Apple 1996 Annual Report Download - page 25

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The Internal Revenue Service 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 for the years 1984 through 1988, and most of the issues in
dispute for these years have been resolved. On June 29, 1995, the IRS issued a notice of deficiency proposing increases to the amount of the
Company's federal income taxes for the years 1989 through 1991. The Company has filed a petition with the United States Tax Court to contest
these alleged tax deficiencies. Management believes that adequate provision has been made for any adjustments that may result from these tax
examinations.
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 addition, the Company may be required to pledge additional
collateral with respect to certain of its borrowings and letters of credit and to agree to more stringent covenants than in the past. The Company
believes that its balances of cash and cash equivalents and short-term investments, together with continued short-term borrowings from banks,
will be sufficient to meet its operating and other cash requirements, including the impact of planned restructuring actions, on a short- and long-
term basis. No assurance can be given that short-term borrowings from banks can be continued, or that any additional required financing could
be obtained should the restructuring plan take longer to implement than anticipated or be unsuccessful. If the Company is unable to obtain such
financing, its liquidity, results of operations, and financial condition could be materially adversely affected.
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