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Apple Now Debt Free, Says Internal Memo
An anonymous reader writes "99mac.se publishes an internal memo from Steve Jobs to Apple employees today.
According to the Memo, Jobs states that "Today is a historic day of sorts for our company." Apple used $300 million in cash to pay off the rest of their debt, and is now a debt-free company. A big turnaround from over $1 billion in debt in mid-1997.
Also noted in the memo is that Apple has $4.8 billion in the bank at this time." (Since this is not coming straight from Apple, confirmation -- or debunking -- would be helpful.)
Particularly other hardware and software firms?
-- Who is the bigger fool? The fool or the fool who follows him? --
Any company in this day and age that can consider itself solvent has to be doing something right. You may not agree with the tactics but the end result of being debt free is quite an accomplishment. Now if only the rest of us could say the same !!!!
Stay tuned for new sig...
With interest rates as low as they are right now, shouldn't they be borrowing and investing more in the future, or some such economic technobabble like that? Cash in the bank can't be giving them as much growth as investment would...
Though cash in the bank is very safe, at least.
echo Prpv a\'rfg cnf har cvcr | tr Pacfghnrvp Cnpstuaeic
to go from 1 billion in debt to 4.8 in cash is a large move even for 6 or 7 years of good business. I'd wait to see this in an SEC filing before i believe it.
Now that they are out of debt I wonder what the percentages of the income were. For example was the new OS's able to give 20% of that, the iPod good for 40% etc. What about iTunes? I know I just picked those %'s out of the air and have no way of guessing what they might be but what do you guys think helped them get into the clear?
SuDZ
Will Apple use a bit of additional money to pay back the money Microsoft invested in them back... oh, was it 5, 6, 7 years ago? That might revive the old OS wars, and make a lot of Mac fans (including myself) quite happy...
Honey, I shrunk the Cygwin
If this is true, the future could be bright for Apple customers. With the company operating in the black now, perhaps there is a little leeway for prices to come down. Imagine a decked-out G5 costing the same as a similar Wintel box+monitor.
Heck, Apple may one day soon be in a strong enough position to risk porting OSX to other platforms. I believe that the sooner one's choice OS becomes irrelevant, the sooner real, healthy, competition can take place in this industry.
Debt is very good for public companies (in fact it raises the valuation, mainly because of the tax ramifications on debt versus equity issuance). [note: I'm a first year MBA at Georgia Tech...so I'm speaking strictly academically].
It makes me wonder about Jobs' (or the CFO's) motivations. Strictly speaking, this would be the smartest move if Apple were to pursue a Leverage BuyOut (LBO), which is basically a reverse IPO. I can't see them doing this, but would give them a chance to radically reposition the company without requiring stockholder approval.
Just thinking out loud...
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---- Please be nice in case my Slashdot karma ~= my real life karma.
From what little I know about finance, isn't this a bad thing? If their business ideas are good, then shouldn't they be taking out loans to expand their business? Debt-free may be good for normal folks, but for businesses, it isn't such a great thing.
Mad Software: Rantings on Developing So
Apple has always had pricey, but cool stuff. I paid a premium for my Apple II (serial number 79 !! - I used it to write the free Chess program that was on the demo cassette for the Apple II).
I paid a premium for my first Mac in 1984.
Sometimes, more expensive products are just worth it.
-Mark
Here is their last 10-Q they had a total of $2.6 Billion listed as liabilities and about $7 Billion in Assets (with almost $4.8 B being cash or short term investments) So this is definately possible.
I remember back to something Steve Jobs said back in 97 or 98 when asked how he was going to grow desktop market share. His response was something along the lines of 'We have 6% of the desktop market, Mercedes has 6% of the automobile market. Why aren't you predicting the end of Mercedes?'
iMac, iPod and iTunes really helped them accumulate some iCash.
Seriously! You ever get stuck making house calls to fix friend's computers? Ever since I've convinced people to go mac they've been more functional (making dvd's, photo albums, burning CD's, No Email viruses) and I get almost no calls from friends asking for help. They don't have the same issues as with Windows or even worse would be linux.
Seeing Pixar (Steve is the boss) just left Disney, and the steadiness (i.e. hardly any price drops) in Apple's product lines, it's obvious they're very confident, and most of the time, more money = more confidence.
Rock that crushes, Paper & Scissors that don't matter.
No. No. A thousand times no. Buying out SCO would just put more money into Darl's hands and the hands of his cronies. Is that what you really want? Personally, I want to see Darl McBride broke, homeless, and begging on the streets.
