses:
Research and development 92 76 182 152
Selling, general, and administrative 287 239 606 518
Special charges:
Restructuring costs 0 9 8 9
Executive bonus 0 0 90 0
-------- -------- -------- --------
Total operating expenses 379 324 886 679
-------- -------- -------- --------
Operating income 170 79 270 206
Gains from sales of investment 100 55 234 87
Interest and other income (expense), net 49 19 89 29
-------- -------- -------- --------
Total interest and other income (expense), net 149 74 323 116
-------- -------- -------- --------
Income before provision for income taxes 319 153 593 322
Provision for income taxes 86 18 177 35
-------- -------- -------- --------
Net income $ 233 $ 135 $ 416 $ 287
======== ======== ======== ========
Earnings per common share:
Basic $ 1.44 $ 0.99 $ 2.57 $ 2.11
Diluted $ 1.28 $ 0.84 $ 2.32 $ 1.79
Shares used in computing earnings per share (in thousands):
Basic 162,172 136,371 161,597 135,820
Diluted 181,993 173,204 179,626 172,619
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share amounts)
ASSETS
<TABLE>
<CAPTION>
April 1, 2000 September 25, 1999
------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,662 $1,326
Short-term investments 1,947 1,900
Accounts receivable, less allowances of $64 and $68, respectively 940 681
Inventories 10 20
Deferred tax assets 131 143
Other current assets 222 215
------ ------
Total current assets 4,912 4,285
Property, plant and equipment, net 314 318
Non-current debt and equity investments 1,544 339
Other assets 237 219
------ ------
Total assets $7,007 $5,161
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,111 $ 812
Accrued expenses 742 737
------ ------
Total current liabilities 1,853 1,549
Long-term debt 300 300
Deferred tax liabilities 639 208
------ ------
Total liabilities 2,792 2,057
------ ------
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; 162,679,893
and 160,799,061 shares issued and outstanding, respectively 1,419 1,349
Retained earnings 1,915 1,499
Accumulated other comprehensive income 731 106
------ ------
Total shareholders' equity 4,215 3,104
------ ------
Total liabilities and shareholders' equity $7,007 $5,161
====== ======
</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>
Six Months Ended
----------------
April 1, 2000 March 27, 1999
------------- --------------
<S> <C> <C>
Cash and cash equivalents, beginning of the period $ 1,326 $ 1,481
------- -------
Operating:
Net income 416 287
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization 41 47
Provision for deferred income taxes 105 6
Gains on sales of ARM shares (234) (87)
Loss on sale of property, plant, and equipment 1 --
Changes in operating assets and liabilities:
Accounts receivable (259) 151
Inventories 10 60
Other current assets (7) (11)
Other assets (7) 11
Accounts payable 299 72
Other current liabilities 69 (44)
------- -------
Cash generated by operating activities 434 492
------- -------
Investing:
Purchase of short-term investments (1,843) (2,254)
Proceeds from maturities of short-term investments 1,796 1,509
Proceeds from sale of ARM shares 237 96
Purchase of long-term investments (216) --
Net proceeds from property, plant, and equipment retirements 10 20
Purchase of property, plant, and equipment (65) (24)
Other (23) 2
------- -------
Cash used for investing activities (104) (651)
------- -------
Financing:
Proceeds from issuance of common stock 47 36
Cash used for repurchase of common stock (41) --
------- -------
Cash generated by financing activities 6 36
------- -------
Total cash generated (used) 336 (123)
------- -------
Cash and cash equivalents, end of the period $ 1,662 $ 1,358
======= =======
Supplemental cash flow disclosures:
Cash paid for interest $ 10 $ 30
Cash paid (received) for income taxes, net $ 37 $ (1)
</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 AND RECENT ACCOUNTING PRONOUNCEMENTS
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 year ended September 25,
1999, included in its Annual Report on Form 10-K for the year ended September
25, 1999 (the 1999 Form 10-K). All information is based on the Company's fiscal
calendar.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of shares of common stock 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.
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 SIX MONTHS ENDED
---------------------------- ---------------------------
4/1/00 3/27/99 4/1/00 3/27/99
<S> <C> <C> <C> <C>
Numerator (in millions):
Numerator for basic earnings per share -
Net income $ 233 $ 135 $ 416 $ 287
Interest expense on convertible debt -- 11 -- 22
-------- -------- -------- --------
Numerator for diluted earnings per share
- Adjusted net income $ 233 $ 146 $ 416 $ 309
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share
-- weighted average-shares outstanding 162,172 136,371 161,597 135,820
Effect of dilutive securities:
Convertible preferred stock 9,091 9,091 9,091 9,091
Convertible debt -- 22,642 -- 22,642
Dilutive options 10,730 5,100 8,938 5,066
-------- -------- -------- --------
Dilutive potential common shares 19,821 36,833 18,029 36,799
-------- -------- -------- --------
Denominator for diluted earnings per share
- -- adjusted weighted-average shares and
assumed conversions 181,993 173,204 179,626 172,619
======== ======== ======== ========
Basic earnings per share $ 1.44 $ 0.99 $ 2.57 $ 2.11
======== ======== ======== ========
Diluted earnings per share $ 1.28 $ 0.84 $ 2.32 $ 1.79
======== ======== ======== ========
</TABLE>
5
<PAGE>
Options to purchase approximately 209,750 and 253,000 shares of common stock
were outstanding as of April 1, 2000, and March 27, 1999, respectively, that
were not included in the computation of diluted earnings per share for these
quarters because the options' exercise price was greater than the average market
price of the Company's common stock during those periods and, therefore, the
effect would be antidilutive.
During the first two quarters of 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 weighted average common
shares represented by the Debentures upon conversion were included in the
computation of diluted earnings per share for the three and six month periods
ended March 27, 1999, using the if-converted method. On April 14, 1999, the
Company called for redemption the Debentures. As a result, debenture holders
converted virtually all of the outstanding debentures to 22.6 million shares of
the Company's common stock in 1999. For additional disclosures regarding the
Debentures, see the 1999 Form 10-K.
NOTE 3 - CONSOLIDATED FINANCIAL STATEMENT DETAILS (IN MILLIONS)
INVENTORIES
<TABLE>
<CAPTION>
4/1/00 9/25/99
------ -------
<S> <C> <C>
Purchased parts $ 2 $ 4
Work in process -- 3
Finished goods 8 13
----- -----
Total inventories $ 10 $ 20
===== =====
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
4/1/00 9/25/99
------ -------
<S> <C> <C>
Land and buildings $ 321 $ 323
Machinery and equipment 208 220
Office furniture and equipment 61 61
Leasehold improvements 133 125
Accumulated depreciation and amortization (409) (411)
----- -----
Net property, plant, and equipment $ 314 $ 318
===== =====
</TABLE>
ACCRUED EXPENSES
<TABLE>
<CAPTION>
4/1/00 9/25/99
------ -------
<S> <C> <C>
Accrued compensation and employee benefits $ 178 $ 84
Accrued marketing and distribution 146 170
Accrued warranty and related costs 106 105
Other current liabilities 312 378
----- -----
Total accrued expenses $ 742 $ 737
===== =====
</TABLE>
6
<PAGE>
INTEREST AND OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
4/1/00 3/27/99
------ -------
<S> <C> <C>
Interest income $ 96 $ 65
Interest expense (10) (31)
Other income (expense), net 3 (5)
----- -----
Interest and other income (expense), net $ 89 $ 29
===== =====
</TABLE>
NOTE 4 - NON-CURRENT DEBT AND EQUITY INVESTMENTS
The Company holds significant investments in ARM Holdings plc (ARM), Samsung
Electronics Co., Ltd (Samsung), Akamai Technologies, Inc. (Akamai) and EarthLink
Network, Inc. (EarthLink). These investments are reflected in the consolidated
balance sheets as non-current debt and equity investments and have been
categorized as available-for-sale requiring that they be carried at fair value
with unrealized gains and losses, net of taxes, reported in equity as a
component of accumulated other comprehensive income. The combined fair value of
these investments was $1.544 billion and $339 million as of April 1, 2000, and
September 25, 1999, respectively. The combined fair value of these investments
has declined to approximately $1.215 billion as of May 5, 2000. The Company
believes it is likely there will continue to be significant fluctuations in the
fair value of these investments in the future.
ARM is a publicly held company in the United Kingdom involved in the design and
licensing of high performance microprocessors and related technology. As of
September 25, 1999, the Company held approximately 16 million shares of ARM
stock with a fair value of $226 million. During the first quarter of 2000, the
Company sold approximately 5.2 million shares of ARM stock for net proceeds of
approximately $136 million and a gain before taxes of $134 million. During the
second quarter of 2000, the Company sold approximately 1.5 million shares of ARM
stock for net proceeds of $101 million and a gain before taxes of $100 million.
During the first quarter of 1999, the Company sold approximately 11.6 million
shares of ARM stock for net proceeds of approximately $37 million and a gain
before taxes of $32 million. During the second quarter of 1999, the Company sold
8 million shares of ARM stock for net proceeds of approximately $59 million and
a gain before taxes of approximately $55 million. As of April 1, 2000, the
Company holds 9.4 million shares of ARM stock with a fair value of $566 million.
Share data for ARM presented in this Form 10-Q has not been adjusted to reflect
ARM's five-for-one split in April of 2000.
