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MacRumors
Feb 18, 2004, 09:24 AM
99mac.se publishes (http://www.99mac.se/) 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 currently has $4.8 billion in the bank at this time.

Messiatosh
Feb 18, 2004, 09:25 AM
Bodes well for the future, here's to another nearly 30 years.

yoman
Feb 18, 2004, 09:26 AM
now if only Apple would try to get us all in debt with new and incredible computers...

We're still waiting :)

Grimace
Feb 18, 2004, 09:28 AM
it will be interesting to see how investors look at this. Stock prices for Apple have never been all that great.

JJTiger1
Feb 18, 2004, 09:28 AM
An internal Apple email from Steve Jobs says that Apple has paid off their $300 million debt. Apple is now debt free.

The email was displayed last night at a MUG meeting by an Apple employee.
The employee was thrilled.

I would stay tuned to Apple news releases for confirmation.

Not yet posted at http://www.apple.com/hotnews/ (Feb 18, 2004 05:57 AM PST)

gwuMACaddict
Feb 18, 2004, 09:31 AM
Originally posted by carletonmusic
it will be interesting to see how investors look at this. Stock prices for Apple have never been all that great.


this has to help

russed
Feb 18, 2004, 09:34 AM
lets hope they spend even more money on R&D now and churn out even more products!

Nik_Doof
Feb 18, 2004, 09:35 AM
All i gotta say is congrats to them, not alot of companies can pull off having no debt at all...

blueBomber
Feb 18, 2004, 09:35 AM
this is great! While all the other computer companies struggle to turn a profit in the current market (Dell excluded), Apple is doing well. Looks like we may see another 20 years of Macintosh, even though Apple is perpetualy going out of business in the eyes of alot of people.:rolleyes:

guyute
Feb 18, 2004, 09:35 AM
Smart business move!!

Mudbug
Feb 18, 2004, 09:36 AM
Holy crap that's a lot of money. Nice to see a corporation, regardless of who it is, stand up for itself and get in the black. Bleeding red ink is not a good way to be. This should help squelch the "Apple Death Knell" as it's come to be known.

JJTiger1
Feb 18, 2004, 09:38 AM
Originally posted by JJTiger1
An internal Apple email from Steve Jobs says that Apple has paid off their $300 million debt. Apple is now debt free.

The email was displayed last night at a MUG meeting by an Apple employee.
The employee was thrilled.

Yes, 99mac.se, that's the email that was shown at the MUG meeting.
=-=
JJ

virividox
Feb 18, 2004, 09:38 AM
debt is a killer
at least we know apple wont be dying from debt if its true

pilzbury
Feb 18, 2004, 09:39 AM
Does this mean cheaper computers now? - That would be nice! :D

Nicky G
Feb 18, 2004, 09:43 AM
Heheh I wish I was debt-free -- between 3/4 of my car left to pay off, about $4K in credit card debt accumulated in college and my post-college summer non-employment period, and over $1K I owe my mom on my iBook G4 -- sometimes it really hits you. At least I don't have college loans, which means I am actually a bit _ahead_ of the game, compared to most other Americans my age with a college education. Kind of boggles the mind.

This is extremely positive news for Apple -- there is nothing held over this company's proverbial head. And with that much cash in the bank, they could literally weather a depressionary period, if things ever came to that. That's good for me, as I have decided to make Macintosh Technology the thrust of my career path for the time being. :-)

Ramza
Feb 18, 2004, 09:43 AM
great work, apple! very few large companies can pull off being debt free!

AirUncleP
Feb 18, 2004, 09:47 AM
Darn. Apple just missed out on buying AT&T Wireless and going right back into debt. The price tag was only....what....44 billion.

What's the interest income on 4.8 billion?

morkintosh
Feb 18, 2004, 09:47 AM
Originally posted by carletonmusic
it will be interesting to see how investors look at this. Stock prices for Apple have never been all that great.

debt to equity ratio is just one of many factors that impact the value of stock. while its true that this can't hurt, that doesn't imply that it will help. in order to see a surge in stock value apple will need to hold on to the strong position they have in online music (possibly movie) distribution, maybe even aquire a record label. granted if they did that the beatles would be sure to have a negative impact on their stock.

bottom line: apple stock is not a major preformer because apple represents a very successful but niche company.

jwhitnah
Feb 18, 2004, 09:48 AM
Happy days!

NusuniAdmin
Feb 18, 2004, 09:48 AM
Cool. Come on new pmacs, come on!

agentmouthwash
Feb 18, 2004, 09:49 AM
This is great news for Apple. I'm doing my part helping them out by buying music from itunes and all my crap (wires, software) from my local Apple Store.

I want this company to be around. Hopefully this will reflect the stock price.

iggyb
Feb 18, 2004, 09:54 AM
Originally posted by yoman
now if only Apple would try to get us all in debt with new and incredible computers...

We're still waiting :)

Right there with ya! :D

wdlove
Feb 18, 2004, 10:01 AM
Congratulations to Steve and his management team for their leadership of Apple. This is trully a momenteous day, the ability to pay off $300 million in debt. Apple is now "Debt Free." :)

Ja Di ksw
Feb 18, 2004, 10:05 AM
I have to agree, people are (hopefully) going to be willing to buy more apple stock now that they are out of debt. I can see this raising the value of the stock overall, though I wouldn't go so far as to say that this will make the price will start jumping higher and higher now.

neilw
Feb 18, 2004, 10:05 AM
This has nice symbolic value, but has nothing do to with whether Apple is or was bleeding red ink or not. 300 million worth of debt is not a big deal when you've got 4-5 billion in the bank.

This also has absolutely zero impact on Apple's ability to deliver product, or spend more on R&D, or anything. That is why Jobs said a historic day "of sorts." So let's not get too excited here.

But it is nice anyway.

[aside: I wonder if and when Apple is going to do something significant with its huge cash cache. I know they are very protective of it, and that's fine, but at some point you'd think they could use it to their advantage, beyond just generating investment income.]

Sir_Giggles
Feb 18, 2004, 10:08 AM
Wow. I didn't realize what a *******-up job the previous CEOs did to Apple. Thank God Steve Jobs is back to the company he help founded.

themadchemist
Feb 18, 2004, 10:08 AM
Originally posted by russed
lets hope they spend even more money on R&D now and churn out even more products!

I actually disagree. Money needs to be put into supply chain efficiency and manufacturing. Apple already spends an incredible amount on R&D, but it needs to put money into making that research into a widely distributed product.

And now that the economy is getting better, hopefully Apple won't need cash reserves as large. Of course, the economy hasn't fully recovered, but I hope to see in the next few months investment on Apple's part into more efficient manufacturing, bigger manufacturing contracts, and a supply chain that doesn't keep new products out of its customers' hands for months.

dudeweb83
Feb 18, 2004, 10:10 AM
Debt is not a bad thing. To borrow money is cheap. Theres a good amount of debt - short term debt, and even some long. Perhaps cash is needed to pay employees but they dont want to take it out of other investments that are giving them a better return than the interest they have to pay on the debt. They may be "making" money on debt. This is small potatoes for a 4.5 bill bank account.

cr2sh
Feb 18, 2004, 10:10 AM
A simple savings account, compounded daily at an APR of 1.00.. would yield over $130,000 in interest.. EVERYDAY.

Holy ****ing crap that's a lot of money.

That's like 40 top of the line powermacs everyday. All I want is two.
:p

Foxer
Feb 18, 2004, 10:10 AM
$300 million in debt ain't that bad (step outside of your "consumer credit" mindset for a moment.) These days, with interest rates so low, money is practically free. Many "forward" thinking companies would take advantage of this "free" money and borrow to finance expansion. To a corporation, on a strictly balance-book view, debt can be an asset.

Keep in mind that gobs of cash sitting around unused can be a anchor on stock price. Ford, in the late 90's, had tremendous cash reserves of around $9 billion and no plan to invest them in growing the company which served to keep the stock low despite huge profits.

That being said, I wish I had $300 million to pay off debt.;)

JeffTL
Feb 18, 2004, 10:10 AM
I think the billions in the bank are there primarily to provide the company with capital into which to dip, so as to be able to stay self-sufficient for a while in the event that expenses overcome profit and interest -- basically a rather large slush fund.

But I can just imagine the commentators: "Apple doesn't owe a penny to anyone, they have five billion dollars in the bank, and iPods are selling like hotcakes; therefore, they are on the verge of bankruptcy."

srobert
Feb 18, 2004, 10:12 AM
Once again, as with every "Good News" thread, you enivitably get a few "negative" votes.

I wonder how people can think that Apple getting out of debt is negative.

I'm just curious.

Photorun
Feb 18, 2004, 10:21 AM
And yet you watch, the stock market will STILL keep downgrading Apple stock while coveting the other peecee makers there are still millions in the red (Gateway, et al)

dudeweb83
Feb 18, 2004, 10:22 AM
once again. this news is more negative than positive. take an accounting course peeople! =P

edit////
for example, i bought stock on margin yesterday (this is not advised) but following UNTD closely, I know its waves. Today its up 4+%. Ill sell for a nice gain and pay pennies on the dollar.

tristan
Feb 18, 2004, 10:27 AM
The guys who work on the street and manage billions don't really care whether Apple has $5.1m in the bank and $300m in debt, or $4.8m in the bank and $0 in debt. It's just a minor blip in the financials. They care about revenues and profits.

The street would actually rather see the company buy back shares. Companies tend to buy back their own shares when they feel they're undervalued. It's a sign of confidence in the future.

It does change Apple's company profile a little though - for whatever reason, manufacturing companies generally have debt, while software and internet companies usually don't. So it could be Apple's way of saying "hey we're not a computer manufacturer, we're a software and internet play."

montecristo
Feb 18, 2004, 10:33 AM
Originally posted by dudeweb83
Debt is not a bad thing. To borrow money is cheap. Theres a good amount of debt - short term debt, and even some long. Perhaps cash is needed to pay employees but they dont want to take it out of other investments that are giving them a better return than the interest they have to pay on the debt. They may be "making" money on debt. This is small potatoes for a 4.5 bill bank account.

Thanks dudeweb83 for pointing out that being in debt can be a good thing. Think about it personally, most of us would rather be in debt so we can own a home, with manageable monthly mortgage payments, than to rent for a long time accumulating cash until we can pay cash. Having manageable debt essentially frees up cash for companies to do things sooner, like invest in R&D, or buy up software companies, etc.

But I do agree that Apple becoming debt-free is a symbolic achievement, and the previous debt was probably "bad" debt with higher interest rates and restrictive terms.

Now, let's see some kick-a** new G5 PowerBooks!:cool:

fukuhela
Feb 18, 2004, 10:40 AM
once again. this news is more negative than positive. take an accounting course peeople! =P


While it is cheaper for Apple to finance new 'projects' by burrowing than financing with their own money (because the interest payments are tax-deductable), I think it is uncertain whether it's more negative than positive. There is a lot signalling in saying we have got a 100% healthy company.

This might also be a way of doing something good to the people who hold their stock - or by making their stock more worth.

I don't know if IBM has any debt, but not so many years ago they were debt-free as well. This wasn't because it was the cheapest thing but because they wanted to signal that they had/have a healthy company.

But from a accounting point of view you are 100% correct: Being debt-free is not a good thing when interest payments are tax-deductible

Le Big Mac
Feb 18, 2004, 10:40 AM
Originally posted by gwuMACaddict
this has to help

Pretty irrelevant. The company has loads of cash, so a small "debt" is pretty irrelevant. It's like having a few charges on a credit card, but a huge savings account.

But the stock price has been great over the last 9 mos. or so. Nearly doubled from its low.

keysersoze
Feb 18, 2004, 10:49 AM
Very Nice PR. Not much else, considering the debt was not all that much (relative).

