Apple 1996 Annual Report Download - page 17

The Company believes that continued investments in research and development are critical to its future growth and competitive position in the
marketplace and are directly related to continued, timely development of new and enhanced products. The Company believes that research and
development expenditures in 1997 will be comparable to those in 1996.
Selling, general and administrative expenses remained relatively flat, but increased as a percentage of net sales, in 1996 compared with 1995.
The increase as a percentage of net sales in 1996 when compared with 1995 was the result of reduced net sales. In 1995, selling, general and
administrative expenses increased as a result of increased advertising and channel marketing programs. The decrease as a percentage of net
sales was primarily the result of the sales growth in 1995 over 1994.
As a result of its restructuring plan, the Company expects that selling, general and administrative expenditures in 1997 will decrease compared
with 1996 levels.
Restructuring Costs
For information regarding the Company's restructuring actions, refer to page 39 of the Notes to Consolidated Financial Statements.
Interest and other income (expense), net, increased to $88 million in income in 1996 from $10 million in expense in 1995. This $98 million
favorable change is primarily composed of a favorable variance of $78 million related to net realized and unrealized foreign exchange hedging
gains, and lower foreign exchange hedging costs, primarily as a result of lower market and option volatility, higher U.S. interest rates compared
with rates abroad, and reduced foreign currency cash flows; an increase of $73 million related to realized gains on the sale of most of the
Company's available-for-sale and other equity securities during 1996; offset by a $52 million unfavorable variance related to interest income
(expense), as a result of higher average debt balances and lower average cash balances during the year, and an overall decline in average
interest rate yields. In addition, the Company's cost of funds has increased as a result of the downgrading from January 1996 through May 1996
of its short-term debt to NP and C by Moody's Investor Services and Standard and Poor's Rating Agency, respectively, and of its long-term
debt to B1 and B+ by Moody's Investor Services and Standard and Poor's Rating Agency, respectively.
In 1995, interest and other income (expense), net, decreased to $10 million in expense from $22 million in expense in 1994. This $12 million
favorable change was primarily composed of $49 million in interest income (expense) attributable to higher average cash balances, higher
interest rates, and interest rate hedging gains, offset in part by a $36 million unfavorable variance related to realized and unrealized foreign
exchange hedging losses and foreign exchange hedging costs. Market volatility and higher foreign currency balances accounted for the
increased hedging costs.
For a summary of the Company's interest and other income (expense), net, refer to page 37 of the Notes to Consolidated Financial Statements.
For more information regarding the Company's strategy and accounting for financial instruments, refer to pages 33 - 36 of the Notes to
Consolidated Financial Statements. For more information regarding the Company's notes payable to banks and long-term debt, refer to pages
36 - 37 of the Notes to Consolidated Financial Statements.
15
Selling, General and
Administrative 1996 Change 1995 Change 1994
Selling, general
and administrative $1,568 (1%) $1,583 14% $1,384
Percentage of net sales 15.9% 14.3% 15.1%
Interest and Other
Income(Expense), Net 1996 Change 1995 Change 1994
Interest and other
income(expense), net $ 88 NM $(10) 55% $(22)