In January 2000, the Company invested $200 million in EarthLink, an Internet
service provider (ISP). The investment is in EarthLink's Series C Convertible
Preferred Stock, which is convertible by the Company after January 4, 2001, into
approximately 7.1 million shares of EarthLink common stock. Apple also received
a seat on EarthLink's Board of Directors. Concurrent with this investment,
Earthlink and the Company entered into a multi-year agreement to deliver ISP
service to Macintosh users in the United States. Under the terms of the
agreement, the Company will profit from each new Mac customer that subscribes to
EarthLink's ISP service, and EarthLink will become the default ISP in Apple's
Internet Setup Software included with all Macintosh computers sold in the United
States. The fair value of the Company's investment in EarthLink is approximately
$138 million as of April 1, 2000.
During the fourth quarter of 1999, the Company invested $100 million in Samsung
to assist in the further expansion of Samsung's TFT-LCD flat-panel display
production capacity. The investment, in the form of three year unsecured bonds,
is convertible into approximately 550,000 shares of Samsung common stock
beginning in June 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 fair value of
the Company's investment in Samsung is approximately $179 million as of Apri1 1,
2000.
7
<PAGE>
In June 1999, the Company invested $12.5 million in Akamai, a global Internet
content delivery service. The investment was in the form of convertible
preferred stock that converted into 4.1 million shares of Akamai common stock
(adjusted for subsequent stock splits) at the time of Akamai's initial public
offering in October 1999. The Company is restricted from selling more than 25%
of its shares within one year after the date of the closing of the public
offering of Akamai's stock. Beginning in the first quarter of 2000, the Company
categorized its shares in Akamai as available-for-sale. As of April 1, 2000, the
Company's investment in Akamai has a fair value of $661 million.
NOTE 5 - SHAREHOLDERS' EQUITY
During the second quarter of 2000, the Company's Board of Directors granted the
Company's Chief Executive Officer options under the Company's 1998 Executive
Officer Stock Plan to purchase 10 million shares of common stock at an exercise
price of $87.1875 per share, the then fair value of the underlying common stock.
A summary of the Company's stock option activity and related information for the
six-month period ended April 1, 2000, follows (option amounts are presented in
thousands):
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at 9/25/99 18,404 $ 26.39
Granted 19,536 $ 90.72
Exercised (2,123) $ 17.96
Forfeited (1,227) $ 46.40
------
Options outstanding at 4/1/00 34,590 $ 62.53
======
Options exercisable at 4/1/00 7,362 $ 65.46
</TABLE>
In July 1999, the Company's Board of Directors authorized a plan for the Company
to repurchase up to $500 million of its common stock. This repurchase plan does
not obligate the Company to acquire any specific number of shares or acquire
shares over any specified period of time. During the second quarter of 2000, no
shares of common stock were repurchased. Since inception of the stock repurchase
plan, the Company has repurchased a total of 1.75 million shares of its common
stock at a total cost of $116 million.
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income is comprised of 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.
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, net of taxes, on
marketable securities categorized as available-for-sale. See Note 4 regarding
unrealized gains on available-for-sale securities. The components of
comprehensive income, net of tax, are as follows (in millions):
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
4/1/00 3/27/99 4/1/00 3/27/99
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Net income $ 233 $ 135 $ 416 $ 287
Other comprehensive income (loss):
Change in accumulated translation
adjustment (5) (10) (6) 2
Unrealized gains (losses) on
investments, net of taxes (428) 142 805 255
Reclassification adjustment for gains
included in net income (73) (50) (174) (50)
------- ------- ------- -------
Total comprehensive income (loss) $ (273) $ 217 $ 1,041 $ 494
======= ======= ======= =======
</TABLE>
NOTE 7 - SPECIAL CHARGES
RESTRUCTURING ACTIONS
During the first quarter of 2000, the Company initiated restructuring actions
resulting in recognition of an $8 million restructuring charge. This charge was
comprised of $3 million for the write-off of various operating assets and $5
million for severance payments to approximately 95 employees associated with
consolidation of various domestic and international sales and marketing
functions. Of the $5 million accrued for severance, $1.7 million had been spent
by April 1, 2000, and the remainder is expected to be spent over the following
two quarters. Of the $3 million accrued for the write-off of various assets,
substantially all was utilized by April 1, 2000.
During the fourth quarter of 1999, the Company initiated restructuring actions
resulting in a charge to operations of $21 million comprised of $11 million for
contract cancellation charges associated with the closure of the Company's
outsourced data center, $9.2 million of which had been spent by the end of the
second quarter of 2000, and $10 million for contract cancellation charges
related to supply and development agreements previously discontinued, all of
which had been spent by the end of the first quarter of fiscal 2000.
EXECUTIVE BONUS
In December 1999, the Company's Board of Directors approved a special executive
bonus for past services for the Company's Chief Executive Officer in the form of
an aircraft with a total cost to the company of approximately $90 million, the
majority of which is not tax deductible. Approximately half of the total charge
is the cost of the aircraft. The other half represents all other costs and taxes
associated with the purchase.
NOTE 8 - SEGMENT INFORMATION AND GEOGRAPHIC DATA
The Company manages its business primarily on a geographic basis. The Company's
reportable segments are comprised of the Americas, Europe, and Japan. The
Americas segment includes both North and South America. The European segment
includes European countries as well as the Middle East and Africa. Other
operating segments include Asia-Pacific, which includes Australia and Asia
except for Japan, and the Company's subsidiary, Filemaker, Inc. Each reportable
operating segment provides similar products and services, and the accounting
policies of the various segments are the same as those described in the 1999
Form 10-K.
9
<PAGE>
The Company evaluates the performance of its operating segments based on net
sales and operating income. Operating income for each segment includes revenue,
cost of sales, and operating expenses directly attributable to the segment. Net
sales are based on the location of the customers. Operating income for each
segment excludes other income and expense and certain expenses that are managed
outside the reportable segment. Costs excluded from segment operating income
include various corporate expenses, income taxes, and nonrecurring charges for
purchased in-process research and development, restructuring, and acquisition
related costs. Corporate expenses include research and development,
manufacturing expenses not included in segment cost of sales, corporate
marketing expenses, and other separately managed general and administrative
expenses. The Company does not include intercompany transfers between segments
for management reporting purposes. Summary information by segment follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
4/1/00 3/27/99 4/1/00 3/27/99
-----------------------------------------------
<S> <C> <C> <C> <C>
Americas:
Net sales 989 787 2,178 1,747
Operating income 137 101 303 222
Europe:
Net sales 469 368 1,095 820
Operating income 63 52 177 115
Japan:
Net sales 349 262 761 454
Operating income 97 70 211 97
Other segments:
Net sales 138 113 254 219
Operating income 39 18 64 38
</TABLE>
A reconciliation of the Company's segment operating income to the condensed
consolidated financial statements follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
4/1/00 3/27/99 4/1/00 3/27/99
----------------------------------------
<S> <C> <C> <C> <C>
Segment operating income 336 241 755 472
Corporate expenses, net 166 153 387 257
Restructuring costs -- 9 8 9
Executive bonus -- -- 90 --
---- ---- ---- ----
Total operating income $170 $ 79 $270 $206
==== ==== ==== ====
</TABLE>
10
<PAGE>
Information regarding net sales by product is as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
4/1/00 3/27/99 4/1/00 3/27/99
----------------------------------------------------
<S> <C> <C> <C> <C>
Power Macintosh $ 686 $ 730 $1,380 $1,321
PowerBook 252 146 464 403
iMac 540 358 1,335 932
iBook 174 -- 525 --
Software, service, and other net sales 293 296 584 584
------ ------ ------ ------
Total net sales $1,945 $1,530 $4,288 $3,240
====== ====== ====== ======
</TABLE>
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
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. The adoption of SOP 98-1 did not have a material
impact on the Company's consolidated results of operations or financial position
during the quarter and six-months ended April 1, 2000.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, hedging activities, and exposure definition. SFAS No. 133 requires
an entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or recognized in
other comprehensive income until the hedged item is recognized in earnings. In
June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities- Deferral of the Effective Date of FASB Statement No. 133" was
issued. The statement defers the effective date of SFAS No. 133 until the first
quarter of fiscal 2001. Although the Company continues to review the effect of
the implementation of SFAS No. 133, the Company does not currently believe its
adoption will have a material impact on its financial position or overall trends
in results of operations and does not believe adoption will result in
significant changes to its financial risk management practices. However, the
impact of adoption of SFAS No. 133 on the Company's results of operations is
dependent upon the fair values of the Company's derivatives and related
financial instruments at the date of adoption and may result in more pronounced
quarterly fluctuations in other income and expense.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The
objective of this SAB is to provide further guidance on revenue recognition
issues in the absence of authoritative literature addressing a specific
arrangement or a specific industry. The Company is required to follow the
guidance in the SAB no later than the first quarter of its fiscal year 2001.
Adoption of this guidance is not expected to have a material impact on the
Company's financial position or results of operations. The SEC has recently
indicated it intends to issue further guidance with respect to adoption of
specific issues addressed by SAB No. 101. Until such time as this additional
guidance is issued, the Company is unable to assess the impact, if any, it may
have on its financial position or results of operations.
11
<PAGE>
NOTE 10 - CONTINGENCIES
The Company is subject to various legal proceedings and claims that are
discussed in detail in the 1999 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 most of the issues for these years have been
resolved, certain issues still remain in dispute and are being contested by the
Company. Management believes adequate provision has been made for any
adjustments that may result from tax examinations.
NOTE 11 - RECLASSIFICATIONS
Certain amounts in the Condensed Consolidated Balance Sheet as of September 25,
1999, have been reclassified to conform to the 2000 presentation.
NOTE 12 - SUBSEQUENT EVENTS
On April 19, 2000, the Company's Board of Directors authorized a two-for-one
stock split, to be effected in the form of a stock dividend, subject to
shareholder approval of an amendment to the Company's Restated Articles of
Incorporation to increase the number of shares of Common Stock to 900,000,000.