But Apple IS most definitely in the PR biz these days. I spend my days as a media analyst...and any supportive media impressions are looked upon as positive for the company. Forget the stock price...for now. The elimination of debt is just one more way for Apple to distinguish itself from the rest of the technology sector.

It's all psychological. The good kind-- BRAGGING rights.

narco
Feb 18, 2004, 10:50 AM
Finally, something other than iPod news! For a second there I thought I was going to the iPodlounge.

Phobophobia
Feb 18, 2004, 10:51 AM
Originally posted by montecristo
Thanks dudeweb83 for pointing out that being in debt can be a good thing. Think about it personally, most of us would rather be in debt so we can own a home, with manageable monthly mortgage payments, than to rent for a long time accumulating cash until we can pay cash.


Debt can be a good thing, but it usually isn't. Especially considering how bad people are with money in America these days.

splashman
Feb 18, 2004, 10:52 AM
Like some others here, I'm wondering what the big deal is. It will not be interpreted positively by investors, and Apple could have paid off that debt a long time ago from petty cash. Why they chose to do so now is puzzling, as is why Steve promoted it as a milestone.

I'm not saying debt is a good thing, nor am I saying paying it off is a bad thing. I just don't see any reason to pop the champagne corks, as some others are doing.

narco
Feb 18, 2004, 10:55 AM
Originally posted by Phobophobia
Debt can be a good thing, but it usually isn't. Especially considering how bad people are with money in America these days.

Hell, maybe he paid off the debt so that he can sell Apple and make a new company for all of his clever little gadgets.

FriarTuck
Feb 18, 2004, 10:57 AM
I guess Steve has been watching the Suze Orman show.

Now if he will just cut up those darned credit cards....

Mac Dummy
Feb 18, 2004, 11:03 AM
Originally posted by russed
lets hope they spend even more money on R&D now and churn out even more products!

Yep, Apple needs to turn out more products, but at cheaper prices would be nice.:) Long live the Mac, and long live Linux. The smart alternative for PC users, to that scourge of the universe, Microsoft and its Windows OS.:mad:

Mac Dummy
Feb 18, 2004, 11:11 AM
Originally posted by Sir_Giggles
Wow. I didn't realize what a *******-up job the previous CEOs did to Apple. Thank God Steve Jobs is back to the company he help founded.

Steve Jobs could sell ice to Eskimos, that's why Apple has him back as CEO. He also made it where no other company could sell Mac clones anymore. In other words he really cleaned house when he came back in 1997. The only thing I hope is that Apple doesn't become like Microsoft, because then we all would get infected with Mac viruses.:(

Stella
Feb 18, 2004, 11:13 AM
Apple can spend more on R&D because apple won't have to repay interest on $300 million that is being owed.

As for those whinners.... why on earth did people rate this as negative?!!!! Debt free is *good*, no interest to pay, less liabilities. How can this possibility be negative?!

eric_n_dfw
Feb 18, 2004, 11:19 AM
As others have said, debt is not nessesarily bad. On a small scale, think about this: if you borrow $100,000 and buy investment property putting nothing down and rent it out at $200 more than your mortgage payment, taxes and insurance. You are making $200 a month on the bank's money. This is done everyday, it's called leveraging, and it works for real-estate, stocks capital investments, etc... If this is even true, I doubt the stock will see much change due to it.

TMay
Feb 18, 2004, 11:21 AM
Steve has the cash (with the permission of the board natch) to potentially carry out some more acquisitions, and I would venture that this is what the cash is being kept on hand for. When and what those will be, I haven't a clue, but I would bet against a purchase of Maya. There are already plenty of excellent 3D products on the market.

Personally, I wish that Apple would spend some of its cash funding/assisting various companies in strategic businesses (MCAD, Science, Architecture) to port existing UNIX applications to full Aqua/Quartz compatibility. This, and the PPC 970FX would be huge draws to those industries, and would greatly broaden the appeal of Apple hardware.

eric_n_dfw
Feb 18, 2004, 11:21 AM
Originally posted by Stella
Apple can spend more on R&D because apple won't have to repay interest on $300 million that is being owed.

As for those whinners.... why on earth did people rate this as negative?!!!! Debt free is *good*, no interest to pay, less liabilities. How can this possibility be negative?! If your interest is 4% but you can make 10% with the 300 million, it's a bad move.

I'm not saying they "can" do this, or that being debt free is bad. But it's not always as cut-and-dry as it may seem.

billyboy
Feb 18, 2004, 11:21 AM
$4.8bn and no nagging debt is a shed load of money for Apple, ie about 9 months' worth of total income. That has to be good for morale.

In normal circumstances, the stock market would like to see Apple buying up more shares with their own money, as a sign of self confidence. But this is Apple. Think Different. Steve Jobs must be fairly sure the business plan as it stands is basically financially safe, so why do what everyone expects in that position? The way things are panning out, Apple have been slowly but surely securing the video editing market with an aquisition here and there. But if you think about the "AAC v WMA format war" they find themselves involved with, Apple are being extremely ballsy taking on the fight themselves. They have a neat deal with HP, but that is only one angle and they could do with some serious muscle behind them from different angles. I wouldnt be surprised to see them putting their money to good use with a completely out the blue acquisition. If debt is good, how much could $4.8bn leverage? Loads.

wrldwzrd89
Feb 18, 2004, 11:22 AM
This is good news for Apple's public image, because it gives them bragging rights, but mixed news for the company. Apple loses the tax benefits of interest payments on their debt (which is bad), but also loses the bad debt that drains corporate profits (which is good). Apple ridding itself of debt may also be an attempt to make its public image even more favorable and at the same time change the kind of company people think of Apple as being. I see this as one of many steps Apple will take in 2004 to change their direction. This could mean, for example, a better-coordinated supply chain and faster updates (which we all like).

nexus810
Feb 18, 2004, 11:23 AM
i fnaything Apple saying they are out of debt is good because it tells investors that they can go into debt again for further progress of the company.

Investors like seeing debt because it shows that the company is doing things to attempt to earn mre profits and such.

So having no debts means that Apple can invest a bit more with their cash and make some money on interest and then in a short while go back into debt to further progress the company.

eric_n_dfw
Feb 18, 2004, 11:24 AM
Not to get too far off subject, but David Every (formerly of www.mackido.com) recently posted, IMO, an excellent article about what "Apple Needs To Do": http://www.igeek.com/articles/Apple/AppleDell.txt

dongmin
Feb 18, 2004, 11:27 AM
it makes you wonder if Apple is ever gonna use that cash reserve to make a bolder move for marketshare. Maybe offer a trade-in program, say $400 credit towards a new Mac purchase when you trade in a Dell (less than 2 years old). A move like that could really impact the stock price.

jamilecrire
Feb 18, 2004, 11:30 AM
Originally posted by gwuMACaddict
this has to help

Not really. ROI is a bigger deal. Apple is a very up and down company. I would stay away since there are so many better potential investments. However, the next 2-3 years could be very good to Apple, with IBM supplying chips.

rdowns
Feb 18, 2004, 11:34 AM
Originally posted by morkintosh
debt to equity ratio is just one of many factors that impact the value of stock. while its true that this can't hurt, that doesn't imply that it will help. in order to see a surge in stock value apple will need to hold on to the strong position they have in online music (possibly movie) distribution, maybe even aquire a record label. granted if they did that the beatles would be sure to have a negative impact on their stock.

bottom line: apple stock is not a major preformer because apple represents a very successful but niche company.

I don't see it helping their stock. As you said, they are a niche player. They have had billions in cash for a long time now and could have been debt free anytime they want. I view this as a non event.

FlamDrag
Feb 18, 2004, 11:44 AM
Just another sign that we'll have new powerbooks on Tuesday. :rolleyes:

ccuilla
Feb 18, 2004, 11:44 AM
Originally posted by Mudbug
Holy crap that's a lot of money. Nice to see a corporation, regardless of who it is, stand up for itself and get in the black. Bleeding red ink is not a good way to be. This should help squelch the "Apple Death Knell" as it's come to be known.

Let's be careful here. Just because Apple had some debt did NOT mean they were "bleeding red ink" (they were not). Still this is, I think, good news. This should free up a bit more cash flow...which is ALWAYS good.

Backtothemac
Feb 18, 2004, 11:46 AM
I just have to know who are the dip **** morons that said this is a negative on the main page.

That is why I hate the rating system of stories.

ccuilla
Feb 18, 2004, 11:49 AM
Originally posted by dongmin
it makes you wonder if Aplle is ever gonna use that cash reserve to make a bolder move for marketshare. Maybe offer a trade-in program, say $400 credit towards a new Mac purchase when you trade in a Dell (less than 2 years old). A move like that could really impact the stock price.

"Buying marketshare" is not likely to work as you suggest. Apple's marketshare problem has less to do with machine prices (as so many have falsely suggested) and more to do with some perceptive problems in the buying public. Those kinds of problems are much harder (and take much more time) to overcome.

More and more people ARE beginning to notice the "new Apple"...and the "new Mac" (OS X).

Apple is not about to go anywhere (except bankrupt) by "selling at a loss and making it up in volume".

Apple has been very carefully stitching together a great platform (w/ OS X) over the past few years. I think they have a very compelling "story" for many potential customers. They are also positioned well if MS/Dell/Intel make any major snafu's. Plus they are still quite strong in some core markets.

CmdrLaForge
Feb 18, 2004, 11:49 AM
Congrats Apple. Even so I don't believe that the stock market will react on this.

JJTiger1
Feb 18, 2004, 11:51 AM
... gosh. :)

All of these day-trading wannabe millionaires giving advice to multi-billion dollar, international corporations on how to run their companies...

Makes me wish I too graduated from a few ivy league colleges, and I wish I too had a wall full of diplomas.
=-=
My experience is that I really did hit the Progressive Jackpot on a 25-cent slot machine at a casino, and then I paid off all of my credit cards.

Then I really won the Grand Prize on a raffle ticket, and then I paid off the Jeep note.

Other than the mortgage on the house, and the routine monthly utilities: I am debt free.

I really need to win tonight's PowerBall lottery so that I can pay off the mortgage.

The only thing guaranteed about any lottery is:
If you do not have a ticket, you will not win.

... I've got two tickets. Wish me luck.:)

jocknerd
Feb 18, 2004, 11:52 AM
Keep up the good work Apple. How about bringout out some new PowerMacs and iMacs in March?

nexus810
Feb 18, 2004, 11:59 AM
Give me 140k for my NYU Stern tuition please? That is if you win. I dont ask for much just school payment.

ccuilla
Feb 18, 2004, 12:01 PM
Originally posted by eric_n_dfw
Not to get too far off subject, but David Every (formerly of www.mackido.com) recently posted, IMO, an excellent article about what "Apple Needs To Do": http://www.igeek.com/articles/Apple/AppleDell.txt

Interesting article. Not sure I agree with all of it, but I do love this one:

"Apple has a more modest and less aggressive approach."

I would suggest a better way to say this:

"Apple has a more honest approach."

pcharles
Feb 18, 2004, 12:07 PM
Originally posted by Macrumors
Also noted in the memo is that Apple currently has $4.8 billion in the bank at this time.

Why would a company keep a running debt when they have 4.8 billion in the bank? Is this for tax purposes?

sethypoo
Feb 18, 2004, 12:09 PM
Originally posted by russed
lets hope they spend even more money on R&D now and churn out even more products!

Let's hope they SAVE the money.

nexus810
Feb 18, 2004, 12:15 PM
Originally posted by pcharles
Why would a company keep a running debt when they have 4.8 billion in the bank? Is this for tax purposes?


its to show investors that the company is taking risks in order to better the company. Investors dont like to see zero debt (or lots of debt -- too much risk) as well as various other things that show the company is looking to perform better by taking risks.

sparks9
Feb 18, 2004, 12:19 PM
A big reason for this is the iPod. What would Apple have done without it?

