Apple 1998 Annual Report Download - page 15

Download and view the complete annual report

Please find page 15 of the 1998 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 92

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92

affected by the Company's ability to effectively manage quality problems and warranty costs and to stimulate demand for certain of its
products. The Company's operating strategy and pricing take into account anticipated changes in foreign currency exchange rates over time;
however, the Company's results of operations can be significantly affected in the short term by fluctuations in exchange rates.
Gross margin increased from 10% to 19% of net sales during 1997 compared to 1996, primarily because margins were unusually low in 1996
as a result of inventory write-downs, cancellation of component orders, and higher than usual costs associated with certain product quality
problems. Further, margins in 1996 were adversely affected by aggressive pricing actions in Japan in response to extreme competitive actions
by other companies, as well as price reductions in the United States and Europe across all product lines in order to stimulate demand.
RESEARCH AND DEVELOPMENT
Expenditures on research and development declined $182 million or 38% in 1998 compared to 1997 and declined to 5% of net sales in 1998
compared to 7% in 1997. These declines are principally due to continued restructuring actions over the last two years intended to focus the
Company's research and development efforts on those projects perceived as critical to the Company's future success. These restructuring
actions have led to significant reductions in research and development related headcount and the cancellation of many research and
development projects. The $119 million decrease in research and development expenditures in 1997 compared to 1996 was also primarily the
result of restructuring related actions.
The Company recognizes that focused investments in research and development are critical to its future growth and competitive position in the
marketplace and are directly related to timely development of new and enhanced products. The Company anticipates that research and
development expenditures will increase slightly in terms of absolute dollars but decrease as a percentage of net sales during fiscal 1999. The
foregoing statements are forward looking. The Company's actual results could differ because of several factors, including those set forth below
in the subsection entitled "Factors That May Affect Future Results and Financial Condition".
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenditures declined $378 million or 29% in 1998 compared to 1997 and declined to 15% of net sales in
1998 from 18% of net sales in 1997. These decreases, and those experienced in 1997 as compared to 1996, are primarily the result of
continuing restructuring actions that have resulted in reductions in headcount, closing of facilities, and write-down and disposal of operating
assets during 1996, 1997, and 1998. Declining revenue has also led to a decrease in variable selling, general, and administrative expenses
during both 1997 and 1998. Additionally, changes during 1998 in the Company's distribution channel policies and business model, including
contraction and focus of the Company's product line and simplification of the Company's internal and external distribution channels, led to a
reduction in selling expenses during 1998.
The Company believes that selling, general, and administrative expenditures will increase in absolute dollars in 1999 compared to 1998 but
decrease slightly as a percentage of net sales. The foregoing statements are forward looking. The Company's actual results could differ because
of several factors, including those set forth below in the subsection entitled "Factors That May Affect Future Results and Financial Condition."
13