Such approval was received at the Company's Annual Meeting of Shareholders held
on April 20, 2000. Shareholders of record on May 19, 2000 will be entitled to
one additional share of common stock for each share of the Company's common
stock held on that date. Share and per share data presented in this Form 10-Q
have not been adjusted to give effect to this stock split.
12
<PAGE>
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 1999 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.
RESULTS OF OPERATIONS
Tabular information (dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
4/01/00 3/27/99 CHANGE 4/01/00 3/27/99 CHANGE
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Macintosh CPU unit sales
(in thousands) 1,043 827 26% 2,420 1,771 37%
Avg. revenue per Macintosh shipped $1,820 $1,813 0% $1,737 $1,793 (3%)
Net sales $1,945 $1,530 27% $4,288 $3,240 32%
Gross margin $ 549 $ 403 36% $1,156 $ 885 31%
Percentage of net sales 28.2% 26.3% 27.0% 27.3%
Operating expense $ 379 $ 315 20% $ 788 $ 670 18%
Percentage of net sales 19.5% 20.6% 18.4% 20.7%
Special charges $ -- $ 9 $ 98 $ 9
Gains from sales of investment $ 100 $ 55 $ 234 $ 87
Interest and other income, net $ 49 $ 19 158% $ 89 $ 29 207%
Provision for income taxes $ 86 $ 18 378% $ 177 $ 35 406%
Effective tax rate 27.0% 11.8% 29.8% 11.0%
Net income $ 233 $ 135 73% $ 416 $ 287 45%
Diluted earnings per share $ 1.28 $ 0.84 52% $ 2.32 $ 1.79 30%
</TABLE>
NET SALES
Net sales for geographic operating segments and Macintosh unit sales by
geographic segment and by product follow (net sales in millions and Macintosh
unit sales in thousands):
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
4/1/00 3/27/99 CHANGE 4/1/00 3/27/99 CHANGE
------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Americas net sales $ 989 $ 787 26% $2,178 $1,747 25%
Europe net sales $ 469 $ 368 27% $1,095 $ 820 34%
Japan net sales $ 349 $ 262 33% $ 761 $ 454 68%
Asia Pacific net sales $ 92 $ 82 12% $ 169 $ 157 8%
Americas Macintosh unit sales 541 421 29% 1,249 946 32%
Europe Macintosh unit sales 275 203 35% 664 455 46%
Japan Macintosh unit sales 174 156 12% 409 275 49%
Asia Pacific Macintosh unit sales 53 47 13% 98 95 3%
------ ------ ------ ------ ------
Total Macintosh unit sales 1,043 827 26% 2,420 1,771 37%
====== ====== ====== ====== ======
Power Macintosh unit sales 354 401 (12%) 709 727 (2%)
PowerBook unit sales 100 75 33% 184 174 6%
iMac unit sales 474 351 35% 1,176 870 35%
iBook unit sales 115 -- 100% 351 -- 100%
------ ------ ------ ------ ------
Total Macintosh unit sales 1,043 827 26% 2,420 1,771 37%
====== ====== ====== ====== ======
</TABLE>
Net sales increased $415 million or 27% to $1.945 billion in the second quarter
of 2000 compared to the same quarter in 1999. The primary source of this growth
was an overall 26% increase in Macintosh unit sales, which reflects strong unit
growth in the Company's three largest geographic operating segments.
Approximately half of the year-over-year increase in quarterly Macintosh unit
shipments was attributable to sales of iBook, the Company's new education and
consumer oriented portable computer, which was not shipped until the fourth
quarter of 1999. The average revenue per Macintosh system, a function of total
net sales generated by hardware shipments and total Macintosh CPU unit sales,
for the second quarter of 2000 of $1,820 was comparable to the $1,813
experienced in the same quarter in 1999.
For the first six months of 2000, net sales increased $1.048 billion or 32% over
the same period in 1999. A 37% increase in year-to-date Macintosh unit sales,
also reflective of strong growth in the Company's three largest geographic
operating segments, was the principal cause of the increase in net sales during
the first six months of 2000.
Net sales declined sequentially during the second quarter of 2000 compared to
the first quarter of 2000 by $398 million or 17%. Similarly, Macintosh unit
sales decreased 24% during the second quarter of 2000 compared to the first
quarter. The sequential decline in both net sales and unit sales during the
second quarter is consistent with the historical pattern experienced by the
Company due to lower demand in the Company's consumer markets following the
holiday season. The sequential decrease in unit sales was somewhat offset by a
sequential increase in the average revenue per Macintosh system, which rose from
$1,673 during the first quarter of 2000 to $1,820 during the second quarter. The
increase during the current quarter in the average revenue per Macintosh system
is primarily attributable to the shift in the Company's unit mix towards
higher-priced professional oriented products such that Power Macintosh and
PowerBook units comprised 44% of total Macintosh units sales during the second
quarter of 2000 versus 32% during the first quarter.
SEGMENT OPERATING PERFORMANCE
The Company manages its business primarily on a geographic basis. The Company's
reportable geographic segments include the Americas, Europe, and Japan. The
Americas segment includes both North and South America. The European segment
includes European countries as well as the Middle East and Africa. The Japan
segment includes only Japan. Each geographic operating segment provides similar
hardware and software products and similar services. Further information
regarding the Company's operating segments may be found in this Form 10-Q in the
Notes to Condensed Consolidated Financial Statements at Note 8, "Segment
Information and Geographic Data."
14
<PAGE>
AMERICAS
Net sales in the Americas segment during the second quarter of 2000 increased
$202 million or 26% compared to the same period in 1999. Macintosh unit sales in
the Americas increased 29% on a year-over-year basis, reflecting strong growth
in iMac unit sales and unit sales of the recently introduced iBook. During the
second quarters of both 2000 and 1999, the Americas segment represented
approximately 51% of the Company's total net sales. The results experienced by
the Americas segment in the second quarter of 2000 versus the same quarter in
1999 reflect the Company's overall results characterized by strong growth in
unit sales and net sales of the Company's consumer and education oriented
products and moderate growth in net sales of the Company's professional oriented
products.
EUROPE
Net sales in the Europe segment increased $101 million or 27% during the second
quarter of 2000 as compared to the same quarter in 1999, while the segment's
Macintosh unit sales increased 35%. Like the Americas segment, Europe's results
in the second quarter of 2000 as compared to 1999 are indicative of strong
growth in Macintosh unit sales, particularly unit sales of iMac and iBook.
JAPAN
Net sales in Japan rose 33% or $87 million during the second quarter of 2000 as
compared to the same quarter in 1999 while Macintosh unit sales increased 12%.
The increase in net sales was primarily the result of increased unit sales of
professional oriented products and iBook, partially offset by a moderate decline
in unit sales of iMac.
GROSS MARGIN
Gross margin for the second quarter of 2000 was 28.2% compared to 26.3% for the
same quarter in 1999 and 25.9% for the first quarter of 2000. Gross margin
during the second quarter of 2000 was favorably impacted by three principal
factors. First, component costs were lower during the second quarter of 2000
compared to previous quarters. In particular, costs for DRAM fell close to
levels not experienced since the fourth quarter of 1999. Second, freight costs
declined sequentially from the first quarter of 2000 because substantially
higher air freight costs were incurred during the first quarter of 2000 compared
to the second quarter in order to get products introduced during the first
quarter into the sales channel in time for the holiday selling season. Third,
the Company's overall product mix shifted towards higher-priced, higher margin
professional products. Net sales of Power Macintosh and PowerBook products
accounted for 48.2% of total net sales during the second quarter of 2000 and
39.2% of net sales during the first quarter of 2000.
There can be no assurance targeted gross margin levels will be achieved or
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 and availability of raw material and outside
manufacturing services, fluctuations in freight costs incurred to deliver the
Company's products to market, 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 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 and to stimulate demand
for certain of its products. 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, excluding special charges,
increased $48 million or 20% during second quarter of 2000 as compared to the
same period in 1999 and decreased sequentially $32 million or 10% from the first
quarter of 2000. The sequential decline from the first quarter of 2000 reflects
15
<PAGE>
the typical seasonal decline in advertising and promotional activity associated
with the 1999 holiday season. Selling, general and administrative expenses for
the first six months of 2000 increased $88 million or 17% as compared to the
same period in 1999. However, as a result of growing net sales, selling, general
and administrative expenses fell to 14% of net sales during the first six months
of 2000 compared to 16% during the same period in 1999. The absolute
year-over-year increases in selling, general and administrative expenses for
both the second quarter and the first six months of 2000 is the result of higher
variable selling and marketing expenses resulting from the year-over-year
increase in net sales and due to higher discretionary spending on marketing and
advertising in 2000 as compared to 1999.
Expenditures for research and development increased 21% between the second
quarter of fiscal 2000 and the same quarter in 1999 and increased 20% during the
first six months of 2000 compared to the same period in 1999. These increases
resulted primarily from increased spending in 2000 to support product
development activities and increased research and development headcount.
SPECIAL CHARGES
During the first quarter of 2000, the Company initiated restructuring actions
resulting in recognition of an $8 million restructuring charge. This charge was
comprised of $3 million for the write-off of various operating assets and $5
million for severance payments to approximately 95 employees associated with
consolidation of various domestic and international sales and marketing
functions. Of the $5 million accrued for severance, $1.7 million had been spent
by April 1, 2000, and the remainder is expected to be spent over the following
two quarters. Of the $3 million accrued for the write-off of various assets,
substantially all was utilized by April 1, 2000.
During the first quarter of 2000, the Company's Board of Directors approved a
special executive bonus for the Company's Chief Executive Officer for past
services in the form of an aircraft with a total cost to the company of
approximately $90 million, the majority of which is not tax deductible.