MacsRgr8
Feb 18, 2004, 12:23 PM
No more debt?

Easier to shut down the comany......

:p

JW Pepper
Feb 18, 2004, 12:33 PM
This is just non-news. it is totally irrelevant that a company has 4.8billion in one account and -300m in the other. Cash assets are 4.5billion. it has no implications of any kind to anything, stock price earnings it is a completely neutral move. the only think it will have is the marginal difference between investment and loan rates and the spread will be pretty thin.

wrldwzrd89
Feb 18, 2004, 12:37 PM
Originally posted by JW Pepper
This is just non-news. it is totally irrelevant that a company has 4.8billion in one account and -300m in the other. Cash assets are 4.5billion. it has no implications of any kind to anything, stock price earnings it is a completely neutral move. the only think it will have is the marginal difference between investment and loan rates and the spread will be pretty thin.

You've got it wrong. Apple's cash reserves were 5.1 billion before paying off the debt, and 4.8 billion after.

The Cheat
Feb 18, 2004, 12:39 PM
To those who have pointed out that it can be beneficial for a company to have debt in order to write it off for tax purposes, you are correct. However, there is nothing stopping Apple from lending and borrowing, in essence, from itself by setting up subsidiaries within the company that in turn lend it back to Apple. In this way they get the tax benefit, while in reality they only "owe" money to themselves. I would interpret this announcement to mean they now no longer have external debt - to outside banks or institutions, etc. I'm sure that if it didn't help the bottom line in some way, Apple's accountants never would have okayed it.

macidiot
Feb 18, 2004, 12:40 PM
I just have to know who are the dip **** morons that said this is a negative on the main page.


The same morons that actually know something about finance. As its been said in other postings, being debt-free for a business isn't really all that good of a thing. Its a little thing called leverage. Simply put its making money off of someone else's money. Most companies should be leveraged to a certain degree. Of course, too much debt is bad. But only if the company is unable to service the debt. If the company is firing on all cylinders, the best possible thing is for the company to be heavily leveraged, in order to maximize its profit.

Example:

Company A spends $1000 of its own money and makes $1100. Its profit is $100. It just made a 10% return on its money.

Company B spends $100 of its own money and borrows the other $900(extreme, but easy to figure out the percentages :D ). It makes $1100. It just made a 100% return on its money.

The downside, of course, is if the company runs into problems with cashflow or is unable to cover its debt service.

Oh, and from an investing pov, in a bull market with a recovering economy, you always want the more highly leveraged company in a sector(assuming other factors are equal). This bit of news is essentially a non-issue. The market is more interested in how Apple intends to increase sales and revenue. Actually, I'd like to know too. How about a headless g5 imac with a real graphics gpu(as in something better than what is oem on sub-$600 pc's) for $900? Or use the g4 and sell it for $700. Just make the damn thing without an extraneous, expensive, display. Is that so freakin' hard to do???

Personally, I am thinking this is positive if they cleared off some high interest debt. But they should be borrowing now considering money is essentially free to borrow right now.

Getting back to your posting about morons, it seems that you should actually know something about the subject matter before you judge others on their intelligence.

jrv3034
Feb 18, 2004, 12:51 PM
Couldn't they have $4,799,970,000.00 instead and pay off my college loans?:D

Seriously, this is great news. Now all they need is a hit with a brand new iMac G5, and they'll be set.

EDIT: I actually did the math right this time!

Eniregnat
Feb 18, 2004, 12:51 PM
When ever any company or person does this I smile. I hope to do the same with my finances. Kudos to Apple.

Sir_Giggles
Feb 18, 2004, 12:54 PM
Debt interest of $300 million is a good thing? At prime rate or even lower, that is still a lot of money to throw at interest when it could just be paid off and be done with. Apple has the cash to do it, so why not? It's like you keeping revolving debt on your credit card. Doesn't make sense. You want to pay it off as soon as you can.

People are talking about leveraging. I think Apple is better leveraging with its ample cash reserve than having to take on interest-bearing debt to finance new projects.

Good for Apple, even if some consider it a PR move. You only need to take on debt if you don't have the cash in the first place, am I right?

wordmunger
Feb 18, 2004, 01:02 PM
This is not good news or bad news. What matters is what they *do* with nearly $5 billion. The worst thing they could do is use it to ride off losses in the coming years. They need to aggressively invest in profit-making opportunities. Jobs has done good work in righting Apple's ship, but now he needs to take it somewhere--not just drift aimlessly until the supplies run out.

morkintosh
Feb 18, 2004, 01:06 PM
Originally posted by Sir_Giggles
Debt interest of $300 million is a good thing? At prime rate or even lower, that is still a lot of money to throw at interest when it could just be paid off and be done with.

people are thinking too short term on this issue. yes, that interest payment is a significant amount of money to you and me, to a company not so much. more importantly: because the money they are using to finance projects is virtually free it is entirely possible that thier ROI is greater than the interest that is being paid. leverage is good.

not that paying off debt is bad ... but it isn't any kind of silver bullet here and has broader impacts than many of the posters are considering.

ssamani
Feb 18, 2004, 01:08 PM
Originally posted by Stella
As for those whinners.... why on earth did people rate this as negative?!!!! Debt free is *good*, no interest to pay, less liabilities. How can this possibility be negative?!

If Apple can make more money investing money that they have borrowed, then not having debt is a waste. For example about six months ago in the UK, I could have got a fixed mortgage at 3.99% and I could also get a savings account paying 4.3%. I could have made .31% doing absolutely nothing clever or risky.

Basically if Apple could make more money on that $300m than they were paying in debt repayments, then this would be a bad move. Of course they could use some of their $4.8b to fund that investment, so there is no point giving away some of the profit to the lender. Of course that only works if there aren't enough investments for the full $4.8bn, otherwise you might as well borrow and make even a small margin. The difference with my example above is that I don't have any money to put into a savings account, so if other factors hadn't weighed in (like not having a house to mortgage for a few months), I would have done just what I suggested.

Under normal circumstances debt for companies is far from a bad thing, as long as it is handled carefully and not excessive compared to the company's value (debt / equity ratio). Often the investors would prefer a company to borrow money rather than issue more shares to raise money for expansion. This doesn't apply due to Apple's existing war chest.

I raised an eyebrow thinking with interest rates so low they must be able to get a better return, but I have to respect the fact that this is a very basic part of running a company this is likely the best financial course of action for Apple.

makkystyle
Feb 18, 2004, 01:10 PM
Originally posted by neilw
This has nice symbolic value, but has nothing do to with whether Apple is or was bleeding red ink or not. 300 million worth of debt is not a big deal when you've got 4-5 billion in the bank.

This also has absolutely zero impact on Apple's ability to deliver product, or spend more on R&D, or anything. That is why Jobs said a historic day "of sorts." So let's not get too excited here.

But it is nice anyway.

[aside: I wonder if and when Apple is going to do something significant with its huge cash cache. I know they are very protective of it, and that's fine, but at some point you'd think they could use it to their advantage, beyond just generating investment income.]

just a note: Apple needs to keep this seemingly huge chunk of cash in the bank in order to deter a possible takeover. Not that this all that is needed, but it certainly helps. As far as putting more money into R&D, this really does not have any affect on that. In fact it probably has the opposite effect because the amount of money paid yearly to service the debt was only a fraction of the $300 million payment it just made.

Sir_Giggles
Feb 18, 2004, 01:10 PM
Originally posted by wordmunger
The worst thing they could do is use it to ride off losses in the coming years.

So you're saying its better to take on debt to pay for their losses?


They need to aggressively invest in profit-making opportunities.

Aren't they already trying to do that with iTunes Music store, the iPod Mini, the HP, Pepsi, Target, and AOL deals?

Ummm... I don't want to sound crass but you are stating the obvious.

trebblekicked
Feb 18, 2004, 01:15 PM
if you ask me, apple was clearing their debt so they could negotiate better interest rates on new investment loans/financing packages. it's far easier to demand a low interest rate when you have no outstanding debt. anyone who's bought a car knows this.

i wouldn't be surprised if they went back into "good" debt as soon as six months from now. still, it's a sign of a healthy company, so i'd say it's a positive.

SidedCircle
Feb 18, 2004, 01:17 PM
Example:

Company A spends $1000 of its own money and makes $1100. Its profit is $100. It just made a 10% return on its money.

Company B spends $100 of its own money and borrows the other $900(extreme, but easy to figure out the percentages :D ). It makes $1100. It just made a 100% return on its money.



Company's B profit is still $100 if not less? Company B spends $100 of its own money, plus borrows $900, wich of course must be payed back. So the $1100 so called profit is really ($1100) - ($900) - ($100) - (any intrest accumulated on the borrowed $900). You are left with a total profit that is really less than a $100. Sure some interest could be writen off, but thats not untill the end of the year. So in a sense you have just lost some money.

-SidedCircle

billyboy
Feb 18, 2004, 01:21 PM
Originally posted by Sir_Giggles
So you're saying its better to take on debt to pay for their losses?



Aren't they already trying to do that with iTunes Music store, the iPod Mini, the HP, Pepsi, Target, and AOL deals?

Ummm... I don't want to sound crass but you are stating the obvious.

It was small change the amount they actually invested in the marketing deals with HP, Pepsi, Target and AOL. The iTunes Store was supposedly breaking even as near as dammit by Christmas, which leaves the iPodmini. I think Apple invested $500m in all R&D last year, and wasnt that all accounted for in the course of the year? So really, they have not done an awful lot with the war chest.

andyduncan
Feb 18, 2004, 01:22 PM
Originally posted by ssamani
If Apple can make more money investing money that they have borrowed, then not having debt is a waste. For example about six months ago in the UK, I could have got a fixed mortgage at 3.99% and I could also get a savings account paying 4.3%. I could have made .31% doing absolutely nothing clever or risky.


How exactly were you planning on fitting a house in a deposit slip?

alandail
Feb 18, 2004, 01:29 PM
what I don't get is that no matter what the story is, someone clicks on the negative button.

ccuilla
Feb 18, 2004, 01:30 PM
Originally posted by makkystyle
just a note: Apple needs to keep this seemingly huge chunk of cash in the bank in order to deter a possible takeover.

I'm not so sure about that. It seems that their cash on hand makes them an even better target for a takeover. Think about this:

1. Apple's current market capitalization (total amount of all outstanding shares at current price) is $8.5B.

2. Cash on hand is $4.5B.

This means the real cost to buy Apple (at current price) is only $4B. Not much.

If you think about assets (tangible or otherwise) including brand, intellectual property and patents...etc. Is Apple WORTH $4B? Probably easily. Shoot, Microsoft will spend that much on building Longhorn alone!

Awimoway
Feb 18, 2004, 01:34 PM
Originally posted by ccuilla
I'm not so sure about that. It seems that their cash on hand makes them an even better target for a takeover. Think about this:

1. Apple's current market capitalization (total amount of all outstanding shares at current price) is $8.5B.

2. Cash on hand is $4.5B.

This means the real cost to buy Apple (at current price) is only $4B. Not much.

If you think about assets (tangible or otherwise) including brand, intellectual property and patents...etc. Is Apple WORTH $4B? Probably easily. Shoot, Microsoft will spend that much on building Longhorn alone!

This is what I was going to ask about. I am of the understanding that Apple's large cash reserves are a takeover liability. So doesn't that mean that paying off their debt is a mixed bag, because it makes them an even more enticing target for takeover?

RichardCarletta
Feb 18, 2004, 01:35 PM
and investing it into production of 2 GHZ G5 970FX iMacs and eMacs ? Once you have produced 1 milllion units of each (which should sell well ) , then get the G5 Powerbooks and iBooks produced.

ccuilla
Feb 18, 2004, 01:36 PM
SOmething else to think about is that APple is generally getting some financial matters in order to make some bigger moves soon. The recent thread about Apple consolidating office space in Austin, TX should probably be viewed in this light.

