Apple 1997 Annual Report Download - page 29

responsibility for environmentally safe disposal or recycling with the Company. It is unclear what effect such regulations will have on the
Company's future consolidated operating results and financial condition.
The Company recently decided to replace its existing transaction systems in the U.S. (which include order management, product procurement,
distribution, and finance) with a single integrated system as part of its ongoing effort to increase operational efficiency. Substantially all of the
transaction systems in the European operations were replaced with the same integrated system in 1997. The Company's future consolidated
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.
Because of the foregoing factors, as well as other factors affecting the Company's consolidated 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 consolidated financial position with respect to cash, cash equivalents, and short-term investments, net of notes payable to
banks, decreased to $1,434 million as of September 26, 1997, from $1,559 million as of September 27, 1996. The Company's consolidated
financial position with respect to cash, cash equivalents, and short-term investments decreased to $1,459 million as of September 26, 1997,
from $1,745 million as of September 27, 1996. The Company's cash and cash equivalent balances as of September 26, 1997 and September 27,
1996 include $165 million and $177 million, respectively, 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.
Cash generated by operations during 1997 totaled $188 million. Cash generated by operations was primarily the result of decreases in accounts
receivable and inventories, partially offset by the Company's net loss, adjusted for non-cash expenditures such as in-process research and
development, as well as decreases in accounts payable.
Cash used to acquire NeXT totaled $384 million in 1997. The Company expects no additional cash expenditures related to the NeXT
acquisition. Net cash used for the purchase of property, plant, and equipment totaled $53 million in 1997, and consisted primarily of increases
in manufacturing machinery and equipment. The Company expects that the level of capital expenditures in 1998 will be comparable to 1997.
Cash generated by financing activities in 1997 included the sale of $150 million of Apple Series A non-voting convertible preferred stock to
Microsoft Corporation. Cash used by financing activities in 1997 included $161 million to retire notes payable to banks.
Over the last two years, the Company's debt ratings have been downgraded to non-investment grade. In October 1997, the Company's senior
and subordinated long-term debt were downgraded to B- and CCC, respectively, by Standard and Poor's Rating Agency. In the second quarter
of 1997, the Company's debt ratings were downgraded to B3 and Caa2, respectively, by Moody's Investor Services. Both Standard and Poor's
Rating Agency and Moody's Investor Services have the Company on negative outlook. These actions may increase the Company's cost of
funds in future periods. 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, and continued short-term borrowings from
banks, will be sufficient to meet its cash requirements over the next twelve months. Expected cash requirements over the next twelve months
include an estimated $130 million to effect actions under the restructuring plan, most of which will be effected during the first half of fiscal
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