Apple 1995 Annual Report Download - page 31

exposure and the number of agreements and contracts it enters into with any one party. The Company generally does not require collateral from
counterparties, except for margin agreements associated with the ten-year interest rate swaps on the Company's long-term debt. To mitigate the
credit risk associated with these ten-year swap transactions, the Company entered into margining agreements with its third-party bank
counterparties. Margining under these agreements does not start until 1997. Furthermore, these agreements would require the Company or the
counterparty to post margin only if certain credit risk thresholds were exceeded.
Advertising Costs
There were no direct-response advertising costs reported as assets at September 29, 1995, and September 30, 1994. Advertising expense was
$204.7 million, $158.2 million, and $153.4 million for 1995, 1994, and 1993, respectively.
The weighted average interest rates for Japanese yen-denominated notes payable to banks at September 29, 1995, and September 30, 1994,
were approximately 2.2% and 2.6%, respectively. The weighted average interest rate for U.S. dollar-denominated notes payable to banks at
September 29, 1995, was approximately 6.2%. The Company had no U.S. dollar-denominated notes payable to banks at September 30, 1994.
The weighted average interest rate for commercial paper borrowings at September 30, 1994, was approximately 5.0%. Interest expense on
short-term borrowings was $20.4 million, $24.9 million, and $8.9 million for 1995, 1994, and 1993, respectively.
Long-Term Debt
On February 10, 1994, the Company issued $300 million aggregate principal amount of 6.5% unsecured notes in a public offering registered
with the Securities and Exchange Commission. The notes were sold at 99.925% of par, for an effective yield to maturity of 6.51%. The notes
pay interest semi-annually and mature on February 15, 2004. Interest expense on long- term debt for the years ended September 29, 1995, and
September 30, 1994, was $19.5 million and $12.5 million, respectively.
For information regarding the Company's estimated fair value of short- term and long-term debt, refer to page 28 of the Notes to Consolidated
Financial Statements.
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 a 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
29
Borrowings
Short-Term Borrowings (In millions)
1995 1994
Commercial paper $ -- $ 90
Notes payable to banks 461 202
$ 461 $ 292