Could also be the (new, coming) CFO (Oppenheimer) taking a bigger role and making his own mark in some way as well.

iChan
Feb 18, 2004, 01:36 PM
Originally posted by neilw
This has nice symbolic value, but has nothing do to with whether Apple is or was bleeding red ink or not. 300 million worth of debt is not a big deal when you've got 4-5 billion in the bank.

This also has absolutely zero impact on Apple's ability to deliver product, or spend more on R&D, or anything. That is why Jobs said a historic day "of sorts." So let's not get too excited here.

But it is nice anyway.

[aside: I wonder if and when Apple is going to do something significant with its huge cash cache. I know they are very protective of it, and that's fine, but at some point you'd think they could use it to their advantage, beyond just generating investment income.]


buy macromedia

~Shard~
Feb 18, 2004, 01:40 PM
Honestly, who rates these types of news items as NEGATIVES! Please, show yourselves and EXPLAIN!!!

neutrino23
Feb 18, 2004, 01:40 PM
Originally posted by srobert
Once again, as with every "Good News" thread, you enivitably get a few "negative" votes.

I wonder how people can think that Apple getting out of debt is negative.

I'm just curious.

I haven't read all the posts so I may be repeating someone else's argument.

Having a lot of debt is bad. Having some might not be bad.

Think of it this way. Apple has $300M in cash. What can they do with it? They can pay off debt that costs them perhaps 8% a year. Or they could buy a government bond which pays around 4%. Or they could invest in R&D or a new store or something like that and presumably get a larger return.

In this sense, it could be a good thing for Apple to have some debt. I'm not arguing that they should, just explaining how some debt is not bad.

The same goes for money in the bank. If you could grow your business faster with more investment then why pile up cash? In Apple's case, having $5B in the bank is not only a good cushion against hard times but a message to investors that Apple is sound and not on the edge of disappearing.

Jackk
Feb 18, 2004, 01:42 PM
Through everyone's hard work we turned Apple around, paid off the majority of our debt and began to amass a war chest of cash in the bank which has grown to about $4.8 billion!

www.investorwords.com

war chest:

Cash set aside by a corporation in anticipation of a capital-intensive event, such as an acquisition or a market consolidation.

TimDaddy
Feb 18, 2004, 01:46 PM
Yes, this is good, for symbolic value. With 4 billion in the bank, they could've paid it off at any time. Maybe they could run a sale to celebrate. "Apple is completely out of debt. No more interest payments. And we are extending our savings to you for the next _ months!"

DharvaBinky
Feb 18, 2004, 01:48 PM
actually... if Apple is carrying no debt, has a large cash reserve, and has a low stock price.

That's a recipe for being attractive for a take-over. *fear*

Dharvabinky

ccuilla
Feb 18, 2004, 01:50 PM
Maybe setting up to buy Alias?

Or someone bigger? Adobe?

kuyu
Feb 18, 2004, 01:52 PM
Originally posted by macidiot
Getting back to your posting about morons, it seems that you should actually know something about the subject matter before you judge others on their intelligence.

Thanks for saying it. I'm a finance major, and you're dead on the money (no pun). You could fit most people's understanding of corporate finance into a thimble. I know very little myself, but this is 101 stuff.

Apple SHOULD borrow money right now. (FED rate = 1%, not for much longer) Say, 500 mil on a 5 year note. This would allow them to streamline distribution, better utilize economies of scale, lower prices, and increase cash flows and profit margins.

Also, inflation estimates are ~ 2.5% right now, which is great. It's time for Apple grow, or at least improve the things they do best.

Kudos to Jobs for positioning Apple in such a lucrative manner.

Rocketman
Feb 18, 2004, 01:54 PM
1. I commend Steve Jobs for a job well done.

2. Debt financing has NEVER been cheaper or more wise.

3. Debt or not the stock price either does not care or actually encourages companies who use debt to leverage sales. Slight negative.

4. This makes a hostile buyout much easier and cleaner.

5. If Apple does not have any projects at all worth leveraging they have hit a sales cieling that they cannot grow into and that is also a negative.

Rocketman

ccuilla
Feb 18, 2004, 01:55 PM
Speaking of intelligence vs. morons...and what Apple "should" do...with all due respect, don't we think that the guys running finance at Apple KNOW what they are doing (and better than ANY of us)? Especially when you consider they know a lot of stuff we DON'T (such as Apple's future plans).

Apple has had very good financial stewardship over the past few years. I'm sure this is a fine move, and perhaps a precursor to something even better.

eric_n_dfw
Feb 18, 2004, 01:58 PM
Originally posted by ccuilla
Interesting article. Not sure I agree with all of it, but I do love this one:

"Apple has a more modest and less aggressive approach."

I would suggest a better way to say this:

"Apple has a more honest approach." Agreed. But I am 100% behind his point that they need to provide something to compete in the sub-$100 range. At my work, I have a G4 500 that was going to collect dust after they closed an office. I want to upgrade to a faster machine but the only ways to do it are:
Convince them to pay $400-$500 for a G4 upgrade
Convince them to pay $2000 for a Dual 1.8 G5
Be happy with an our standard desktop hardware, 2.6Ghz P4 with 512Mb Dual Channel DDR RAM which lists for $904 (I'm sure they get it at a better price as they buy them for tons of employees (either that or a same brand laptop)

I'm doing Java development so there is no real business reason for using Mac OS X, so convincing them buy me a new one ain't gonna happen. The upgrade may be a little cheaper than the "COE" solution, and I may try to lobby for it, but I don't have high hopes.

If Apple had a competitive machine in this price range I might be able to sweet talk my managers into buying me one, but at the current G5 prices, there's just no way. (And, no, the eMac is not a viable option for what I do - maybe if it was headless and a bit more powerfull.)

ccuilla
Feb 18, 2004, 02:00 PM
Originally posted by eric_n_dfw
I'm doing Java development so there is no real business reason for using Mac OS X

I don't know. OS X is nice platform for doing a lot of software development, including Java. Being UNIX OS, it has a boat load of tools (through the shell) that are enormously useful during software development.

Sun Baked
Feb 18, 2004, 02:08 PM
If they replaced the typical revolving credit line used for suppliers, leases, payroll, etc. with cash...

That'll tie up a huge chunk of the $4.8 billion.

But how much depends on the velocity of the cash moving through their accounts (cash flow) -- and how quickly it's being replaced.

ImAlwaysRight
Feb 18, 2004, 02:13 PM
Originally posted by srobert
Once again, as with every "Good News" thread, you enivitably get a few "negative" votes.

I wonder how people can think that Apple getting out of debt is negative.

I'm just curious. I vote negative on everything just to piss people like you off. It gives me a good laugh! :D


j/k

RIP
Feb 18, 2004, 02:14 PM
Now they can start hiring Americans again...:)

ccuilla
Feb 18, 2004, 02:18 PM
Originally posted by RIP
Now they can start hiring Americans again...:)

Don't count on that. Apple is a very "hip" company, and right now it is very "hip" to hollow out the American economy by sending high-paying jobs to India...because of course this is good for the economy and will create new, even higher paying jobs here. From what I can see the only higher paying jobs it creates here belong to the CEOs doing such outsourcing.

( sorry, off my soap box now... )

Awimoway
Feb 18, 2004, 02:27 PM
Originally posted by ccuilla
Don't count on that. Apple is a very "hip" company, and right now it is very "hip" to hollow out the American economy by sending high-paying jobs to India...because of course this is good for the economy and will create new, even higher paying jobs here. From what I can see the only higher paying jobs it creates here belong to the CEOs doing such outsourcing.

( sorry, off my soap box now... )

http://homepage.mac.com/mcdurkee/discovery.jpg

mrsebastian
Feb 18, 2004, 02:35 PM
cleaning up the house :D keep up the good work steve and co.

nagromme
Feb 18, 2004, 02:35 PM
I think it's obvious that Apple's financial leadership does NOT have a CLUE what they are doing. In the middle of a struggling industry, Apple is profitable, debt-free, and has a lot of cash in the bank to guard against the economic future, all the while spending on R&D instead of waiting. Clearly Apple needs a shake-up at the top :D

BTW... is Apple the only big PC maker that is both profitable AND debt-free? Or is Dell too debt-free?

eric_n_dfw
Feb 18, 2004, 02:38 PM
Originally posted by ImAlwaysRight
I vote negative on everything just to piss people like you off. It gives me a good laugh! :D


j/k You rable-rouser, you! :eek: :eek: :eek: :cool:

rdowns
Feb 18, 2004, 02:39 PM
Originally posted by alandail
what I don't get is that no matter what the story is, someone clicks on the negative button.

Who cares? I find that aspect of this forum to be ridiculous. I couldn't care less whether others find a thread positive or negative.

Frohickey
Feb 18, 2004, 02:41 PM
Originally posted by Macrumors
99mac.se publishes (http://www.99mac.se/) 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 currently has $4.8 billion in the bank at this time.

A pox on the idiot Apple employee who sent the internal memo to outside people. Internal memos are supposed to be internal! :mad:

Frohickey
Feb 18, 2004, 02:44 PM
Originally posted by ccuilla
Don't count on that. Apple is a very "hip" company, and right now it is very "hip" to hollow out the American economy by sending high-paying jobs to India...because of course this is good for the economy and will create new, even higher paying jobs here. From what I can see the only higher paying jobs it creates here belong to the CEOs doing such outsourcing.

( sorry, off my soap box now... )

You are right.

I think Apple should only hire Americans and produce everything in the USA using union labor. Doesn't matter that Apple's competitors go overseas to make their products as low cost as possible. This way, when Apple finally goes bankrupt, it can go bankrupt with its head held high.

<end_sarcasm>

ccuilla
Feb 18, 2004, 02:52 PM
Originally posted by Frohickey
You are right.

I think Apple should only hire Americans and produce everything in the USA using union labor. Doesn't matter that Apple's competitors go overseas to make their products as low cost as possible. This way, when Apple finally goes bankrupt, it can go bankrupt with its head held high.

<end_sarcasm>

Look, I understand this argument. Been hearing it for years. Still, the real question is "What's next?" If there are no jobs left here...or we're all working for minimum wage at McDonald's and Wal-Mart...there won't be anyone BUYING computers. I know...very "chicken little" of me...doomsday scenario and all. Point is though, there has to be a bottom here, and there appears to be a race for it (low wages that is).

Playball
Feb 18, 2004, 02:55 PM
Taking a look at the numbers for a second, the stock market values Apple @ $8.58B, but of that value, $4.8B is cold hard cash, meaning that ignoring the bank account, AAPL as a company is worth only $3.78B. (Or roughly 1/23rd of the value of Dell.)

(Hmm, funny how this is roughly AAPL's marketshare too.)

Anyway, if the next digital media product from Apple after the iPod mini is a hit, expect somebody like Sony to scoop Apple up for little more than a a rounding error (in Sony's terms, $3.8B is peanuts.)

Alternatively, some larger but weaker player could buy AAPL mostly for the cash.

Regardless of Apple's fate, there's a strong implied message when more than half of a company's value is simply it's bank account: "we can't find a better use of the money!" This is especially sad when Apple's $4.8B is cash is earning an interest rate of probably only 1-2%. Apple is in effect saying that investing the cash into R & D, or any other operating expense will do less than earn a 1-2% return on investment.

Personally, I'm stunned that Apple can't find any interesting partnerships or acquisitions to make to spend some of this money, and I'm stunned by what this implies. (To me, it says one of 2 things: either we're so in love withourselves that we can't find any partners worthy of our loot, or because Macs have such a small share of the market and developer interest, there aren't any Mac-based (software or hardware) business worth investing in. (by extension, all of the innovation starts on other platforms.)