Approximately half of the total charge is the cost of the aircraft. The other
half represents all other costs and taxes associated with the purchase.
TOTAL INTEREST AND OTHER INCOME, NET
Interest and other income and expense (net) increased $30 million or 158% to $49
million during the second quarter of 2000 compared to the same quarter in 1999
and increased $60 million or 207% for the first six months of 2000 over the same
period in 1999. These increases are attributable to two factors. First, the
Company's cash, cash equivalents, and short-term investments were higher by
approximately $687 million or 24% at the end of the second quarter of 2000
versus the same balances at the end the second quarter of 1999. This resulted in
a $16 million or 48% increase in interest income between the second quarter of
2000 and the second quarter of 1999 and an increase of $31 million or 48% for
the comparable six month periods. Second, as the result of conversion to common
stock of the Company's convertible subordinated debentures during the third
quarter of 1999, interest expense declined $10 million or 67% during the second
quarter of 2000 compared to the same quarter in 1999 and decreased $21 million
or 68% for the comparable six month periods.
During the second quarter of 2000, the Company sold approximately 1.5 million
shares of ARM stock for net proceeds of approximately $101 million and a gain
before taxes of $100 million. For the six-month period ended on April 1, 2000,
the Company sold approximately 6.7 million shares of ARM stock for net proceeds
of $237 million and a gain before taxes of $234 million. During the second
quarter of 1999, the Company sold approximately 8.0 million shares of ARM stock
for net proceeds of approximately $59 million and a gain before taxes of $55
million. For the six-month period ended on March 27, 1999, the Company sold
approximately 19.6 million shares of ARM stock for net proceeds of $96 million
and a gain before taxes of $87 million.
PROVISION FOR INCOME TAXES
As of April 1, 2000, the Company had deferred tax assets arising from deductible
temporary differences, tax losses, and tax credits of $580 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 April 1, 2000,
a valuation allowance of $45 million was recorded against the deferred tax asset
for the benefits of tax losses that may not be realized. The valuation allowance
16
<PAGE>
primarily relates to the operating loss carryforwards acquired from NeXT and to
tax benefits in certain foreign jurisdictions. 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 first quarter of 2000, was
approximately 33% and includes the effect of the special executive bonus accrued
during that quarter. The effective tax rate during the first quarter of 2000
without this charge was approximately 25%. The Company's effective tax rate for
the three months ended April 1, 2000, was approximately 27% which brings the
effective tax rate without the special executive bonus for the six months ended
April 1, 2000, to 26%. 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 CURRENTLY BELIEVES THAT ITS EFFECTIVE TAX RATE FOR THE REMAINDER OF
2000 WILL BE APPROXIMATELY 26%. THE COMPANY ANTICIPATES THAT ITS EFFECTIVE TAX
RATE WILL INCREASE IN 2001. 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." ADDITIONALLY, THE ACTUAL FUTURE TAX RATE WILL
BE SIGNIFICANTLY IMPACTED BY THE AMOUNT OF AND JURISDICTION IN WHICH THE
COMPANY'S FOREIGN PROFITS ARE EARNED.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents selected financial information and statistics for
each of the quarters ending on the dates indicated (dollars in millions):
<TABLE>
<CAPTION>
4/1/00 1/1/00 9/25/99
------ ------ -------
<S> <C> <C> <C>
Cash, cash equivalents, and short-term investments $3,609 $3,660 $3,226
Accounts receivable, net $ 940 $ 892 $ 681
Inventory $ 10 $ 15 $ 20
Working capital $3,059 $2,944 $2,736
Non-current debt and equity investments $1,544 $2,140 $ 339
Long-term debt $ 300 $ 300 $ 300
Days sales in accounts receivable (a) 44 37 46
Days of supply in inventory (b) 1 1 2
Days payables outstanding (c) 73 66 77
Operating cash flow (quarterly) $ 61 $ 373 $ 218
</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 April 1, 2000, the Company had approximately $3.6 billion in cash, cash
equivalents, and short-term investments, an increase of $383 million over the
same balances at the end of 1999. For the six months ended April 1, 2000, the
Company's primary source of cash was $434 million in cash flows from operating
activities. Cash generated by operations was primarily from net income of $416
million and a combined increase in accounts payable and other current
liabilities of $368 million partially offset by an increase in accounts
receivable of $259 million. In addition to operating cash flow, other
significant cash flow items during the six months ended April 1, 2000 included
net purchases of short-term investments of $47 million, $216 million utilized
for the purchase of long-term investments, $65 million for the purchase of
property, plant and equipment, and cash proceeds from the sale of ARM stock of
$237 million.
In July 1999, the Company's Board of Directors authorized a plan for the Company
to repurchase up to $500 million of its common stock. This repurchase plan does
not obligate the Company to acquire any specific number of shares or acquire
shares over any specified period of time. During the second quarter of 2000, no
shares of common stock were repurchased. Since inception of the repurchase plan,
the Company has repurchased 1.75 million shares at a cost of $116 million.
On November 18, 1999, the Company entered into a $100 million revolving credit
agreement with Bank of America. Loans under the agreement pay interest at LIBOR
17
<PAGE>
plus 1%, and the Company is required to pay a commitment fee of 0.2% of the
unused portion of the credit facility. No advances have been made against this
credit facility. This revolving credit agreement is intended to provide the
Company with an additional source of short-term liquidity.
The Company believes its balances of cash, cash equivalents, short-term
investments, and available credit facilities will be sufficient to meet its
cash requirements over the next twelve months, including any cash that may be
utilized by its stock repurchase plan. 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 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.
OTHER INVESTMENTS
The Company holds significant investments in ARM, Samsung, Akamai and
Earthlink. These investments are reflected in the consolidated balances sheets
as non-current debt and equity investments and have been categorized as
available-for-sale requiring that they be carried at fair value with
unrealized gains and losses, net of taxes, reported in equity as a component
of accumulated other comprehensive income. The combined fair value of these
investments was $1.544 billion and $339 million as of April 1, 2000, and
September 25, 1999, respectively. The combined fair value of these investments
has declined to approximately $1.215 billion as of May 5, 2000. The Company
believes it is likely there will continue to be significant fluctuations in
the fair value of these investments in the future. Additional information
regarding these investment may be found in this Form 10-Q in the Notes to
Condensed Consolidated Financial Statements at Note 4, "Non-Current Debt and
Equity Investments."
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 is 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.
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, regional economic problems, 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 previously undetected Y2K compliance issues;
managing the continuing impact of the European Union's transition to the Euro
as its common legal currency; continuing fluctuations in the fair value of the
Company's non-current debt and equity investments, and the Company's ability
to retain the operational and cost benefits derived from its recently
completed restructuring programs.
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 1999 Form 10-K.
18
<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 1999 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. Excluding those investments classified as non-current debt and
equity investments, all highly liquid investments with a maturity of three
months or less at the date of purchase are considered to be cash equivalents;
investments with maturities between three and twelve months are considered to be
short-term investments. As of April 1, 2000, substantially all of the Company's
investments have maturities less than 12 months.
During the last two years, the Company has entered into interest rate derivative
transactions, including interest rate swaps 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 net 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 marked to market through earnings.
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 the aforementioned programs will offset more than a portion of the
adverse financial impact resulting from unfavorable movements in either foreign
exchange or interest rates. In addition, the timing of the accounting for
recognition of gains and losses related to mark-to-market instruments for any
given period may not coincide with the timing of gains and losses related to the
underlying economic exposures and, therefore, may adversely affect the Company's
operating results and financial position.
19
<PAGE>
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 1999 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 1999 Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims which are
discussed in the 1999 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on April 20, 2000. All matters voted
on were approved. The results are as follows:
PROPOSAL I
The following directors were elected at the meeting to serve a one-year term as
directors:
<TABLE>
<CAPTION>
For Authority Withheld
<S> <C> <C>
William V. Campbell 139,530,349 1,526,408
Gareth C.C. Chang 139,671,948 1,384,809
Millard S. Drexler 139,281,278 1,775,479
Lawrence J. Ellison 130,301,339 10,755,418
Steven P. Jobs 139,687,954 1,368,803
Jerome B. York 139,682,237 1,374,520
</TABLE>
PROPOSAL II
The proposal to amend the Company's Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock from 320,000,000 to
900,000,000 shares was approved. As a result, the Company's Restated Articles of
Incorporation were amended to increase the number of authorized shares to
900,000,000.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Vote
<S> <C> <C> <C>
120,834,875 19,682,413 537,666 1,803
</TABLE>
PROPOSAL III
The proposal to amend the Company's 1998 Executive Officer Stock Plan (the 1998
Plan) to increase the number of shares reserved for issuance thereunder by
2,000,000 shares, bringing the total number of shares of Common Stock reserved
for issuance under the 1998 Plan to 19,000,000, was approved. As a result, the
1998 Plan was amended to reserve an additional 2,000,000 shares of Common Stock
for issuance thereunder.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Vote
<S> <C> <C> <C>
87,975,961 52,315,384 761,685 3,727
</TABLE>
20
<PAGE>
PROPOSAL IV
Ratification of appointment of KPMG LLP as the Company's independent auditors
for fiscal year 2000.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Vote
<S> <C> <C> <C>
140,342,114 168,893 545,750 -0-
</TABLE>
The proposals above are described in detail in the Registrant's definitive proxy
statement dated March 6, 2000, for the Annual Meeting of Shareholders held on
April 20, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.2 Amendment to Restated Articles of Incorporation, filed with
the Secretary of State of the State of California on May 4,
2000.
10.A.49 1997 Employee Stock Option Plan, as amended through May 3, 2000.
10.A.51 1998 Executive Officer Stock Plan, as amended through May 3, 2000.
