Apple 1996 Annual Report Download - page 24

Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations which
include, in some instances, the requirement that the Company provide consumers with the ability to return to the Company product at the end
of its useful life, and leave responsibility for environmentally safe disposal or recycling with the Company. It is unclear what effect such
regulation will have on the Company's future operating results and financial condition.
The Company is currently in the process of replacing its existing transaction systems (which include order management, product procurement,
distribution, and finance) with a single integrated system as part of its ongoing effort to increase operational efficiency. The Company's future
operating results and financial condition could be adversely affected if the Company is unable to implement and effectively manage the
transition to this new integrated system.
As part of the Company's restructuring plan, the Company sold its Napa, California, data center to MCI Systemhouse ("MCI"), and entered into
a data processing outsourcing agreement with MCI. While this outsourcing agreement may lower the Company's fixed costs of operations, it
will also reduce the direct control the Company has over its data processing. It is uncertain what effect such diminished control will have on the
Company's data processing.
Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to
anticipate results or trends in future periods. In addition, the Company's participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
Liquidity and Capital Resources
The Company's financial position with respect to cash, cash equivalents, and short-
term investments, net of notes payable to banks, increased to
$1,559 million at September 27, 1996, from $491 million at September 29, 1995. The Company's financial position with respect to cash, cash
equivalents, and short-term investments increased to $1,745 million at September 27, 1996, from $952 million at September 29, 1995. The
Company's cash and cash equivalent balance at September 27, 1996, includes $177 million pledged as collateral to support letters of credit
primarily associated with the Company's purchase commitments under the terms of the sale of the Company's Fountain, Colorado,
manufacturing facility to SCI. The Company's cash and cash equivalent balance at September 29, 1995, includes $90 million pledged as
collateral to support notes payable to banks.
Cash generated by operations during 1996 totaled $519 million. Cash generated by operations was primarily the result of decreases in
inventories and accounts receivable, partially offset by decreases in accounts payable and deferred tax liabilities. As part of the Company's
restructuring plan and in order to meet certain liquidity requirements during 1996, the Company generated $145 million of cash from the sale
of certain equity investments, and the sale of the Fountain, Colorado, manufacturing facility to SCI and the Napa, California, data center to
MCI. The Company expects that cash generated from the sale of equity investments and property, plant and equipment will be significantly less
in 1997 compared with 1996. Net cash used for the purchase of property, plant, and equipment totaled $67 million in 1996, and consisted
primarily of increases in manufacturing machinery and equipment. The Company expects that the level of capital expenditures in 1997 will be
comparable to 1996.
Notes payable to banks at September 27, 1996, were approximately $275 million lower than at September 29, 1995. During 1996, an
outstanding loan to Apple Computer B.V., a subsidiary of the Company, was repaid in full. At September 27, 1996, Apple Japan, Inc., a
subsidiary of the Company, held $186 million of notes payable to several banks, with maturity dates ranging from the end of December 1996 to
May 1997. The majority of these loans are guaranteed by the Company.
The Company's balance of long-term debt increased during 1996 due to the issuance of $661 million aggregate principal amount of 6%
unsecured convertible subordinated notes to certain qualified parties in a private placement. These notes were sold at 100% of par. These notes
pay interest semi-annually and mature on June 1, 2001. The remainder of long-term borrowings consists of $300 million aggregate principal
amount of 6.5% unsecured notes issued under an omnibus shelf registration statement filed with the Securities and Exchange Commission in
1994. 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. For more information regarding the Company's long-term debt, refer to pages XX-XX of the Notes to Consolidated
Financial Statements.
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