The other option, that Apple has somehow avoided, is to return the cash to the shareholders, either thru a dividend or a share buyback. (That's what I'd like to see.)

Krizoitz
Feb 18, 2004, 03:02 PM
Originally posted by eric_n_dfw
Not to get too far off subject, but David Every (formerly of www.mackido.com) recently posted, IMO, an excellent article about what "Apple Needs To Do": http://www.igeek.com/articles/Apple/AppleDell.txt

I spawned this off into another thread

http://forums.macrumors.com/showthread.php?s=&threadid=61018

Frohickey
Feb 18, 2004, 03:13 PM
Originally posted by Playball
Regardless of Apple's fate, there's a strong implied message when more than half of a company's value is simply it's bank account: "we can't find a better use of the money!" This is especially sad when Apple's $4.8B is cash is earning an interest rate of probably only 1-2%. Apple is in effect saying that investing the cash into R & D, or any other operating expense will do less than earn a 1-2% return on investment.

The other option, that Apple has somehow avoided, is to return the cash to the shareholders, either thru a dividend or a share buyback. (That's what I'd like to see.) [/B]

Could be that there isn't an awful lot of good companies out there with good technology to buy. As to only 1-2% interest rate, I think its probably more than that. Remember the Akamai shares that Apple has been selling? That was bought using the cash that Apple has accumulated, and they got in on the ground floor on that deal, and its been enough to pay more than 1-2% return on investment.

Because Apple is a niche player, it needs a sizeable amount of cash to weather market ups and downs. You can't compare Apple with Dell/Intel/Microsoft in financials. The other 3 companies can generate enough profit in one quarter to keep paying for their operations for more than one quarter. I don't think Apple has that kind of luxury.

Vector
Feb 18, 2004, 03:18 PM
Originally posted by Playball

Personally, I'm stunned that Apple can't find any interesting partnerships or acquisitions to make to spend some of this money, and I'm stunned by what this implies. (To me, it says one of 2 things: either we're so in love withourselves that we can't find any partners worthy of our loot, or because Macs have such a small share of the market and developer interest, there aren't any Mac-based (software or hardware) business worth investing in. (by extension, all of the innovation starts on other platforms.)

The other option, that Apple has somehow avoided, is to return the cash to the shareholders, either thru a dividend or a share buyback. (That's what I'd like to see.)

I am not going to comment on the first part because I don't want to start an argument.

As to your position on acquisitions, you are somewhat right. They should be acquiring companies, and they have been. They acquired the companies that made Shake and Logic, both very important apps in their respective industries. Apple also acquired several other smaller companies for software and technology, but I cannot remember them. You can probably do a search on this site and find references to the original announcements.

As a stockholder, I would like to see a stock buyback program, but it won't really matter since I am trying to get out. I am not sure how much a buyback would really help the stock price since it is controlled so much by traders' perceptions of apple's volatility and the idea that apple is always on the verge of dying. I think that it would probably go up initially, but then return to the previous price once people assume it is being overvalued since its computers hold such a small share of the market.

fixyourthinking
Feb 18, 2004, 03:21 PM
Originally posted by carletonmusic
it will be interesting to see how investors look at this. Stock prices for Apple have never been all that great.

A lot of posters have also mentioned that Apple could have financed the debt at the low interest rate. Why? When you have $4.8 Billion - why do you need $300 million more in cash?

You also have to realize that Apple used to have a stock dividend - something long suspended. The reason why companies like coca cola have great shareholder loyalty and are attractive to shareholders is the dividends. I have 500 shares of coca cola and get $440 a year in dividends out of it. Maybe Apple could present a new dividend plan at the next shareholders meeting and make the stock more attractive.

Stocks will usually split to attract shareholders - Apple is too low to split right now - adding a dividend would definitely attract shareholders and increase value in the company. I believe that companies can also right off dividends in taxes too.

virividox
Feb 18, 2004, 03:25 PM
i dont think the fact that apple is out of debt will make its stock a buy, it needs to show growth and continued profits (which is does, but not so much growth).

mraudet
Feb 18, 2004, 03:29 PM
present a new dividend plan at the next shareholders meeting and make the stock more attractive.

exactly the point i was thinking. i love how folks quoting finance 101 second guess a company that has made such a dramatic turn around in its finances in a relatively short time. as someone mentioned, i suspect the financiers and accountants at aapl have a good idea on the near and long term business plan. shedding their debt is no doubt part of this strategy. rather than an "oops".


steve, give me a dividend!

this. must. happen.

geerlingguy
Feb 18, 2004, 03:30 PM
Congratulations! Now, how about giving loyal customers G5s for being with Apple through those bad days?;)

makkystyle
Feb 18, 2004, 03:36 PM
Originally posted by Playball
Taking a look at the numbers for a second, the stock market values Apple @ $8.58B, but of that value, $4.8B is cold hard cash, meaning that ignoring the bank account, AAPL as a company is worth only $3.78B. (Or roughly 1/23rd of the value of Dell.)

(Hmm, funny how this is roughly AAPL's marketshare too.)

Anyway, if the next digital media product from Apple after the iPod mini is a hit, expect somebody like Sony to scoop Apple up for little more than a a rounding error (in Sony's terms, $3.8B is peanuts.)

Alternatively, some larger but weaker player could buy AAPL mostly for the cash.

Regardless of Apple's fate, there's a strong implied message when more than half of a company's value is simply it's bank account: "we can't find a better use of the money!" This is especially sad when Apple's $4.8B is cash is earning an interest rate of probably only 1-2%. Apple is in effect saying that investing the cash into R & D, or any other operating expense will do less than earn a 1-2% return on investment.

Personally, I'm stunned that Apple can't find any interesting partnerships or acquisitions to make to spend some of this money, and I'm stunned by what this implies. (To me, it says one of 2 things: either we're so in love withourselves that we can't find any partners worthy of our loot, or because Macs have such a small share of the market and developer interest, there aren't any Mac-based (software or hardware) business worth investing in. (by extension, all of the innovation starts on other platforms.)

The other option, that Apple has somehow avoided, is to return the cash to the shareholders, either thru a dividend or a share buyback. (That's what I'd like to see.)


Now maybe I drank too many beers during my education in finance but I've always believed that by holding that much cash in reserves apple is able to protect against a buyout because it can in essence buyout itself by purchasing shares back from shareholders. Am I just drunk?

gemio17
Feb 18, 2004, 03:43 PM
wonder what the average debt load is for the typical Apple customer....those of us who don't save up for that sweet precious gadget and just do the whole impulse buying thang :D

nathanziarek
Feb 18, 2004, 04:12 PM
I think the valuation of the company was right. You are buying _everything_ from the company. That would include debt, assets and cash. So, think of this: I am going to sell you an envelope. In it is $.50 and a stick of gum worh $.50. The stick of gum is good stuff, and you are willing to buy it for $.65. But, because that $.50 is in there, you are willing to go to $1.15, since you essentially get a $.50 rebate. Now, I could take the $.50 out and try to buy the envelope too, but you'll win - you are trying to buy it for $.65.

I think simplifying it like this ruins a bit of the analogy, but at the basics, it make some sense :)

Also, I remember something like this: a stock price, as it's very core, is nothing more than the future value of its dividends. So, if, theoretically, a company wrote in its charter that it would issue no dividends, ever, and then issued stock, that stock would be worthless. So, if apple began to issue dividends again, and made them constant, that could do a lot for the stock price. But, it isn't all about stock.

One of you Finance 101 guys let me know how that sounds - it has been a good 2 years since my finance classes, and it is fading fast!

Last thing - I trust Apple's Finance Dept more than my two semesters of finance. So, while I may not get it, I trust that it has been looked at from more angles than I know about, and it is pretty sound.

Nate

MacRAND
Feb 18, 2004, 04:13 PM
Originally posted by srobert
Once again, as with every "Good News" thread, you enivitably get a few "negative" votes.
I wonder how people can think that Apple getting out of debt is negative.
I'm just curious. Historically, being "too debt free" can make Apple a target for corporate takeover.
Buy AT&T Wireless? Heavens no, it's a mess and the wrong industry for Apple.

Let's buy Walt Disney, Inc. :D

iomar
Feb 18, 2004, 04:25 PM
This is great news!

Sun Baked
Feb 18, 2004, 04:28 PM
Originally posted by iomar
This is great news! Has Steve been eating sushi with Warren Buffet again?

ThomasJefferson
Feb 18, 2004, 04:54 PM
As part of the big picture, this is great.
But, I would rather be posting about the new G5 powerbook or powermac.

You can not buy us off Steve, with a measly $300,000,000.
Bad dog, no biscuit.

wordmunger
Feb 18, 2004, 05:20 PM
Originally posted by Sir_Giggles
So you're saying its better to take on debt to pay for their losses?

I'm saying that "saving for a rainy day" is inviting rain.
Aren't they already trying to do that with iTunes Music store, the iPod Mini, the HP, Pepsi, Target, and AOL deals?

Ummm... I don't want to sound crass but you are stating the obvious.
If it's so "obvious", why are you apparently disagreeing with it?

Yes, they're obviously doing some investing but with $4.8 billion in cash leftover, they're clearly not doing all they can. OTOH, maybe they've got some plans they're not ready to share with the general public.

P.S. This is a response to a post about three pages ago--sorry about that, but I had to go out for a while.

IndyGopher
Feb 18, 2004, 05:30 PM
Originally posted by Frohickey
A pox on the idiot Apple employee who sent the internal memo to outside people. Internal memos are supposed to be internal! :mad:
You chose the name Frohickey, and then lambasted someone for leaking information? Was this supposed to be funny? I now have an awful headache thanks to you.. spraying Fresca out my nose is painful.

macnews
Feb 18, 2004, 05:30 PM
Originally posted by srobert
Once again, as with every "Good News" thread, you enivitably get a few "negative" votes.

I wonder how people can think that Apple getting out of debt is negative.

I'm just curious.

For all of you who are oohhing and ahhing over Apple's debt free status, it is easy from a business perspective to say this is a BAD thing.

Having money sitting around can COST you. How? While you might be able to earn interest, you are still paying out some cash for your other expenses. The other money you are paying out is not helping out your bottom line, or in other words, helping you earn money.

Simply put, you could buy a new building to house some new manufacturing process. If you pay cash (no debt) you own it free and clear, but is costs you whatever you paid (say 1 mil. for this example). If you borrowed that same 1 mil., you would owe interest on that money but also would get tax breaks both on the federal and local levels. If done correctly, these tax breaks can be a significant savings. You might pay 1+ mil on the building but save an extra $100k every year in tax breaks on your bottom line. Ten years and you've made some money on your "debt."

Now, this is a VERY OVER SIMPLIFIED example. But the many posts who have said this is soo good and how dare anyone say it is bad do not understand how modern business works. If Apple can do things with their cash, then it will be good - but don't look for your Apple stock to jump just because no debt.

yamabushi
Feb 18, 2004, 05:33 PM
This could be bad news since having a lot of cash means that a large portion of investors money that you are holding on to (equity) is now in unspecified short term investments. If Apple is just clearing out debt in preparation for a large leveraged buyout then the news is neutral until we know more about the acquisition. If no new large investments or acquisitions are around the corner then this could be very bad news since it would send a signal that Apple execs don't expect to be able to make money off of leveraging some of the lowest rates in a long time. In other words, they don't expect sales to grow beyond what they can handle with cash. I can only base my opinion based upon public knowledge and no acquisition plans have been made public to my knowledge (although there are rumors). Therefore the news is negative for the time being.

ccuilla
Feb 18, 2004, 05:36 PM
Originally posted by macnews
it is easy from a business perspective to say this is a BAD thing

You know, if I had a dollar for every time someone said that something Apple did was a BAD business decision, and turned out to be...well...a GOOD business decision...I'd have...well maybe darn near $300M.