27 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated January 19, 2000, to report
under Item 5 (Other Events) that the Company's Board of Directors had granted
the Company's CEO, Steven P. Jobs, stock options to purchase ten million shares
of the Apple common stock and to give Mr. Jobs a Gulfstream V airplane in
recognition of his service to the Company during the preceding two and a half
years.
21
<PAGE>
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
May 11, 2000
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Index
Number Description
- ------ -----------
<S> <C>
3.2 Amendment to Restated Articles of Incorporation, filed with the
Secretary of State of the State of California on May 4, 2000.
10.A.49 1997 Employee Stock Option Plan, as amended through May 3, 2000.
10.A.51 1998 Executive Officer Stock Plan, as amended through May 3, 2000.
27 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 3.2
CONFORMED COPY AS FILED WITH
THE SECRETARY OF STATE OF THE STATE OF
California on May 4, 2000
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
APPLE COMPUTER, INC.
Fred D. Anderson and Nancy R. Heinen certify that:
1. They are the Executive Vice President and Chief Financial Officer,
and the Senior Vice President, General Counsel and Secretary, respectively, of
Apple Computer, Inc., a California corporation.
2. Articles III of the Restated Articles of Incorporation of this
corporation is amended to read in its entirety as follows:
"III.
This corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock". The
number of shares of Common Stock which this corporation is authorized
to issue is 900,000,000 and the number of shares of Preferred Stock
which this corporation is authorized to issue is 5,000,000."
3. The foregoing amendment of the Restated Articles of Incorporation of
this corporation was duly approved by unanimous written consent of the Board of
Directors on February 11, 2000.
4. The foregoing amendment of the Restated Articles of Incorporation of
this corporation was duly approved by the required vote of shareholders in
accordance with Sections 902 and 301.5 of the California Corporations Code, at a
meeting held on April 20, 2000. The corporation has 150,000 shares of non-voting
Preferred Stock outstanding. The total number of shares of Common Stock
outstanding at the record date for determining shareholders entitled to vote was
162,298,567. The number of shares of Common Stock voting in favor of the
amendment equaled or exceeded the vote required, which was more than 50% of the
Common Stock.
<PAGE>
5. This corporation is a "listed corporation" within the meaning of
subdivision (d) of Section 301.5 of the California Corporations Code because it
has outstanding Common Stock designated as qualified for trading as a national
market system security on the National Association of Securities Dealers
Automatic Quotation System and had at least 800 holders of its Common Stock as
of the record date of its most recent annual meeting of shareholders, which was
held on April 20, 2000.
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of their own knowledge.
Executed at Cupertino, California on May 1, 2000.
/s/ Fred D. Anderson
--------------------
Fred D. Anderson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
/s/ Nancy R. Heinen
-------------------
Nancy R. Heinen
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
<PAGE>
EXHIBIT 10.A.49
APPLE COMPUTER, INC.
1997 EMPLOYEE STOCK OPTION PLAN
(AS AMENDED THROUGH 5/3/00)
1. PURPOSES OF THE PLAN. The purposes of this 1997 Employee Stock
Option Plan are to assist the Company in attracting and retaining high quality
personnel, to provide additional incentive to Employees who are not Directors or
Officers of the Company and to promote the success of the Company's business.
Options granted under the Plan shall be Nonstatutory Stock Options. SARs
granted under the Plan may be granted in connection with Options or
independently of Options.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
"ADMINISTRATOR" means the Board or any of its Committees, as shall
be administering the Plan from time to time pursuant to Section 4 of the Plan.
"AFFILIATED COMPANY" means a corporation which is not a Subsidiary
but with respect to which the Company owns, directly or indirectly through one
or more Subsidiaries, at least twenty percent of the total voting power, unless
the Administrator determines in its discretion that such corporation is not an
Affiliated Company.
"APPLICABLE LAWS" shall have the meaning set forth in Section 4 of
the Plan.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" shall have the meaning set forth in Section 10
of the Plan.
"CHANGE IN CONTROL PRICE" shall have the meaning set forth in
Section 12 of the Plan.
"COMMON STOCK" means the common stock, no par value, of the
Company.
"COMPANY" means Apple Computer, Inc., a California corporation, or
its successor.
"COMMITTEE" means a Committee, if any, appointed by the Board in
accordance with Section 4(a) of the Plan.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
"Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship with the Company or
any Subsidiary or Affiliated Company. Continuous Status as an Employee shall
not be considered interrupted in the case of (i) medical leave, military leave,
family leave, or any other leave of absence approved by the Administrator,
provided, in each case, that such leave does not result in termination of the
employment relationship with the Company or any Subsidiary or Affiliated
Company, as the case may be, under the terms of the respective Company policy
for such leave; however, vesting may be tolled while an employee is on an
approved leave of absence under the terms of the respective Company policy for
such leave; or (ii) in the case of transfers between locations of the Company or
between the Company, its Subsidiaries, its successor or its Affiliated
Companies;
<PAGE>
"DIRECTOR" means a member of the Board.
"EMPLOYEE" means any person, employed by and on the payroll of the
Company, any Subsidiary or any Affiliated Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" means the value of Common Stock determined as
follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system (including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System), its Fair Market Value shall be
the closing sales price for such stock or the closing bid if no sales
were reported, as quoted on such system or exchange (or the exchange with
the greatest volume of trading in the Common Stock) for the date of
determination or, if the date of determination is not a trading day, the
immediately preceding trading day, as reported in THE WALL STREET JOURNAL
or such other source as the Administrator deems reliable.
(ii) If the Common Stock is regularly quoted on the NASDAQ System (but
not on the National Market System) or quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall
be the mean between the high and low asked prices for the Common Stock on
the date of determination or, if there are no quoted prices on the date
of determination, on the last day on which there are quoted prices prior
to the date of determination.
(iii) In the absence of an established market for the Common Stock, the Fair
Market Value thereof shall be determined in good faith by the
Administrator.
"NONSTATUTORY STOCK OPTION" means an Option that is not intended
to be an incentive stock option within the meaning of Section 422 of the Code.
"OFFICER" means any individual designated by the Board as an
elected officer of the Company.
"OPTION" means an option granted pursuant to the Plan.
"OPTIONED STOCK" means the Common Stock subject to an Option or
SAR.
"OPTIONEE" means an Employee who receives an Option or SAR.
"PARENT" corporation shall have the meaning defined in Section
424(e) of the Code.
"PLAN" means this Apple Computer, Inc. 1997 Employee Stock Option
Plan.
"SAR" means a stock appreciation right granted pursuant to Section
9 below.
"SECTION 3 LIMIT" shall have the meaning set forth in Section 3 of
the Plan.
"SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
<PAGE>
"SIXTY-DAY PERIOD " shall have the meaning set forth in Section
12(f) of the Plan.
"SUBSIDIARY" corporation has the meaning defined in Section 424(f)
of the Code.
"TAX DATE" shall have the meaning set forth in Section 9 of the
Plan.
3. STOCK SUBJECT TO THE PLAN.
(a) LIMIT. Subject to the provisions of Section 12 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan or for which SARs may be granted and exercised is 21,500,000
Shares (the "SECTION 3 LIMIT"). The Shares may be authorized but unissued or
reacquired Common Stock. In the discretion of the Administrator, any or all of
the Shares authorized under the Plan may be subject to SARs issued pursuant to
the Plan.
(b) RULES APPLICABLE TO THE CALCULATION OF THE SECTION 3 LIMIT.
In calculating the number of Shares available for issuance under the Plan, the
following rules shall apply:
(i) The Section 3 Limit shall be reduced by the number of
Shares of Optioned Stock subject to each outstanding Option or
freestanding SAR.
(ii) The Section 3 Limit shall be increased by the number of
Shares of Optioned Stock subject to the portion of an Option or SAR that
expires unexercised or is forfeited for any reason.
(iii) The Section 3 Limit shall be increased by the number of
Shares tendered to pay the exercise price of an Option or the number of
Shares of Optioned Stock withheld to satisfy an Optionee's tax liability
in connection with the exercise of an Option or SAR.
(iv) Option Stock subject to both an outstanding Option and SAR
granted in connection with the Option shall be counted only once in
calculating the Section 3 Limit.
4. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF ADMINISTRATOR. The Plan may be administered
by (i) the Board or (ii) a Committee designated by the Board, which Committee
shall be constituted in such a manner as to satisfy the applicable securities
laws, California corporate law and the Code (collectively, "APPLICABLE LAWS").
Once a Committee has been appointed pursuant to this
Section 4(a), such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies (however caused) and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and, in the case of the Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion: (i) to determine the Fair Market Value of the
Common Stock in accordance with the Plan; (ii) to determine, in accordance with
Section 8(a) of the Plan, the exercise price per Share of Options and SARs to be
granted; (iii) to determine the Employees to whom, and the time or times at
which, Options and SARs shall be granted and the number of Shares to be
represented by each Option or SAR (including, without limitation, whether or not
a corporation shall be excluded
<PAGE>
from the definition of Affiliated Company); (iv) to construe and interpret
the provisions of the Plan and any agreements or certificates issued under or
in connection with the Plan; (v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or SAR granted
hereunder (including, but not limited to, any restriction or limitation, or
any vesting acceleration or waiver of forfeiture restrictions regarding any
Option or SAR or the Shares relating thereto, based in each case on such
factors as the Administrator shall determine, in its sole discretion); (vi)
to approve forms of agreement for use under the Plan; (vii) to prescribe,
amend and rescind rules and regulations relating to the Plan; (viii) to
modify or amend each Option or SAR or accelerate the exercise date of any
Option or SAR; (ix) to reduce the exercise price of any Option or SAR to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option or SAR shall have declined since the date the Option
or SAR was granted; (x) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or SAR
previously granted by the Administrator; and (xi) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(c) EFFECT OF DECISIONS BY THE ADMINISTRATOR. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY. The Administrator may grant Options and SARs only to
individuals who are Employees or who are consultants to the Company, or a
Subsidiary or Affiliated Company. In no event may an Option or SAR be granted
to any individual who, at the time of grant, is an Officer or Director. An
Employee who has been granted an Option or SAR may, if he or she is otherwise
eligible, be granted an additional Option or Options, SAR or SARs. Each Option
shall be evidenced by a written Option agreement, which shall be in such form
and contain such provisions as the Administrator shall from time to time deem
appropriate. Without limiting the foregoing, the Administrator may, at any
time, or from time to time, authorize the Company, with the consent of the
respective recipients, to issue new Options or Options in exchange for the
surrender and cancellation of any or all outstanding Options, other options,
SARs or other stock appreciation rights.