The article
"Let's do the math: According to its latest earnings report, Apple averaged $349 in revenue per iPod sold. If prices remain stable, 3 million iPods would generate more than $1 billion in revenue. Four million units could produce $1.4 billion in sales. Apple sold $345 million in iPods during fiscal 2003.
Turning the dial to iTunes, Apple says that more than 30 million songs have been sold to date, with 17 million of those coming during the Christmas quarter. The Pepsi promotion should dramatically increase iTunes traffic. Add in the help from HP and paid downloads could pass 100 million during 2004. At that level, Apple should make a few pennies per song, up from zero now."
But, financially, this isn't good news.
Slashdot is jumping the shark. I'm just driving the boat.
"The game had to be built with an OS image on the CD."
That would be easy, I used to have a 7.5.5 boot CD and if I remember right, that stripped down System Folder took up all of about 30 MB with full network functionality.
Once we made a System 7.1 boot floppy with Appletalk and I don't remember what else so that we could dasiy-chain Performa 5xx series machines with the old LocalTalk boxes and phone cords and reformated 14 of them at a time from my G3 AIO.
I
Pleasing investors has nothing to do with being debt-free. If you have a friend that will loan you money at 1% interest, and you can turn and loan that money to somebody else at 2% interest, you'd want as much debt as possible, and your investors (in this case, you) would be thrilled that you have so much debt.
In fact, in successful companies, investors might actually prefer debt. If you and a friend have a project that will cost $1200 but will net you $1800 in a year, you each stand to gain $900 minus your investment. But you only have $800 total. If you get another friend in on it, all three of you will only net $200 apiece ($600 - $400). If you get $400 debt at 5%, then the two of you will make $1800 - $420 (debt + interest) = $1380 / 2 = $690 - $400 = $290.
So the current investors end up making more by taking debt. Of course new investors would love an opportunity at profiting from this project, but companies tend to look out for current shareholders more than anything else.
An interesting idea, actually. I had once semi-jokingly said to a friend that a stripped down linux on a disc could be used as a basis for games. In theory it would work pretty well, only the necessary stuff is loaded up. However, there would be no way to know what sort of hardware the machine booting the disc would have installed. I guess this is basically the idea behind those ill fated linux based consoles?
My patience is infinite, my time is not.
I guess Fred feels his work is done now, because he is calling it quits on June 1. Anderson has been instrumental in solving Apple's financial problems from the day Gil Amelio hired him in 1996. He created the company's large cash reserves by liquidating unnecessary capital investments (plant), issuing a convertible debenture and selling some of their valuable ARM holdings. Then he managed the investment of those funds astutely enough to make the conversion of those outstanding notes to common stock a huge win for both the company and creditors. That 1999 conversion alone eliminated about two thirds of Apple's long term debt (conversely that means the issue had assumed most of Apple's debt). Really, this guy has done an outstanding job. You can thank him for their sound financials.
It is cowardly, and a betrayal of whatever it means to be a Jew, to act as a white man
-James Baldwin
Apple's got like $5 billion in cash lying around, Microsoft has $50 billion or so last I heard... Just to put this into perspective, $50 billion dollars is about $166.67 from every man, woman, and child in the US, or about enough for them each to buy a copy of Windows retail (or almost two upgrade editions or full OEM editions). It's almost equal to the GDP of Iraq in 2002. You could hire a million people full-time with that money and pay them $25/hr for a year. It's a lot of money.
:)
The profit margin on software is about as high as a profit margin can be, and even when you consider that they spend money on R&D, salaries, advertising, buildings, manufacturing, computers, etc., etc. -- that's still an enormous mark-up from the market value of their products. (They both sell hardware too, and in Apple's case, there's a hefty mark-up on that as well, especially RAM--but not nearly as much as there is on software.)
So it'll be interesting to see what happens, as Microsoft slashes prices on core offerings to compete with Linux, and newer desktop environments and toolkits are developed across the board to compete with Apple. Still--I don't know about TCO, but there should be no doubt in your mind that these companies are overcharging.
pb Reply or e-mail; don't vaguely moderate.
Debt can be a good thing, for reasons other than taxes.