;-)

Sun Baked
Feb 18, 2004, 05:58 PM
Originally posted by macnews
Simply put, you could buy a new building to house some new manufacturing process. If you pay cash (no debt) you own it free and clear, but is costs you whatever you paid (say 1 mil. for this example). If you borrowed that same 1 mil., you would owe interest on that money but also would get tax breaks both on the federal and local levels. If done correctly, these tax breaks can be a significant savings. You might pay 1+ mil on the building but save an extra $100k every year in tax breaks on your bottom line. Ten years and you've made some money on your "debt." Yes that's always a good deal, give somebody $100,000 so you can reduce your net income by $100,000 (aka, get back 10's of thousands in reduced taxes from the government).

So in 10 years you may have saved $100,000 in actual taxes due and spent an addition $1,000,000 doing it.

Sort of the twisted women shopper's math... "But, see how much I saved you by buying this?"

Downdivx
Feb 18, 2004, 06:04 PM
Originally posted by MacRAND


Let's buy Walt Disney, Inc. :D

Here, here. Apple's a "unique" company that could understand and run Disney. The whole idea behind Comcast buying Disney is vertical integration. Disney has media, Comcast has distribution. Apple has media creation and itunes is a revolutionary distribution method. Disney and Apple would form a more vertically integrated company, but at the same time both could retain their uniqueness. What's the best way to close the Pixar/Disney squabble? For Apple to buy Disney! Apple could offer stock and a small amount of cash per share with the 4.8b they have in the bank.

W

Frohickey
Feb 18, 2004, 06:17 PM
Originally posted by IndyGopher
You chose the name Frohickey, and then lambasted someone for leaking information? Was this supposed to be funny? I now have an awful headache thanks to you.. spraying Fresca out my nose is painful.

Choice of a name has nothing to do with my revulsion in divulging internal company memos.

This sort of information leak is what makes it difficult for employees to be informed of the internal going-ons at Apple from management, lest some rogue employee blurt out the email on the rumor sites.

mclosers
Feb 18, 2004, 06:23 PM
disney has a market cap of 54Billion dollars. Now Apple is going to buy Disney with what money? where does the other 50 billion come from?

Stop the dumb coments

NusuniAdmin
Feb 18, 2004, 06:40 PM
Originally posted by mclosers
disney has a market cap of 54Billion dollars. Now Apple is going to buy Disney with what money? where does the other 50 billion come from?

Stop the dumb coments

Stop the dumb spelling errors.

Please don't make fun of other peoples posts. They have the right to be wrong :D

billyboy
Feb 18, 2004, 06:44 PM
Originally posted by mclosers
disney has a market cap of 54Billion dollars. Now Apple is going to buy Disney with what money? where does the other 50 billion come from?

Stop the dumb coments

That guy Eisner sounds the sort of shrewd businessman who would probably think $5bn cash and a free Mac for life was a good deal.

MegaSignal
Feb 18, 2004, 06:51 PM
Sort of the twisted women shopper's math... "But, see how much I saved you by buying this?"

God, that was funny.

I get to learn about corporate financial strategy and be entertained all at once. What a great site!

All I need now is that 20" iMac with a 2.0 GHz G5 underneath...

Thanks so much - the m and g keys are just sooo close together...

NusuniAdmin
Feb 18, 2004, 06:59 PM
Originally posted by MegaSignal
God, that was funny.

I get to learn about corporate financial strategy and be entertained all at once. What a great site!

All I need now is that 20" iMac with a 2.0 MHz G5 underneath...

2.0 mhz...that is pretty slow....lol

MacRAND
Feb 18, 2004, 07:30 PM
Originally posted by Downdivx
Here, here. Apple's a "unique" company that could understand and run Disney.
Apple has media creation and itunes is a revolutionary distribution method.
Disney and Apple would form a more vertically integrated company, but at the same time both could retain their uniqueness.
What's the best way to close the Pixar/Disney squabble? For Apple to buy Disney!
Exactly, Downdivx!

Then Apple could start a whole new computer division called GOOFY™ Computers just to make PCs with iNtel chips.
The new flagship desktop computer would be very cheap and come in a do-it-to-yourself Kit for $269 called the Tinker Bell™ Computer including a very very flat and very very small screen, sprinkled with protective Pixie Dust™, the
GOOFY™ laptop would be under 2" thick boasting the new hot Intel™ Prescott® chip dubbed the Steam Boat Willie™ SourBook® because it has to be water cooled and is powered not by a battery but by a eHydrogen iFuelCell® so the exhaust is merely steam, thus the name Steam Boat Willie™. :D

All GOOFY™ computers would come with a tailless Mickey MOUSE™ or a small portable USB Minnie MOUSE™, and a floating Donald Duck™ FireWire800 keyboard with shuttle wheel, scroll wheel and built in Buzz Lightyear™ Turbo TrackBall which would levitate 1/2" above the desktop using secret technology that was going to be called déjà vu until some guy from Virginia Tech copyrighted the term first for some Big Mac computer (boy, is that a conflict or what), so now it's got to be called déjà vu too! .

GOOFY™ could market a fire wireless PLUTO™ Projector that's out of this world, the new Mini iPod would have to be renamed the Minnie™ iPod, AirPort Extreme® would have its own antenna called an Ariel™ which also works under water,
the GOFFY™ networking software would be automated through the newly patented Mad Hatter™ setup.

AppleCare™ would have a Cinderella™ clause where all initial warranties would expire after midnight at the end of 1-year, the other 2-years of purchased warranty would have so many loopholes the provisions would be called Captain Hook™ clauses.

The mascot for BlueTooth® would become Babe the Blue Ox™ and
Woody™ would be the hard working sponsor of the all new iDrug through the iDrugs Store along with his horse iRex™as a supplement to iTunes through the Evil Witch's iLink to the AppleStore, with a line of nutritional supplements under the Pooh™ brand name...and the slogan Kids just love GOFFY™ Pooh™ :p

Can't you just see the next PepsiTunes ad on TV:
"Wash the Pooh™ down with Pepsi, while downloading iTunes from the Apple Store on your GOOFY Computer "
Some things just come together, don't they? Yes, I know - Pure geniass! That's me. :D
:eek:
Hey, what do you think? :confused:

mdriftmeyer
Feb 18, 2004, 07:55 PM
Originally posted by eric_n_dfw
As others have said, debt is not nessesarily bad. On a small scale, think about this: if you borrow $100,000 and buy investment property putting nothing down and rent it out at $200 more than your mortgage payment, taxes and insurance. You are making $200 a month on the bank's money. This is done everyday, it's called leveraging, and it works for real-estate, stocks capital investments, etc... If this is even true, I doubt the stock will see much change due to it.

There is one glaring flaw in this analysis: IT ASSUMES a monthly profit guaranteed by this approach.

Guess what? If this were guaranteed businesses would need not file Chapter 11 protection so often as they do.

Bottomline: This is a win for Apple and a Loss for Banks who only earn money off of interests loans, period. Banks have come up with quite the gambit of options to do one thing, charge consumers interest in order to make money. They should see this as an opportunity to invest into Apple and purchase some of its outstanding stock.

Banks only make money when it is moving and the swifter money moves the more they make money.

Banks get the advantage of borrowing against the Fed at incredibly low interest rates.

Imagine if Corporations had this luxury.

This is a win/win for Apple. Wall Street will see it in the form of improved manufacturing resources and continued drive to innovate.

fatbarstard
Feb 18, 2004, 09:13 PM
About corporate finance.

I do this sort of stuff as my job and I did years of it in school.

Here's the scoop. The value of a company is or should be equal to the present value of its future cashflows (not dividends). Debt has a key role in corporate finance as it costs less than equity - and use of debt optimises the cost of capital (key value driver).

Apple's debt pay off is a 'bad' thing because the company is funded soley by expensive equity. Its cost of capital is higher than it needs to be, and in that sense having a high cost of capital doesn't do a lot for shareholder value creation.

However, and this is my view, having a big stack of cash in the money bin in a fast moving industry like computing is a good thing.

The bet that the company is making is that it can grow its earnings fast enough to offset the drag on this value created by having no debt and having a higher cost of capital than it needs to. Having a war chest allows the company to move fast either with acquisitions or with new developments becuase it doesn't have to defer to its bankers on the spending. In an industry where you can get blown away very quickly having this capital flexibility is crucial.

Debt is not bad if it is used optimally, but that implies that the industry and company will move slowly. Debt is not a good thing in the computer industry.

Apple has strengthened its corporate flexibility by becoming debt free. this may translate into a higher share price over time but it depends on how clever the company is at converting this flexibility into value. Still, having $4.3 billion in the bank may help Steve sleep better at night.

:)

jero
Feb 18, 2004, 09:15 PM
good job apple!

topicolo
Feb 18, 2004, 09:17 PM
Originally posted by Foxer
$300 million in debt ain't that bad (step outside of your "consumer credit" mindset for a moment.) These days, with interest rates so low, money is practically free. Many "forward" thinking companies would take advantage of this "free" money and borrow to finance expansion. To a corporation, on a strictly balance-book view, debt can be an asset.

Keep in mind that gobs of cash sitting around unused can be a anchor on stock price. Ford, in the late 90's, had tremendous cash reserves of around $9 billion and no plan to invest them in growing the company which served to keep the stock low despite huge profits.

That being said, I wish I had $300 million to pay off debt.;)

It's true that debt can be a good thing, but apple obviously can't find enough places to spend their money since they already had over $5billion in liquid capital. There it makes sense to cut down on the meager interest payments by getting rid of some of that debt. This could also be a possible indicator that Apple won't be making any other big spending indicators in the future. Maybe they'll start distributing a dividend?

Frohickey
Feb 18, 2004, 09:34 PM
IBM has dividends... :D

MacRAND
Feb 18, 2004, 09:37 PM
Originally posted by fatbarstard
About corporate finance.
... Having a war chest allows the company to move fast either with acquisitions or with new developments becuase it doesn't have to defer to its bankers on the spending. In an industry where you can get blown away very quickly having this capital flexibility is crucial.
...Still, having $4.3 billion in the bank may help Steve sleep better at night.I smell acquisition in the air. Both ways.

Apple and Steve have a history of buying companies whose technology they covet or need.

So, I AM ASKING, fatbarstard,
how attractive does this much cash liquidity make Apple to other corporations intent on acquisition of little Apples as a way of life.
The hostile kind?

Below is a picture of the new Apple
GarageBand Instrument transportation vehicle.
It comes in three colors, Apple Red, Apple Green, or Aluminum G5, and a
V-8 "Hemi" is stock along with iLife :D

fahlman
Feb 18, 2004, 09:46 PM
Read carefully the following internal memo from Mr. Jobs:

Team,

Today is a historic day of sorts for our company. When I arrived back at Apple in mid-1997, the company was burdened with $1 billion of debt. Through everyone's hard work we turned Apple around, paid off the majority of our debt and began to amass a war chest of cash in the bank which has grown to about $4.8 billion! But there was still $300 million of remaining debt, which we decided to hold to maturity.

Today we used $300 million of our cash to pay off this remaining debt.

Apple is now a debt-free company – for the first time in over a decade!

It sure feels good.

Steve


Apple did not pay this debt of early. They held it until it matured. So the arguement about if this was a poor decision on Apple part can come to an end. Though they could have borrowed $300,011,805.95 and bought me the PowerMac of my dreams (http://store.apple.com/1-800-MY-APPLE/WebObjects/AppleStore.woa/70502/wo/Qd1RubejletL2u3jfd4R36hfwIE/13.13.0.5.3) and paid off their debt. Now that would have been a good decision.