Neither the Plan nor any Option or SAR agreement shall confer upon any
Optionee any right with respect to continuation of employment by the Company (or
any Parent, Subsidiary or Affiliated Company), nor shall it interfere in any way
with the Optionee's right or the right of the Company (or any Parent, Subsidiary
or Affiliated Company) to terminate the Optionee's employment at any time or for
any reason.
If an Option or SAR is granted to an individual who is a consultant to
the Company or any Subsidiary or Affiliate, all references in the Plan to
"Employee" shall be deemed to include the term "consultant" and all references
in the Plan to "employment," "Continuous Status as an Employee" and
"termination of employment" shall be deemed to refer to the individual's
consultancy or status as a consultant.
6. TERM OF PLAN. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Option agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares issuable pursuant to an Option shall be such price as is determined by
the Administrator, but shall in no event be less than 100% of the Fair Market
<PAGE>
Value of Common Stock, determined as of the date of grant of the Option. In
the event that the Administrator shall reduce the exercise price, the exercise
price shall be no less than 100% of the Fair Market Value as of the date of
that reduction.
(b) METHOD OF PAYMENT. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator and may consist of (i) cash, (ii)
check, (iii) promissory note, (iv) other Shares which have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (v) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, or (vi) any combination of the foregoing methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. STOCK APPRECIATION RIGHTS.
(a) GRANTED IN CONNECTION WITH OPTIONS. At the sole discretion
of the Administrator, SARs may be granted in connection with all or any part of
an Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the Option. The following provisions apply to
SARs that are granted in connection with Options:
(i) The SAR shall entitle the Optionee to exercise the SAR by
surrendering to the Company unexercised a portion of the related Option.
The Optionee shall receive in exchange from the Company an amount equal
to the excess of (x) the Fair Market Value on the date of exercise of the
SAR of the Common Stock covered by the surrendered portion of the related
Option over (y) the exercise price of the Common Stock covered by the
surrendered portion of the related Option. Notwithstanding the
foregoing, the Administrator may place limits on the amount that may be
paid upon exercise of an SAR; PROVIDED, HOWEVER, that such limit shall
not restrict the exercisability of the related Option.
(ii) When an SAR is exercised, the related Option, to the extent
surrendered, shall no longer be exercisable.
(iii) An SAR shall be exercisable only when and to the extent that the
related Option is exercisable and shall expire no later than the date on
which the related Option expires.
(iv) An SAR may only be exercised at a time when the Fair Market Value
of the Common Stock covered by the related Option exceeds the exercise
price of the Common Stock covered by the related Option.
(b) INDEPENDENT SARS. At the sole discretion of the
Administrator, SARs may be granted without related Options. The following
provisions apply to SARs that are not granted in connection with Options:
(i) The SAR shall entitle the Optionee, by exercising the SAR, to
receive from the Company an amount equal to the excess of (x) the Fair
Market Value of the Common Stock covered by exercised portion of the SAR,
as of the date of such exercise, over (y) the Fair Market Value of the
Common Stock covered by the exercised portion of the SAR, as of the date
on which the SAR was granted; PROVIDED, HOWEVER, that the Administrator
may place limits on the amount that may be paid upon exercise of an SAR.
(ii) SARs shall be exercisable, in whole or in part, at such times as
the Administrator shall specify in the Optionee's SAR agreement.
<PAGE>
(c) FORM OF PAYMENT. The Company's obligation arising upon the
exercise of an SAR may be paid in Common Stock or in cash, or in any combination
of Common Stock and cash, as the Administrator, in its sole discretion, may
determine. Shares issued upon the exercise of an SAR shall be valued at their
Fair Market Value as of the date of exercise.
10. METHOD OF EXERCISE.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option or SAR granted hereunder shall be exercisable at such times and under
such conditions as determined by the Administrator and as shall be permissible
under the terms of the Plan.
An Option or SAR shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option or SAR by the person entitled to exercise the Option or SAR
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the
Administrator and permitted by the Option agreement, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of the Plan. An Option
or SAR may not be exercised with respect to a fraction of a Share.
(b) TERMINATION OF CONTINUOUS EMPLOYMENT. Upon termination of
an Optionee's Continuous Status as Employee (other than termination by reason of
the Optionee's death), the Optionee may, but only within ninety days after the
date of such termination, exercise his or her Option or SAR to the extent that
it was exercisable at the date of such termination. Notwithstanding the
foregoing, however, an Option or SAR may not be exercised after the date the
Option or SAR would otherwise expire by its terms due to the passage of time
from the date of grant.
(c) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(i) Who is at the time of death an Employee and who shall have been in
Continuous Status as an Employee since the date of grant of the Option,
the Option or SAR may be exercised at any time within six (6) months (or
such other period of time not exceeding twelve (12) months as determined
by the Administrator) following the date of death by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to exercise
that would have accrued had the Optionee continued living and terminated
his or her employment six (6) months (or such other period of time not
exceeding twelve (12) months as determined by the Administrator) after
the date of death; or
(ii) Within ninety days after the termination of Continuous Status as
an Employee, the Option or SAR may be exercised, at any time within six
(6) months (or such other period of time not exceeding twelve (12) months
as determined by the Administrator) following the date of death by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
Notwithstanding the foregoing, however, an Option or SAR may not
be exercised after the date the Option or SAR would otherwise expire by its
terms due to the passage of time from the date of grant.
<PAGE>
(d) STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS.
When an Optionee incurs tax liability in connection with the exercise of an
Option or SAR, which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee is obligated to pay the Company an amount
required to be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation (including, at the election of the Optionee, any
additional amount which the Optionee desires to have withheld in order to
satisfy in whole or in part the Optionee's full estimated tax in connection with
the exercise) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued upon exercise of
the SAR, if any, that number of Shares having a Fair Market Value equal to the
amount required to be withheld (and any additional amount desired to be
withheld, as aforesaid). The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "TAX DATE").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date; and
(ii) all elections shall be subject to the consent or
disapproval of the Administrator.
11. NON-TRANSFERABILITY OF OPTIONS. Options and SARs may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder; PROVIDED,
HOWEVER, that the Administrator may grant Nonstatutory Stock Options that are
freely transferable. The designation of a beneficiary by an Optionee or holder
of an SAR does not constitute a transfer. An Option or an SAR may be exercised,
during the lifetime of the Optionee or SAR holder, only by the Optionee or SAR
holder or by a transferee permitted by this Section 11.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option and SAR, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options or SARs have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or SAR, as well as the price per Share covered by each such
outstanding Option or SAR, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the aggregate number of issued
Shares effected without receipt of consideration by the Company; PROVIDED,
HOWEVER, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option or SAR.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options and SARs will
terminate immediately prior to the consummation of such proposed action, unless
<PAGE>
otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option or
SAR shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option or SAR as to all or any part
of the Optioned Stock or SAR, including Shares as to which the Option or SAR
would not otherwise be exercisable.
(c) SALE OF ASSETS OR MERGER. Subject to the provisions of
Section 12(d), in the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option and SAR shall be assumed or an equivalent
option or stock appreciation right shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option or SAR as to all of the Optioned Stock, including Shares as
to which the Option or SAR would not otherwise be exercisable. If the
Administrator makes an Option or SAR fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option or SAR shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option or SAR
will terminate upon the expiration of such period. For purposes of this
paragraph, an Option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the sale of assets or merger, the consideration (whether stock, cash or
other securities or property) received in the sale of assets or merger by
holders of Common Stock for each Share held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the sale of
assets or merger was not solely Common Stock of the successor corporation or its
parent, the Administrator may, with the consent of the successor corporation and
the participant, provide for the per share consideration to be received upon
exercise of te Option to be solely Common Stock of the successor corporation or
its parent equal in Fair Market Value to the per share consideration received by
holders of Common Stock in the sale of assets or merger.
(d) CHANGE IN CONTROL. In the event of a "Change in Control"
of the Company, as defined in Section 12(e), unless otherwise determined by the
Administrator prior to the occurrence of such Change in Control, the following
acceleration and valuation provisions shall apply:
(i) Any Options and SARs outstanding as of the date such Change in
Control is determined to have occurred that are not yet exercisable and
vested on such date shall become fully exercisable and vested; and
(ii) The value of all outstanding Options and SARs shall, unless
otherwise determined by the Administrator at or after grant, be
cashed-out. The amount at which such Options and SARs shall be cashed
out shall be equal to the excess of (x) the Change in Control Price (as
defined below) over (y) the exercise price of the Common Stock covered by
the Option or SAR. The cash-out proceeds shall be paid to the Optionee
or, in the event of death of an Optionee prior to payment, to the estate
of the Optionee or to a person who acquired the right to exercise the
Option or SAR by bequest or inheritance.
