Apple 1997 Annual Report Download - page 20

In 1996, interest and other income (expense), net, increased to $88 million in income from $10 million in expense in 1995. This $98 million
favorable change was 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, partially offset by a $52 million unfavorable variance, as a result of
higher average debt balances and lower average cash balances during 1996, and an overall decline in average interest rate yields.
A summary of the Company's interest and other income (expense), net, hedge horizons and accounting for financial instruments, and notes
payable to banks and long-term debt, may be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements.
PROVISION (BENEFIT) FOR INCOME TAXES
As of September 26, 1997, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of
$695 million before being offset against certain deferred tax liabilities for presentation on the Company's balance sheet. A substantial portion of
this asset is realizable based on the ability to offset existing deferred tax liabilities. In 1997, an increase in the valuation allowance of $208
million was recorded against the deferred tax asset for the benefits of tax losses which may not be realized. Realization of approximately $85
million of the asset representing tax loss and credit carryforwards is dependent on the Company's ability to generate approximately $245
million of future U.S. taxable income. Management believes that it is more likely than not that forecasted U.S. income, including income that
may be generated as a result of certain tax-
planning strategies, will be sufficient to utilize the tax carryforwards prior to their expiration in 2011
and 2012 to fully recover this asset. However, there can be no assurance that the Company will meet its expectations of future U.S. income. As
a result, the amount of the deferred tax assets considered realizable could be reduced in the near and long term if estimates of future taxable
U.S. income are reduced. Such an occurrence could materially adversely affect the Company's financial results. The Company will continue to
evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance. Additional
information relating to income taxes, may be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
RESTRUCTURING OF OPERATIONS
During 1996, the Company began to implement certain restructuring actions aimed at reducing its cost structure, improving its competitiveness,
and restoring sustainable profitability. During 1997, the Company announced and began to implement supplemental restructuring actions,
including significant headcount reductions, to meet the foregoing objectives. There are several risks inherent in the Company's efforts to
transition to a new cost structure. These include the risk that the Company will not be able to reduce expenditures quickly enough to restore
sustainable profitability and the risk that cost-cutting initiatives will impair the Company's ability to innovate and remain competitive in the
computer industry.
Implementation of this restructuring involves several risks, including the risk that by simplifying and modifying its product line the Company
will increase its dependence on fewer products, potentially reduce overall sales, and increase its reliance on unproven products and technology.
Another risk of the restructuring is that by increasing the proportion of the Company's products to be manufactured under outsourcing
arrangements, the Company could lose control of the quality or quantity of the products manufactured and distributed, or lose the flexibility to
make timely changes in production schedules in order to respond to changing market conditions. As part of its restructuring, the Company
announced and
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