Photorun
Feb 18, 2004, 09:47 PM
I wish Apple would have instead of paying off the debt, just lowered the iPod Mini to the price it should be, $199.

fatbarstard
Feb 18, 2004, 10:01 PM
Does having all this loot make Apple a takeover target??

Not really becuase anyone looking at the company will value it based on its expected future cashflows, which have nothing to do with the cash in the bank..

If the share price of Apple is above the value of its future cashflows then its not a target - unless someone is silly (don't bet against it)

If the share price is below the value of its cashflows then the company is a potential target - if there is a buyer that can see a strategic fit.

Look at the article on Steve Jobs in the Feb 23 issue of Fortune... now does Sony look like a buyer?? hard to tell but they wouldn't buy the company solely based on its cash pile....

MacRAND
Feb 18, 2004, 10:01 PM
Originally posted by Photorun
I wish Apple would have instead of paying off the debt, just lowered the iPod Mini to the price it should be, $199. Well said, regardless of the "debt" situation, the Mini iPod is just not worthy of a retail price over $200.

floatingspirit
Feb 18, 2004, 10:03 PM
Originally posted by Foxer
These days, with interest rates so low, money is practically free. Many "forward" thinking companies would take advantage of this "free" money and borrow to finance expansion.

No offense intended, but that has to be one of the most ridiculous phrases I've ever heard. The word "oxymoron" comes to mind. How about I give you my address and you can send me some "free money"?:p

joeconvert
Feb 18, 2004, 10:05 PM
Originally posted by makkystyle
just a note: Apple needs to keep this seemingly huge chunk of cash in the bank in order to deter a possible takeover. Not that this all that is needed, but it certainly helps. As far as putting more money into R&D, this really does not have any affect on that. In fact it probably has the opposite effect because the amount of money paid yearly to service the debt was only a fraction of the $300 million payment it just made.


Deter?????? You can pay off acquiring an undervalued company with their cash. Check your investment banking facts!

I attribute all mispselled words to Crown Royal!

Sun Baked
Feb 18, 2004, 10:09 PM
Originally posted by joeconvert
Deter?????? You can pay off acquiring an undervalued company with their cash. Check your investment banking facts!

I attribute all mispselled words to Crown Royal! Or watch the movie "Other People's Money" ;)

brhmac
Feb 18, 2004, 10:28 PM
From The Motley Fool...

Companies that can grow without using debt or issuing extra stock are in a_powerful position. They have more flexibility and more opportunity, if a sizable chunk of their income won't be eaten up by debt payment obligations.

sethypoo
Feb 18, 2004, 11:37 PM
Originally posted by MacsRgr8
No more debt?

Easier to shut down the comany......

:p

(((((shudder)))))

Sir_Giggles
Feb 18, 2004, 11:44 PM
Originally posted by brhmac
From The Motley Fool...

The Motley guys are no more than just Fools. You can always trust a Fool's advice. ;)

corey
Feb 19, 2004, 12:00 AM
Originally posted by MacRAND
Well said, regardless of the "debt" situation, the Mini iPod is just not worthy of a retail price over $200. :rolleyes: perhaps you should tell this to all the people who already ordered them. 100,000+ so far.

TMay
Feb 19, 2004, 12:08 AM
Originally posted by fatbarstard
About corporate finance.

I do this sort of stuff as my job and I did years of it in school.

Here's the scoop. The value of a company is or should be equal to the present value of its future cashflows (not dividends). Debt has a key role in corporate finance as it costs less than equity - and use of debt optimises the cost of capital (key value driver).

Apple's debt pay off is a 'bad' thing because the company is funded soley by expensive equity. Its cost of capital is higher than it needs to be, and in that sense having a high cost of capital doesn't do a lot for shareholder value creation.

However, and this is my view, having a big stack of cash in the money bin in a fast moving industry like computing is a good thing.

The bet that the company is making is that it can grow its earnings fast enough to offset the drag on this value created by having no debt and having a higher cost of capital than it needs to. Having a war chest allows the company to move fast either with acquisitions or with new developments becuase it doesn't have to defer to its bankers on the spending. In an industry where you can get blown away very quickly having this capital flexibility is crucial.

Debt is not bad if it is used optimally, but that implies that the industry and company will move slowly. Debt is not a good thing in the computer industry.

Apple has strengthened its corporate flexibility by becoming debt free. this may translate into a higher share price over time but it depends on how clever the company is at converting this flexibility into value. Still, having $4.3 billion in the bank may help Steve sleep better at night.

:)

Being a small business person, I purchased a lot of equipment back in '96, including some pricey engineering and manufacturing software, all on someone else's money. I am in the machining end of the telecom business, and, when times are good, they are very good. Needless to say, the bottom dropped out of the telecom business. I paid off this equipment by borrowing heavily from my parents (middle class BTW) and I survived.

What I learned.

First. With the best intentions, and hard work, you can't overcome deflation from overcapacity. While I considered myself very adaptable before, I am much more so now, and am still in the process of diversifying.

Second. I survived because I was small. Many larger businesses failed merely because their burn rate was too high for the market, and, they didn't have time to adapt.

Third. Technology and skills are very rapidly becoming commodities, hence outsourcing. Still, niche markets will always exist that are more lucrative, though smaller, than commodity markets.

Fourth. I'm working on this, but...innovate, innovate, innovate. I believe that there are as many opportunities as ever. Look around for all of the things we need to solve in the world. Where to start....

From my perspective, Apple did everything right. They kept their course, kept their powder dry, and innovated where no one could create a market. That said, I'm for more strategically targeted acquisitions, and more R&D.

lalcan
Feb 19, 2004, 12:32 AM
...for, you see, this is, far from anything else, just a bold statement from Steve, those $300m are the last legacy from the other CEO's, this is graduation day for Apple as a mature company, and for Steve as a mature CEO, those $300m don't have any meaning in financial terms really, but they have a deep meaning in terms of self-respect, this is the day Steve outgrows his teachers, Scully among others, solving the problems they couldn't, better yet, waiting for the debt to "mature" before paying it is just an example of the fine (would i be able to call it elegant?) CEO Steve has come to be.

The original iMac was an "i'm still alive" scream, the original G5 was an "i'm back in business" announcement, and i'm sure we're days away from the "be scared, be very scared" message to the dark side.

Remember, They (Apple employees) love what they do, We (Apple users/fans) love what they do, and that's the way it's meant to be.

It's a great moment to be part of this community!

fatbarstard
Feb 19, 2004, 12:45 AM
Well Apple technically became debt free when its cash in the bank became larger than its debt obligations... so the comapny has been debt free for a while now. paying off the last loan is symbolic to be sure but really nothing in the scheme of things...

The key point about having cash resources available is that it allows the company to maximise its operational flexibility. Which is either very good or very bad. A lot of us corporate finance types don't like a company to have spare cash on its balance sheet becuase it tends to 'burn a hole in the pocket' of the board and the risk of the company being stupid goes up.

This is not to say that Apple will go off to ga ga land but there is plenty of evidence that this can happen. Debt is an effective tool to keep managers focused on costs and not get silly ideas. Now there is another company with ship loads of cash - its called Microsoft... its got more loot in the bank than most small countries have in GDP...

Billions in the bank delivers market power and operational flexibility. It can lead to ruin through stupidity and hurbis.

We all hope and trust that Apple remains an innoviative, agressive company.

MacRAND
Feb 19, 2004, 12:49 AM
Originally posted by corey
:rolleyes: perhaps you should tell this to all the people who already ordered them. 100,000+ so far. "There's a sucker born every minute" P.T. Barnum
Apparently in excess of 100,000 of them.
Admittedly, the iPod Mini is cute and well designed, just a bit over priced.
Besides, $4.3-Billion in the bank is hardly enough, right Steve? :rolleyes:

Come on Steve, stop screwing around with toys, tunes and yellow capped cola bottles.
Give us what we really need, a G5 PowerBook...NOW! :mad:

corey
Feb 19, 2004, 12:58 AM
Originally posted by MacRAND
Admittedly, the iPod Mini is cute and well designed, just a bit over priced.the market supports the current pricing, therefor it is not overpriced. if you add the words "for me" to the end of your sentence, i would be inclined to agree with you.

MacRAND
Feb 19, 2004, 01:29 AM
Originally posted by corey
the market supports the current pricing, therefor it is not overpriced. if you add the words "for me" to the end of your sentence, i would be inclined to agree with you. I stand corrected, you are right. "...for me".

What was the name of the U.S. Secretary of Agriculture or Interior, or some department during one of those Republican administrations decades ago, who was shopping in a Washington DC grocery store in the produce isle, when a woman recognized him, and approached saying
"Will you just look at that sign for Strawberries, 69¢ it says - that's disgraceful!
Why don't you do something about it?" :mad:

Mr. Secretary looked at the sign, at the empty bin for Strawberries, then back at the women.

"I agree with you, Madam, it is disgraceful.
If the price were a bit higher, there might be some strawberries left for us to purchase then eat.
69¢ for strawberries is obviously too low, otherwise there would be some left.
While I'd like to 'do something about it', don't you think that the market price for strawberries should seek it's own level?" :)

For me, paying more than $200 for a flat of strawberries, or an iPod Mini, is too much.
But I would buy strawberries at almost any price for my Wife, who loves strawberry shortcake with fresh strawberries and whipped cream on it.
Because I love my Wife, but not necessarily because I am personally fond of strawberries.
I want to make her happy (strawberries definitely do that) because then she makes me happy. ;)

TMay
Feb 19, 2004, 01:31 AM
Originally posted by fatbarstard
Well Apple technically became debt free when its cash in the bank became larger than its debt obligations... so the comapny has been debt free for a while now. paying off the last loan is symbolic to be sure but really nothing in the scheme of things...

The key point about having cash resources available is that it allows the company to maximise its operational flexibility. Which is either very good or very bad. A lot of us corporate finance types don't like a company to have spare cash on its balance sheet becuase it tends to 'burn a hole in the pocket' of the board and the risk of the company being stupid goes up.

This is not to say that Apple will go off to ga ga land but there is plenty of evidence that this can happen. Debt is an effective tool to keep managers focused on costs and not get silly ideas. Now there is another company with ship loads of cash - its called Microsoft... its got more loot in the bank than most small countries have in GDP...

Billions in the bank delivers market power and operational flexibility. It can lead to ruin through stupidity and hurbis.

We all hope and trust that Apple remains an innoviative, agressive company.

Hey, your talking about our economy now!

Seriously though, going in debt to force your 'company' to cut cost is pretty moronic. Reagan tried it and it failed. Bush is in the process of failing. Apple succeeded because they didn't add debt and they were smart, as well as lucky.

The problem with debt is that, as I previously stated, in a deflationary period of manufacturing, a company can get into the position that it can't grow its earnings, may have difficulty meeting its debt obligations and can't invest to innovate the new products/services that can create the margins it needs to create profit. A recipe for disaster.

The real issue is risk. As an example, Boeing finds itself in the position of losing preeminence in Civilian Aircraft market due to an unforseen event (9-11). Profit to loss overnight. Risky propositions, like the 747, are well nigh impossible in the corporate world now, but that's exactly the medicine that could cure Boeing's ailments.

IBM, on the other hand, took a hugh risk in building a state of the art foundry in New York, lost a great deal on it initially, but, it seems now to be paying off in spades(big list of customers). I doubt that would have happened with any substantial debt load.

AndrewMT
Feb 19, 2004, 02:10 AM
A lot of posters are talking about Apple using its billions to acquire this and that company. Personally, I would like to see Apple buy Cyan (the makers of Myst 1 and 2, and most recently URU:ages beyond Myst). A few days ago, Cyan had to pull the plug on its live version of the revolutionary adventure game, URU. Apparently, there were not enough subscribers, Apple, unlike UbiSoft, could provide the large amount of money required to start and successfully maintain a Massively Multiplayer Online Game. Apple is already extremely successful at streaming video and music; why not stream game data as well. Not to mention, Apple already has a large user-base of Myst fans who would definitely subscribe to a MMO myst game (especially if it came bundled with .Mac).

