Apple is now Debt Free

[MacRAND]

Re: For those that don't know jack...

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

 

[fahlman]

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 and paid off their debt. Now that would have been a good decision.

 

[Photorun]

I wish Apple would have instead of paying off the debt, just lowered the iPod Mini to the price it should be, $199.

 

[fatbarstard]

Reply to Macrand

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]

iPod Mini should be $199.

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]

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"?

 

[joeconvert]

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]

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]

What does a Wharton MBA have to say?

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]

Originally posted by MacsRgr8
No more debt?

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

(((((shudder)))))

 

[Sir_Giggles]

Re: What does a Wharton MBA have to say?

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]

Re: iPod Mini should be $199.

Originally posted by MacRAND
Well said, regardless of the "debt" situation, the Mini iPod is just not worthy of a retail price over $200.

perhaps you should tell this to all the people who already ordered them. 100,000+ so far.

 

[TMay]

Re: For those that don't know jack...

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]

You are all missing the point...

...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]

It will be the debt of me [sic]

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]

Early adopters - "Suckers"

Originally posted by corey
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?

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

 

[corey]

Did you not take an economics class?

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]

Re: Did you not take an economics class?

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?"

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]

Re: It will be the debt of me [sic]

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]

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

 

[atezun]

What!?!?!?!?!?!?

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

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]

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]

Re: What!?!?!?!?!?!?

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]

one of the classic urban myths

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]

Re: Re: THEY CAN'T BUY DISNEY

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

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.