(e) "DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 12, a "Change in Control" means the happening of any of the following:
( i ) When any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting
as trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing
<PAGE>
fifty percent (50%) or more of the combined voting power of the Company's
then outstanding securities; or
(ii) The occurrence of a transaction requiring shareholder approval,
and involving the sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another corporation.
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Administrator, (i) the
highest Fair Market Value at any time within the sixty-day period immediately
preceding the date of determination of the Change in Control Price by the
Administrator (the "SIXTY-DAY PERIOD"), or (ii) the highest price paid or
offered, as determined by the Administrator, in any bona fide transaction or
bona fide offer related to the Change in Control of the Company, at any time
within the Sixty-Day Period.
13. TIME OF GRANTING OPTIONS AND SARS. The date of grant of an Option
or SAR shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option or SAR. Notice of the determination shall be
given to each Employee to whom an Option or SAR is so granted within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan, as it may deem advisable.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment,
alteration, suspension or termination of the Plan shall not impair the rights of
any Optionee or SAR holder under any grant theretofore made without his or her
consent. Such Options and SARs shall remain in full force and effect as if this
Plan had not been amended or terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an Option or SAR unless the exercise of such Option or SAR and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or SAR or the issuance
of Shares upon exercise of an Option or SAR, the Company may require the person
exercising such Option or SAR to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. NON-U.S. EMPLOYEES. Notwithstanding anything in the Plan to
the contrary, with respect to any employee who is resident outside of the
United States, the Committee may, in its sole discretion, amend the terms of
the Plan in order to conform such terms with the requirements of local law or
to meet the objectives of the Plan. The Committee may, where appropriate,
establish one or more sub-plans for this purpose.
<PAGE>
EXHIBIT 10.A.51
APPLE COMPUTER, INC.
1998 EXECUTIVE OFFICER STOCK PLAN
(AS AMENDED THROUGH 5/3/00)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
to attract and retain the best available personnel for positions of
substantial responsibility;
to provide additional incentive to the Chairman and/or Executive Officers
and other key employees; and
to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options (as defined
under Section 422 of the Code) or Nonstatutory Stock Options, as determined by
the Administrator at the time of grant. Stock appreciation rights ("SARs") may
be granted under the Plan in connection with Options or independently of
Options. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "AGREEMENT" means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option, SAR or Stock
Purchase Right grant. The Agreement is subject to the terms and conditions
of the Plan.
(c) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options, SARs or Stock Purchase
Rights are, or will be, granted under the Plan.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CHAIRMAN" means the Chairman of the Board.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means Apple Computer, Inc., a California corporation.
(j) "CONTINUOUS STATUS AS CHAIRMAN" unless determined otherwise by the
Administrator, means the absence of any interruption or termination as
Chairman of the Board with the Company. Continuous Status as Chairman shall
not be considered interrupted in the case of medical leave, military leave,
family leave, or any other leave of absence approved by the Administrator,
provided, in each case, that such leave does not result in termination as
Chairman with the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute status as
"Chairman" by the Company.
(k) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of the employment relationship with the Company
or any Subsidiary. Continuous Status as an Employee shall not be
<PAGE>
considered interrupted in the case of (i) medical leave, military leave,
family leave, or any other leave of absence approved by the Administrator,
provided, in each case, that such leave does not result in termination of
the employment relationship with the Company or any Subsidiary, as the
case may be, under the terms of the respective Company policy for such
leave; however, vesting may be tolled while an employee is on an approved
leave of absence under the terms of the respective Company policy for such
leave; or (ii) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries, or its successor; For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved
by the Company is not so guaranteed, on the 91st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Chairman nor as a Director
nor payment of a director's fee by the Company shall be sufficient to
constitute 'employment' by the Company.
(l) "Director" means a member of the Board.
(m) "Employee" means any person employed by the Company or any Parent or
Subsidiary of the Company subject to (k) above.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Executive Officer" means any person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(p) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system, on the date of determination or, if the date of determination is
not a trading day, the immediately preceding trading day, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination
or, if there are no quoted prices on the date of determination, on the
last day on which there are quoted prices prior to the date of
determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option"means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder and is expressly designated by the
Administrator at the time of grant as an incentive stock option.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Optioned Stock" means the Common Stock subject to an Option, SAR or
Stock Purchase Right.
<PAGE>
(u) "Optionee" means the holder of an outstanding Option, SAR or Stock
Purchase Right.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1998 Executive Officer Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of Stock Purchase Rights under Section 12 of the Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect
to the Plan.
(z) "SAR" means a stock appreciation right granted pursuant to Section
10 below.
(aa) "Section 16(b)" means Section 16(b) of the Exchange Act.
(bb) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 15 of the Plan.
(cc) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 12 of the Plan, as evidenced by an Agreement.
(dd) "Subsidiary" means a 'subsidiary corporation', whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan or for which SARs or Stock Purchase Rights may be granted and
exercised is 19,000,000 Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.
In the discretion of the Administrator, any or all of the Shares authorized
under the Plan may be subject to SARs issued pursuant to the Plan.
If an Option, SAR or Stock Purchase Right issued under the Plan should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall become available
for other Options, SARs or Stock Purchase Rights under this Plan (unless the
Plan has terminated); however, should the Company reacquire Shares which were
issued pursuant to the exercise of an Option or SAR, such Shares shall not
become available for future grant under the Plan. If Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such shares
shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3
promulgated under the Exchange Act or any successor rule thereto, as in
effect at the time that discretion is being exercised with respect to the
Plan, and by the legal requirements of the Applicable Laws relating to
the administration of stock plans such as the Plan, if any, the Plan may
(but need not) be administered by different administrative bodies with
respect to (A) Directors who are not Employees, (B) Directors who are
Employees, (C) Officers who are not Directors and (D) Employees who are
neither Directors nor Officers.
(ii) SECTION 162(m). To the extent that the Administrator determines
it to be desirable to qualify Options or SARs granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of
the Code, the Plan shall be administered by a Committee of two or more
"outside directors" within the meaning of Section 162(m) of the Code.
<PAGE>
(iii) RULE 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption
under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the person(s) to whom Options, SARs and Stock Purchase
Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each Option, SAR or Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option, SAR or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the date of grant, the time or times when Options, SARs
or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option, SAR
or Stock Purchase Right or the shares of Common Stock relating thereto,
based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vi) to reduce the exercise price of any Option, SAR or Stock
Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option, SAR or Stock Purchase
Right shall have declined since the date the Option, SAR or Stock
Purchase Right was granted;
(vii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(ix) to modify or amend each Option, SAR or Stock Purchase Right
(subject to Section 17(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon
exercise of an Option, SAR or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on
the date that the amount of tax to be withheld is to be determined. All
elections by an Optionee to have Shares withheld for this purpose shall
be made in such form and under such conditions as the Administrator may
deem necessary or advisable;
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option, SAR or Stock
Purchase Right previously granted by the Administrator; and
<PAGE>
(xii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options, SARs or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options, SARs and Stock Purchase Rights
may be granted to the Chairman, Executive Officers and other key employees or to
such other individuals as determined by the Administrator whom the Company has
offered a position of Chairman or Executive Officer. Incentive Stock Options may
be granted only to Executive Officers and other key employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to
such Shares is granted.
(b) Neither the Plan nor any Option, SAR or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as an Employee with or Chairman of the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options and SARs:
(i) No participant shall be granted, in any fiscal year of the
Company, Options or SARs to purchase more than 17,000,000 Shares;
(ii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described
in Section 15;
(iii) If an Option or SAR is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 15), the canceled Option will be counted
against the limits set forth in subsections (i) above. For this purpose,
if the exercise price of an Option or SAR is reduced, the transaction
will be treated as a cancellation of the Option or SAR and the grant of a
new Option or SAR.
7. TERM OF PLAN. Subject to Section 21 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Agreement. Moreover, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Agreement.
<PAGE>
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option;
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant; or
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date
of grant;
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as 'performance-based
compensation' within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant;
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant as determined by the Administrator or pursuant to a
merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
<PAGE>
10. STOCK APPRECIATION RIGHTS.
(a) GRANTED IN CONNECTION WITH OPTIONS. At the sole discretion of the
Administrator, SARs may be granted in connection with all or any part of an
Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the Option. The following provisions apply to
SARs that are granted in connection with Options:
(i) The SAR shall entitle the Optionee to exercise the SAR by
surrendering to the Company unexercised a portion of the related Option.
The Optionee shall receive in exchange from the Company an amount equal
to the excess of (x) the Fair Market Value on the date of exercise of the
SAR of the Common Stock covered by the surrendered portion of the related
Option over (y) the exercise price of the Common Stock covered by the
surrendered portion of the related Option. Notwithstanding the foregoing,
the Administrator may place limits on the amount that may be paid upon
exercise of a SAR; provided, however, that such limit shall not restrict
the exercisability of the related Option;
(ii) When a SAR is exercised, the related Option, to the extent
surrendered, shall no longer be exercisable;
(iii) A SAR shall be exercisable only when and to the extent that the
related Option is exercisable and shall expire no later than the date on
which the related Option expires; and
(iv) A SAR may only be exercised at a time when the Fair Market Value
of the Common Stock covered by the related Option exceeds the exercise
price of the Common Stock covered by the related Option.
(b) INDEPENDENT SARS. At the sole discretion of the Administrator,
SARs may be granted without related Options. The following provisions apply
to SARs that are not granted in connection with Options:
(i) The SAR shall entitle the Optionee, by exercising the SAR, to
receive from the Company an amount equal to the excess of (x) the Fair
Market Value of the Common Stock covered by exercised portion of the SAR,
as of the date of such exercise, over (y) the Fair Market Value of the
Common Stock covered by the exercised portion of the SAR, as of the date
on which the SAR was granted; provided, however, that the Administrator
may place limits on the amount that may be paid upon exercise of a SAR;
and
(ii) SARs shall be exercisable, in whole or in part, at such times as
the Administrator shall specify in the Optionee's Agreement.