Just like Microsoft's purchase of Bungi (makers of Halo), Apple could purchase Cyan to rejuvenate the online version of URU and finally have a flagship game to brag about (and not those crappy games that come pre-installed on Macs) and, at the same time, attract gamers to the mac platform.

Who's with me?

And if you have never heard of URU, go to
CyanWorlds (http://www.cyanworlds.com/)

atezun
Feb 19, 2004, 03:26 AM
Originally posted by AndrewMT
A lot of posters are talking about Apple using its billions to acquire this and that company. Personally, I would like to see Apple buy Cyan (the makers of Myst 1 and 2, and most recently URU:ages beyond Myst). A few days ago, Cyan had to pull the plug on its live version of the revolutionary adventure game, URU. Apparently, there were not enough subscribers, Apple, unlike UbiSoft, could provide the large amount of money required to start and successfully maintain a Massively Multiplayer Online Game. Apple is already extremely successful at streaming video and music; why not stream game data as well. Not to mention, Apple already has a large user-base of Myst fans who would definitely subscribe to a MMO myst game (especially if it came bundled with .Mac).

Just like Microsoft's purchase of Bungi (makers of Halo), Apple could purchase Cyan to rejuvenate the online version of URU and finally have a flagship game to brag about (and not those crappy games that come pre-installed on Macs) and, at the same time, attract gamers to the mac platform.

Who's with me?

And if you have never heard of URU, go to
CyanWorlds (http://www.cyanworlds.com/)

Cyan!?!?!? Now there's a money pit if I've ever seen. Actually one Cyan would be a smart investment...If it was still 1994. Cyan hasn't had a successful product launch since Riven (even that was only mildly). I mean someone forgot to tell them point and click adventure games were dead until 1999. I wouldn't buy Cyan if they paid me to do it. If apple wanted to start their own gaming division I'd try to buy Bill Roper's new studio. But we all know this is never gonna happen. So I suggest we get back to the main topic. Good job Apple. Great to see Jobs & Co. out of debt. 4.8 Billion in cash. Yikes! Now don't spend it all in one shop.

TimDaddy
Feb 19, 2004, 03:28 AM
I wonder how many large, major corporations have filed for bankruptcy in the past four years because the didn't feel a need to have cash on hand. Cash is good.

AndrewMT
Feb 19, 2004, 03:54 AM
Originally posted by atezun
Cyan!?!?!? Now there's a money pit if I've ever seen. Actually one Cyan would be a smart investment...If it was still 1994. Cyan hasn't had a successful product launch since Riven (even that was only mildly). I mean someone forgot to tell them point and click adventure games were dead until 1999. I wouldn't buy Cyan if they paid me to do it. If apple wanted to start their own gaming division I'd try to buy Bill Roper's new studio. But we all know this is never gonna happen. So I suggest we get back to the main topic. Good job Apple. Great to see Jobs & Co. out of debt. 4.8 Billion in cash. Yikes! Now don't spend it all in one shop.

Obviously, you did not go to their website, nor have you played URU. URU IS NOT POINT AND CLICK. The game contains some of the most graphically intense, highly interactive, and beautiful gaming worlds ever created. The only thing you said that was remotely correct was that Cyan hasn't released a successful product since Riven. Well, duH! They did not have any major releases (realMyst and other editions were just enhanced versions of the original game, Myst) between the release of Riven and URU. URU, is and remains a profitable game (still selling well and an expansion pack is expected to arrive shortly).

The only unsuccessful aspect of URU was URU:Live, the MMO aspect of the game. This is only a temporary set back, as URU live will most definitely re-emerge when their online system is perfected and more systems can meet the requirements of the game.

And I'm sorry I deviated from this positively exhilarating main topic.

grouse
Feb 19, 2004, 05:20 AM
is the story of another mini.

....The original (state-owend) British Leyland Mini car. (The mini model is now owned by BMW and produced successfully and profitably).

The Mini was an amazing seller, they sold millions of the things, a huge success story, except for the fact, because they were run so poorly, they made a small, but significant net loss on each one. The more they sold the worse it was. And eventually, it led to the demise of the company.

A part of its privatised successor still stumbles on as MG Rover, but it's prospects are far from great.

That's all. A cautionery tale if ever there was.

Now, I know that Apple isn't in danger of selling things at a loss, it relies on well above industry margins, but if you apply the simple math, 100,000 ipod minis at a $25 margin = 25 million USD "profit".

To make the same amount of money at a:

$10 margin = selling 250,000 minis
$5 margin = selling 500,000 minis
$1 margin = selling 2,500,000 minis
-$25 margin = $25,000,000 loss

What good does that do, given that there's no upgrade path and it is questionable what loyalty will be built up with a music playing device. As soon as it's out-of-date the purchaser will look for the latest thing from whoever is making it.

And as other people have written, it's really about pricing items, having done research and marketing testing, at the highest price point the market can stand.

It's why ipod minis are already appearing on eBay for prices higher than the rrp for people outside the US.

fixyourthinking
Feb 19, 2004, 07:08 AM
Originally posted by NusuniAdmin
Stop the dumb spelling errors.

Please don't make fun of other peoples posts. They have the right to be wrong :D

Comcast is worth more than Apple too?

People a company doesn't have to have 54 billion to spend 54 billion, there are loans and STOCK - the comcast deal was actually over 5 years and involved half in stock and half in cash. This is something Apple could easily do in 5 years time.

Do you think the federal government has 2.4 trillion to spend this year? No, they will finance it with growth, bonds (borrowed money from the people), and interest/funding from other pieces of the pie.

AndrewMT
Feb 19, 2004, 07:38 AM
Originally posted by MacRAND
"There's a sucker born every minute" P.T. Barnum
Apparently in excess of 100,000 of them.
Admittedly, the iPod Mini is cute and well designed, just a bit over priced.
Besides, $4.3-Billion in the bank is hardly enough, right Steve? :rolleyes:

Come on Steve, stop screwing around with toys, tunes and yellow capped cola bottles.
Give us what we really need, a G5 PowerBook...NOW! :mad:

I've been using a pc for a year-and-a-half (since I sold my G4 powerbook) and I am simply waiting for the G5 powerbook to resume using macs. Until then, I could care less about Apple's notebook offerings. As far as I'm concerned, Apple should go back into debt to deliver my G5 powerbook ASAP.

JJTiger1
Feb 19, 2004, 08:03 AM
Originally posted by MacRAND

GOOFY™ Computers

{major snippage}

Major funny !!!


=-=
JJ

mclosers
Feb 19, 2004, 08:08 AM
If they don't need that much money then Apple should just buy Microsoft then... It's not really plausable to buy a company with a higher market cap than your own company has reguardless of loans stock or cash deals.... It just doesn't make sense.... even if Apple had enough cash to buy Disney I don't think they would. There are more important companies to buy that are much smaller like macromedia and adobe.... LOL JK

Wendy_Rebecca
Feb 19, 2004, 08:27 AM
Has anyone stopped to consider that most of Apple's "profits" come from interest on the $5B cash hoard?

Honestly. Think about it.

-----------

Fear the Steve:

MacRAND
Feb 19, 2004, 09:09 AM
Originally posted by mclosers
It just doesn't make sense.... even if Apple had enough cash to buy Disney I don't think they would. But, Apple should.
The best reason is obvious, so Apple can start up a PC company called
GOOFY™ Computers, etc. etc. etc. ...
Do I have to dink another bottle of Crown Royal and explain it all over again?
Suffering suck a tash...
:D

grouse
Feb 19, 2004, 09:31 AM
I dunno

John Edwards?

mikeabnooy
Feb 19, 2004, 10:50 AM
if Apple is debt free... how does that benefit them? what does that do for them as a company?

NusuniAdmin
Feb 19, 2004, 11:00 AM
Originally posted by mikeabnooy
if Apple is debt free... how does that benefit them? what does that do for them as a company?

absolutely nothing, except that they can go in debt again haha

billyboy
Feb 19, 2004, 12:09 PM
Apple have more spare cash than Walmart, and about the same as M$. The only difference financially, is that MS have another $40bn in highly liquid assets to call on. There are plenty of other differences between the three companies, but there are endless threads on that.

As someone mentioned earlier, I would think that the debt free stage is just part of a model that Jobs and co have been working on for several years. He is obviously more savvy than the days when Apple basically misread the plot and lost out to MS and co, so we can only wonder what the "Pixar touch" will equate to with Apple in the near future.

fatbarstard
Feb 19, 2004, 02:07 PM
The point made ealrier that Apple's profits come from the interst on its cash is completely right - it doesn't make money from operations, presumably becuase it is spending so much on development and product innovation.

LIke a lot of growth companies their short term profits would improve dramatically becuase their margins before development costs are quite high (just like Apple's). Cut the development and boost the earnings. But this is a nonsense becuase the value of the growth option in Apple is so large that only an idiot (read accountant) would want to cut development and boost short term profits...

Despite that Wall Street does investors really do take a long term view of a company's earnings power when setting the share price.

Cash in the bank give Apple flexibility - $4.3 billion worth of flexibility. That in itself has a huge option value in an industry sector like computers.

tychay
Feb 19, 2004, 09:49 PM
Originally posted by mikeabnooy
if Apple is debt free... how does that benefit them? what does that do for them as a company?

A debt free company means that it is a larger takeover target (because the takeover company won't assume any debt).

Also, the bond rating of tech companies is usually not very good relative to their cash position (I think Apple's rating is a BB or a B even though they sit on $4bn). This means that usually issuing debt is sort of a rip off.

Basically this does nothing except make some people feel good. Apple has had $4bn+ vs. $300mn in debt for a long while now. The $300mn in bonds finally came due and Apple paid it off. Simple as that.

BTW, those bonds were issued in 1994! some people here remember what Apple was like in 1994--a year before Windows 95 came out.

Take care,

terry

louden
Feb 20, 2004, 04:11 PM
Originally posted by tychay
A debt free company means that it is a larger takeover target (because the takeover company won't assume any debt).

Also, the bond rating of tech companies is usually not very good relative to their cash position (I think Apple's rating is a BB or a B even though they sit on $4bn). This means that usually issuing debt is sort of a rip off.

Basically this does nothing except make some people feel good. Apple has had $4bn+ vs. $300mn in debt for a long while now. The $300mn in bonds finally came due and Apple paid it off. Simple as that.

BTW, those bonds were issued in 1994! some people here remember what Apple was like in 1994--a year before Windows 95 came out.

Take care,

terry

What? The debt a company has is just one part of the equation to determine a takeover target. A company is worth its future cashflows discounted by it's risk rate - and debt it just one part.

The fact that a company has no little bearing on their bond rating (meaning many companies have no debt with high ratings). The fact the company might not be a going concern or a is in a riskier industr is a driver of that rating.

The fact that Apple has no debt indicates to me that they have no projects worth investing in that can provide a return greater than their current borrowing rate. That either means that all thsoe neat projects of well-funded (I hope) or that many of these projects aren't worth the gamble. As an investor, I'd ask why they can't find products to invest in during today's record low interest rates, surely Apple has more good ideas. Somone is afraid to pull the trigger.

ebuddy889
Mar 21, 2004, 11:47 PM
99mac.se publishes (http://www.99mac.se/) 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 currently has $4.8 billion in the bank at this time.

What the memo didn't tell you was the $300 million was a loan paid back to Bill Gates. Now Windows will be superior..... Just kiddin.

Urdam
Apr 11, 2004, 03:51 PM
Wow, good news