Debt is the basis of leverage. Example: I have 1 million dollars. I buy a house for 1 million dollars. The house appreciates 10% in a year, and now I just made $100,000 off my investment. However, lets say you put down $100k on the 1 million dollar house, and the house still appreciates 10%. You just made 100k w/ 100k for a 100% return on your investment. Had you done that w/ ten other houses, you doubled your net worth. Of course, there would be a cost associated with borrowing that kind of money. Youre ahead as long as your cost of borrowing does not exceed your rate return. It gets alot trickier, and generally tilts the balance in favor of taking on alot of debt when you bring tax benefits into the picture. In the case of a house, the mortgage interest is deductible, so money is essentially 30-40% cheaper to borrow than whatever interest rate you are paying. Also, inflation eats away at your debt costs.
Of course your risk is alot higher. During good times, you can make a killing. But if the values of your assets start falling, you can quickly lose your shirt, and then some. in the 100k down on 10 houses scenario, a 20% drop in asset value would put you in the hole about 1 million (thats a net value of -1 million) as opposed to the opposite scenario where you are still worth 800k.
I work for a company with huge debt (100s of millions$$). We're in the pay it back stage vs the borrow and grow stage. Its not good. It takes a huge chunk of our profits and some of the purchases didn't work out as well as expected. It hasn't helped our valuation...
You have to be careful about conventional wisdom when it comes to economics.
Here's a pretty good case study from the Motley Fool on why taking on corporate debt is often better than trading away shares to make acquisitions. Basically, in this case, taking on a lot of debt is fine if it increases cash flow.
In general, if a company's risk rating is good, you could say that it is in fact wasting money by NOT taking on some debt in order to build infrastructure or make acquisitions.
As the Economist points out in an article called Debt is Good For You," "dividends are paid out of companies' net-of-tax income,and are then taxed again in the hands of the recipients. Interest payments on debt, on the other hand, are tax-deductible."
"This means that a firm's overall value should increase as it substitutes debt for equity."
\
And just in time for Fred Anderson's Retirement from the position of Apple's CFO on June 1.
HUMANS do it better
maybe cleaing up balance sheets and business entanglements to merge Pixar and Apple?
Since those bond holders would have had to reinvest at last year's lower interest rates, Apple would have been doing them a dis-service.
Not really. Unless there are specific covenants on the bond (typically not), Apple wouldn't have given them the capital back, but sold the debt for its market value (on the Bond market) or whatever.
If the bond-holders were sitting on bonds that were paying a higher rate than the market rate, then Apple would have had to give them more than just the principal to pay off the debt.
Bond prices fluctuate with the interest rates as well, so paying off early would have netted bond-holders a premium and the opportunity to reinvest. If things were as you say they were, Apple could quite easily commit arbitrage by getting $1000 of cheap debt and paying off $1000 of expensive debt. But what would have happened is they could have bought $1000 of cheap debt but would have had to pay, say, $1100 to clear their $1000 of expensive debt (for the projected interest).
Well, what are you referring to? Is it good that they are out of debt? Yes. Is having no debt necessarily good for a company? No. Can Apple now borrow a ton of money and go back into debt? Yes.
What we didn't see was the second memo that went around saying "So now we can borrow our asses off!" :-)
All this is saying is that they are out of debt. If they are like most people, the second they get out of debt, they usually go right back into it somehow. Maybe they paid off their higher interest debt, and will be able to get a big chunk of R&D money at lower rates. Hell, maybe this was just a PR thing to get them in the news. Seems to have worked...
My beliefs do not require that you agree with them.
"There is non-RIAA music on iTunes in spades, and I will continue to buy from them".
I don't know if you are most qualified to answer for me but doesn't the RIAA still get money from each sale? My assumption that they do might be wrong but the assumption that they would have signed a contract with Apple without a blanket percentage scheme sounds unlikely. Anyone have an answer to this?
This isn't a bad thing. There's a siginficant overlap in Linux and Apple interest, especially since Apple went UNIX with Mac OS X (an excellent move on Apple's part). So the content is quite relevant.
According to money.cnn.com, Apple's market cap is about $8.6 billion. With (now) no debt, $4.8 billion in the bank and a relatively thriving and growing niche (plus the music distribution), doesn't this make them an even more attractive takeover target, with their bank account paying for much of the cost of acquisition?
-- Gary Goldberg KA3ZYW 301/249-6501 AIM:OgGreeb Digital Marketing Inc., Bowie, MD
That's when you go get the mouse drivers that turn teh physical button into a right click, and the pad itself into a left click. Problem solved.
Did I mention teh driver also adds scroll zones to the sides of the trackpad?
T Money
World Domination with a plastic spoon since 1984
Numbers:
US Budget Summary since 1789
Inflation calculator.