(c) FORM OF PAYMENT. The Company's obligation arising upon the
exercise of a SAR may be paid in Common Stock or in cash, or in any
combination of Common Stock and cash, as the Administrator, in its sole
discretion, may determine. Shares issued upon the exercise of a SAR shall be
valued at their Fair Market Value as of the date of exercise.
(d) RULE 16b-3. SARs granted hereunder shall contain such additional
restrictions as may be required to be contained in the Plan or Agreement in
order for the SAR to qualify for the maximum exemption provided by Rule
16b-3.
11. EXERCISE OF OPTION OR SAR.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option or SAR
granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the
Administrator and set forth in the Agreement. An Option may not be exercised
for a fraction of a Share.
<PAGE>
An Option or SAR shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the terms
of the Option or SAR) from the person entitled to exercise the Option or
SAR, and (ii) full payment for the Shares with respect to which the Option
is exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Agreement and
the Plan. Shares issued upon exercise of an Option shall be issued in the
name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse. Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such Shares promptly after the Option is exercised.
No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided
in Section 15 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
Exercise of a SAR in any manner shall, to the extent the SAR is exercised,
result in a decrease in the number of Shares which thereafter shall be
available for purposes of the Plan, and the SAR shall cease to be
exercisable to the extent it has been exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS CHAIRMAN. Upon termination of
an Optionee's Continuous Status as Chairman (other than termination by
reason of the Optionee's death), the Optionee may, but only within
ninety (90) days after the date of such termination, exercise his or her
Option or SAR to the extent that it was exercisable at the date of such
termination. Notwithstanding the foregoing, however, an Option or SAR may
not be exercised after the date the Option or SAR would otherwise expire by
its terms due to the passage of time from the date of grant.
(c) TERMINATION OF CONTINUOUS EMPLOYMENT. Upon termination of an
Optionee's Continuous Status as Employee (other than termination by reason
of the Optionee's death), the Optionee may, but only within ninety (90) days
after the date of such termination, exercise his or her Option or SAR to the
extent that it was exercisable at the date of such termination.
Notwithstanding the foregoing, however, an Option or SAR may not be
exercised after the date the Option or SAR would otherwise expire by its
terms due to the passage of time from the date of grant.
(d) DEATH OF OPTIONEE. If an Optionee dies (i) while an Employee or
Chairman, the Option or SAR may be exercised at any time within six (6)
months (or such other period of time not exceeding twelve (12) months as
determined by the Administrator) following the date of death by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
terminated his or her employment six (6) months (or such other period of
time not exceeding twelve (12) months as determined by the Administrator)
after the date of death; or (ii) within ninety (90) days after the
termination of Continuous Status as an Employee or Chairman, the Option or
SAR may be exercised, at any time within six (6) months (or such other
period of time not exceeding twelve (12) months as determined by the
Administrator) following the date of death by the Optionee's estate or by a
person who acquired the right to exercise the Option or SAR by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination. If the Option or SAR is not so exercised
within the time specified herein, the Option or SAR shall terminate, and the
Shares covered by such Option or SAR shall revert to the Plan.
Notwithstanding the foregoing, however, an Option or SAR may not be
exercised after the date the Option or SAR would otherwise expire by its
terms due to the passage of time from the date of grant.
<PAGE>
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option or SAR previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the Optionee in writing or electronically, of the terms, conditions
and restrictions related to the offer, including the number of Shares that
the Optionee shall be entitled to purchase, the price to be paid, and the
time within which the Optionee must accept such offer. The offer shall be
accepted by execution of an Agreement in the form determined by the
Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's service with the
Company for any reason (including death or Disability). The purchase price
for Shares repurchased pursuant to the Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) OTHER PROVISIONS. The Agreement shall contain such other terms,
provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 15 of the Plan.
13. TRANSFERABILITY OF OPTIONS, SARS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option, SAR or Stock Purchase
Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
1 of the Employee Retirement Income Security Act, and may be exercised, during
the lifetime of the Optionee, only by the Optionee. If the Administrator makes
an Option, SAR or Stock Purchase Right transferable, such Option, SAR or Stock
Purchase Right shall contain such additional terms and conditions as the
Administrator deems appropriate.
14. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. When an
Optionee incurs tax liability in connection with the exercise of an Option, SAR
or Stock Purchase Right, which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee is obligated to pay the Company an amount
required to be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation (including, at the election of the Optionee, any
additional amount which the Optionee desires to have withheld in order to
satisfy in whole or in part the Optionee's full estimated tax in connection with
the exercise) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued upon exercise of
the SAR or Stock Purchase Right, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld (and any additional
amount desired to be withheld, as aforesaid). The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
and
<PAGE>
(ii) all elections shall be subject to the consent or disapproval of the
Administrator.
In the event the election to have Shares withheld is made by an Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option, SAR or Stock Purchase Right
is exercised but such Optionee shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, SAR or Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the
Plan but as to which no Options, SARs or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or
expiration of an Option, SAR or Stock Purchase Right, as well as the price
per share of Common Stock covered by each such outstanding Option, SAR or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option, SAR or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options, SARs and
Stock Purchase Rights will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Administrator. The
Administrator may, in the exercise of its sole discretion in such instances,
declare that any Option, SAR or Stock Purchase Right shall terminate as of a
date fixed by the Administrator and give each Optionee the right to exercise
his or her Option, SAR or Stock Purchase Right as to all or any part of the
Optioned Stock, including Shares as to which the Option, SAR or Stock
Purchase Right would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Unless otherwise determined by the
Administrator, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option, SAR and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, SAR or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option, SAR or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option, SAR or Stock Purchase Right becomes fully vested
and exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option, SAR or Stock Purchase Right shall
be fully vested and exercisable for a period of thirty (30) days from the
date of such notice, and the Option, SAR or Stock Purchase Right shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option, SAR or Stock Purchase Right shall be considered
assumed if, following the merger or sale of assets, the option or right
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option, SAR or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
<PAGE>
securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets is not solely common stock of the
succesor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, SAR or Stock Purchase Right, for
each Share of Optioned Stock subject to the Option, SAR or Stock Purchase
Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received
by holders of Common Stock in the merger or sale of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, unless otherwise determined by
the Administrator prior to the occurrence of such Change in Control, the
following acceleration and valuation provisions shall apply:
(i) Any Options, SARs and Stock Purchase Rights outstanding as of the
date such Change in Control is determined to have occurred that are not
yet exercisable and vested on such date shall become fully exercisable
and vested; and
(ii) The value of all outstanding Options, SARs and Stock Purchase
Rights shall, unless otherwise determined by the Administrator at or
after grant, be cashed-out. The amount at which such Options, SARs and
Stock Purchase Rights shall be cashed out shall be equal to the excess of
(x) the Change in Control Price (as defined below) over (y) the exercise
price of the Common Stock covered by the Option, SAR or Stock Purchase
Right. The cash-out proceeds shall be paid to the Optionee or, in the
event of death of an Optionee prior to payment, to the estate of the
Optionee or to a person who acquired the right to exercise the Option,
SAR or Stock Purchase Right by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 15, a "Change in Control" means the happening of any of the
following:
(i) When any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting
as trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring shareholder approval,
and involving the sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another corporation.
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 15, "Change
in Control Price" shall be, as determined by the Administrator, (i) the
highest Fair Market Value at any time within the 60-day period immediately
preceding the date of determination of the Change in Control Price by the
Administrator (the "60-Day Period"), or (ii) the highest price paid or
offered, as determined by the Administrator, in any bona fide transaction or
bona fide offer related to the Change in Control of the Company, at any time
within the 60-Day Period.
16. DATE OF GRANT. The date of grant of an Option, SAR or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option, SAR or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the determination
shall be provided to each Optionee within a reasonable time after the date of
such grant.
<PAGE>
17. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options, SARs or Stock Purchase Rights granted under the Plan
prior to the date of such termination.
18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option, SAR or Stock Purchase Right unless the exercise of
such Option, SAR or Stock Purchase Right and the issuance and delivery of
such Shares shall comply with Applicable Laws and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, SAR or Stock Purchase Right, the Company may require the person
exercising such Option, SAR or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only
for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required.
19. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
20. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
21. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
22. NON-U.S. EMPLOYEES. Notwithstanding anything in the Plan to the
contrary, with respect to any employee who is resident outside of the United
States, the Committee may, in its sole discretion, amend the terms of the
Plan in order to conform such terms with the requirements of local law or to
meet the objectives of the Plan. The Committee may, where appropriate,
establish one or more sub-plans for this purpose.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> APR-01-2000
<CASH> 1,662
<SECURITIES> 1,947
<RECEIVABLES> 1,004
<ALLOWANCES> 64
<INVENTORY> 10
<CURRENT-ASSETS> 4,912
<PP&E> 723
<DEPRECIATION> 409
<TOTAL-ASSETS> 7,007
<CURRENT-LIABILITIES> 1,853
<BONDS> 300
1,419
0
<COMMON> 150
<OTHER-SE> 731
<TOTAL-LIABILITY-AND-EQUITY> 7,007
<SALES> 1,945
<TOTAL-REVENUES> 1,945
<CGS> 1,396
<TOTAL-COSTS> 1,396
<OTHER-EXPENSES> 379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 319
<INCOME-TAX> 86
<INCOME-CONTINUING> 233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.28
</TABLE>
