Apple 1999 Annual Report Download - page 17

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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.
RESEARCH AND DEVELOPMENT
The Company recognizes 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 that are central to the Company's core business
strategy. Expenditures on research and development increased 4% or $11 million to $314 million in 1999 as compared to 1998. This followed a
$182 million or 38% decline in 1998 as compared to 1997. The overall decline in spending on research and development over the last two years
is principally due to restructuring actions taken in 1996, 1997, and 1998 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 led to significant reductions in research and
development related headcount and the cancellation of many research and development projects.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenditures increased 10% to $996 million in 1999 as compared to 1998 and increased to 16% of net sales
in 1999 from 15% in 1998. These increases are primarily the result of increased spending on marketing and promotional activities throughout
1999 and a 12% increase in combined sales, marketing, and general and administrative headcount from the end of 1998 to the end of 1999.
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 were primarily the result of restructuring actions taken in 1996, 1997, and 1998, which
resulted in reductions in headcount, closing of facilities, and write-down and disposal of operating assets during 1996, 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.
SPECIAL CHARGES
1996 AND 1997 RESTRUCTURING ACTIONS
In the second quarter of 1996, the Company announced and began to implement a restructuring plan designed to reduce costs and return the
Company to profitability. The restructuring plan was necessitated by decreased demand for the Company's products and the Company's
adoption of a new strategic direction. These actions resulted in a charge during 1996 of $179 million. During 1997, the Company announced
and began to implement supplemental restructuring actions to meet the foregoing objectives of the plan. The Company recognized a $217
million charge during 1997 for the estimated incremental costs of those actions. All material restructuring actions contemplated under the plan
were essentially complete at the end of fiscal 1998. The combined 1996 and 1997 restructuring actions consisted of terminating approximately
4,200 full-time employees; canceling or vacating certain facility leases as a result of those employee terminations; writing down certain land,
buildings, and equipment to be sold as a result of downsizing operations and outsourcing various operational functions; and canceling contracts
for projects and technologies that were not critical to the Company's core business strategy. The restructuring actions under the plan resulted in
cash expenditures of $293 million and noncash asset write-downs of $95 million from the second quarter of 1996 through September 25, 1999.
Of the combined 1996 and 1997 restructuring charges of $396 million, approximately $3 million was determined to be excess during the fourth
quarter of 1999. The remaining balance of $5 million as of September 25, 1999, in accrued restructuring costs for the 1996 and 1997
restructuring actions is comprised of payments over the next two years on leases and contracts that had been terminated prior to fiscal 1999.
The Company expects the remaining accrual will result in cash expenditures of $5 million over the next two years.
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