Okay, the largest budget deficit of the 1930's (Great Depression, New Deal) was about $3bn in 1939. That's about $31bn in 2002 dollars.
The largest budget deficit of the 1940's (WWII) was $55bn in 1943. That's about $585bn in 2002 dollars.
The largest deficit of the 1960's (Soviet Union, Space Race) was $25bn in 1968. That's $130bn in 2002 dollars.
The largest deficit in the 1980's (Soviet Union) was $221bn in 1986. That's $354bn in 2002 dollars.
The largest deficit of the 1990's (Iraq war?) was $290bn in 1992, which is $370bn in 2002 dollars.
The 2004 budget deficit is officially $521bn. However, that does not count the costs of war, which are $84bn in Iraq alone. All told, the current deficit is well over $600bn. Depending on the cost model, that equates to about $580bn 2002 dollars.
So in any case, the current US budget deficit is not larger than at least the one FDR carried, but its skirting damn close.
A deep unwavering belief is a sure sign you're missing something...
I agree, I think we do need Apple, or at least we did.
They kickstarted the horribly lagging USB device market. A lot of windows GUI elements seem to come from Apple. Zen seems to be heavily iPod inspired, for all I know, maybe we'd be stuck with ugly Nomads and Nomad clones.
Before Jobs took over, the PC market looked like a bunch of ugly square beige boxes, since, we now get a bunch of ugly multi-colored varying swoop-shaped windowed boxes. I haven't checked to see if there are any G5 inspired PC cases yet.
It seems like it would make more sens for apple to put that 4.8 bil to good use instead of sitting on it by trying to expand into new markets, or if SJ doesn't think there are any new markets ready to be moved in to, selling at a loss as to get more customers. Do they keep tose cash reserves because they have been in financial trouble before and want to avoid that ever happening agiain or what? Or is 4.8 bil not nearly as much of a big deal to apple than i thought. Cauase it seems pretty wasteful it it only exists so we can easily respond to apple is dying trolls.
Apple has had zero long term debt for over a year now, and in the course of normal business it is impossible for a company to elimintate short-term debt or at least in theory for a company of Apple's size since the company incurs short term debt by having a phone bill. Hence the reason at the end of last quarter Apple had almost 1.1 billion in accounts payable. In the end a company seeks to find its optimal capital strucure of debt and equity that will return the maximum shareholder value. Apple has choosen to reduce its risk of market highs and lows by eliminating the long term debt exposure of the company. Futher more, while I love Apple, being debt free is not a reason to buy its stock or believe that it is a healthier company. It simply implies that the shareholders will not be bullied by bond holders seeking more control of the company.
NeWS is about the only thing that would get me to post this late in the life of a story, and with mod points to burn.
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My then company, PICA Pty Ltd, worked with both Sun and Adobe on the respective fronts way back then. Sun encouraged us to devote our own resources to a Macintosh port of NeWS by contracting us to develop NeWS demonstration applications, some of which got a guernsey in Gosling, Rosenthal and Arden's NeWS Book
We were a recognised early player in the PostScript game because I landed the job of doing a technical review of one of the first two Apple LaserWriters to reach Australia for Australian Macworld. That led to PICA becoming the local distributor for Adobe and other early desktop publishing products, and to me contributing the final chapter to Roth, ed's Real World PostScript
In what may seem like several cases of deja vu, Michelle Arden was very keen to help us try to convince Adobe to open up control of the PostScript standard, yet within a couple of years Sun, having made themselves quite unpopular through the success of NFS, were then rolled by the rest of the Unix community who insisted on adopting X as the blessed window system ahead of the much superior NeWS.
Despite strong support from our main contact person, the inability to focus by Sun's Sydney office brought our efforts to a premature end, on one hand because they had initially tried to motivate us by suggesting we were in competition in the porting project with Keith Henson's Grasshopper Group. Then when I finally met Keith we became instant friends. Meanwhile Sun Australia also managed to hold up payment for our contracted work for 14 months.
Bottom line is that Sun's efforts with NeWS were in spite of Adobe. The significantly later Display PostScript did not borrow directly from NeWS in any way. If Sun ever gain a clue as to why they are being overrun by history, despite making a technical contribution over the years that has been disproportionate to their financial strength, one thing they could start with even at this late stage would be releasing NeWS to the public domain.
-- Our systemic servants do not good masters make.
I don't know if the memo is real or not, but I've just been hired by Apple, and they are hiring hardware guys hand over fist. I only wish I could talk about the things being worked on here!