Apple 1994 Annual Report Download - page 36

Restructuring of Operations
In the third quarter of 1993, the Company initiated a plan to restructure its operations worldwide in order to address the competitive conditions
in the personal computer industry, including the increased market demand for lower-priced products. In connection with this plan, the
Company recorded a $321 million charge to operating expenses ($199 million, or $1.72 per share, after taxes). The restructuring costs included
$162 million of estimated employee-related expenses and $159 million of estimated facilities, equipment, and other expenses associated with
the consolidation of operations and the relocation and termination of certain operations and employees. The restructuring plan originally
contemplated the termination or relocation of approximately 4,150 employees worldwide and the reduction in worldwide office space, which
primarily consisted of approximately 1.6 million square feet of office space in the San Francisco Bay Area, within one year from the date the
restructuring was initiated.
In the third quarter of 1994, the Company lowered its estimate of the total costs associated with the restructuring and recorded an adjustment
that increased income by $127 million ($79 million, or $0.66 per share, after taxes). This adjustment primarily reflected the modification or
cancelation of certain elements of the Company's original restructuring plan because of changing business and economic conditions that made
certain elements of the restructuring plan financially less attractive than originally anticipated. In addition, some actions were completed at a
lower cost than originally estimated.
The most significant element of the adjustment was associated with $61 million in costs accrued to terminate or move a number of employees
from the San Francisco Bay Area to a lower-cost location. This element of the Company's restructuring plan was expected to result in the
termination or relocation of approximately 2,000 employees and the closure of certain leased facilities, at a cost of $39 million and $22 million,
respectively. However, the expected benefits of this move were reduced since the plan's inception because of changes to the cost differential
between the Company's current and alternative locations. For example, the Company favorably renegotiated the lease terms of certain facilities
in its current locations, the salary growth rate differentials between the Bay Area and alternative locations were reduced, and recent changes to
the California income tax laws made it more attractive for companies to do business in California. The Company canceled this action in the
third quarter of 1994, when management decided that the extended estimated pay- back period no longer justified the initial cash investment
and the unquantifiable cost of business disruption that such a move would precipitate.
At the end of fiscal year 1994, approximately 1,760 employees had been terminated and approximately 80 had been relocated, and the
Company had reduced its use of office space in the Bay Area by approximately 867,000 square feet.
At the time the restructuring was announced, management had publicly set a goal of reducing operating costs below $500 million per quarter
and increasing sales significantly to achieve acceptable profitability. These goals were met by the end of the third quarter of fiscal 1994. The
Company continues to search for ways to permanently reduce its cost structure. Although the Company has achieved a lower level of operating
expenses without fully implementing all of the restructuring actions as originally planned, there can be no assurance that this level of operating
expenses will be maintained in the future. For example, operating expenses (excluding restructure) in 1994 were reduced by $349 million, or
15%, compared with 1993, despite an increase in net sales of 15%.
As of September 30, 1994, the Company had $58 million of accrued restructuring costs for actions that are currently under way and expected to
be completed during 1995. Approximately $52 million of this accrual represents cash charges primarily for estimated facilities, equipment, and
other expenses, the majority of which are expected to be incurred during 1995. Cash spending beyond one year primarily relates to
approximately $6 million of recurring payments under certain noncancelable operating leases.
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