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Apple Now Debt Free, Says Internal Memo 627
An anonymous reader writes "99mac.se publishes an internal memo from Steve Jobs to Apple employees today.
According to the Memo, Jobs states that "Today is a historic day of sorts for our company." Apple used $300 million in cash to pay off the rest of their debt, and is now a debt-free company. A big turnaround from over $1 billion in debt in mid-1997.
Also noted in the memo is that Apple has $4.8 billion in the bank at this time." (Since this is not coming straight from Apple, confirmation -- or debunking -- would be helpful.)
want confirmation? (Score:5, Insightful)
Re:want confirmation? (Score:5, Funny)
Re:want confirmation? (Score:4, Funny)
Supplementary Math Lesson (Score:4, Informative)
Confirmation - WSJ (Score:5, Informative)
Re:want confirmation? (Score:5, Informative)
Since they've got way more than $300 million in the bank, they would be able to cover these notes in cash, which is apparently what they did.
Re:want confirmation? (Score:4, Interesting)
HUMANS [dmoz.org] do it better
Re:want confirmation? (Score:4, Funny)
Re:want confirmation? (Score:5, Informative)
Apple sold debt in 1994 that was due in February 2004 (10 year debt). For examples sake (and easy math), Apple said to bond holders: "Loan me $100,000 and I'll pay you 6.5% interest. On February 2004, I'll pay you back $100,000. However, instead of giving me $100,000, I'll let you give me $99,925 today (99.925% of par), but still give you back $100,000 in February 2004." The bond holder make the 6.5% interest and an extra $75. The "effective yield" is that 6.5% plus the $75.
The interest rate swaps are a little harder to explain. Essentially, Apple is covering themselves in case of large interest rate swings.
If you would like to read up on bond things, you might want to look at the Bond Market Association Publication list [mbrservices.info]. Click the PDF links. The prices listed are for if you want a hard copy.
Re:want confirmation? (Score:5, Informative)
A very common way of borrowing money in the corporate setting is by selling promissory notes ("notes"), or loan contracts. Like private loans, every note has associated with it a principle amount (how much was borrowed), an interest rate (how much extra the lender gets per annum for lending the money), and sometimes a security (what the lender gets if the borrower fails to live up to the terms of the notes).
Most notes are standardized in their particulars: The principle is usually $1000, the payment plan is usually interest payed quarterly or semiannually and the principle payed off in full at the end of a pre-defined period. The only variables of import are the length of the loan and the interest rate.
In this case, the notes in question have a lifetime of 10 years, and pay 6.50% interest semiannually. If you owned one of these notes you would get two checks a year of $32.50 each until now, when you would get a check for $1000. If you had bought it when originally sold by Apple, you would have paid $999.25 for it instead of $1000.
So what Apple is saying is that there were $300Mil of these notes (or 300,000 of them) still outstanding in February, and they planned to pay them off with cash on hand.
Re:want confirmation? - SEC filling just happened (Score:5, Insightful)
Re:want confirmation? - SEC filling just happened (Score:5, Informative)
Because.. (Score:5, Funny)
Re:Because.. (Score:5, Informative)
Re:Because.. (Score:5, Informative)
In other words (Score:4, Informative)
Re:Because.. (Score:5, Interesting)
That would be easy, I used to have a 7.5.5 boot CD and if I remember right, that stripped down System Folder took up all of about 30 MB with full network functionality.
Once we made a System 7.1 boot floppy with Appletalk and I don't remember what else so that we could dasiy-chain Performa 5xx series machines with the old LocalTalk boxes and phone cords and reformated 14 of them at a time from my G3 AIO.
I
Re:Because.. (Score:5, Informative)
Re:Because.. (Score:5, Informative)
Someone with a bent for Truth. Thank you.
And I'd like to add that Apple Engineering enhances or completely refactors bits and pieces of the NetBSD, OpenBSD, FreeBSD code, and give back accordingly per any licensing agreements.
This reminds me of when people give Adobe the credits to developing Display Postcript and NeXT just licensed it. DUH! Without NeXT it wouldn't have come about, let alone Display PDF, etc. Let's give credit for ideas and code where they are due.
Re:Because.. (Score:5, Informative)
Then you should credit Sun. Their NeWS client-server windowing system (which began development in 1985) used PostScript to describe objects on the screen, but predated NeXT and Adobe's Display PostScript. See http://www.postscript.org/FAQs/language/node73.htm l [postscript.org]
and http://en.wikipedia.org/wiki/NeWS [wikipedia.org] for corroboration.
NeWS eventually was absorbed into Sun's OpenLook environment. To this day, Sun's X server supports Display PostScript, as anyone who uses a Sun workstation knows. (A logo to this effect is displayed when the X server starts.)
I don't mean to belittle NeXT here - I've been a NeXT user for a decade and still have a working NeXTStation TurboColor and NeXTLaser Printer. Display PostScript wasn't really a NeXT innovation, however. (Objective-C on the other hand, was all NeXT)
-Isaac
Predates but basically separate (Score:4, Interesting)
My then company, PICA Pty Ltd, worked with both Sun and Adobe on the respective fronts way back then. Sun encouraged us to devote our own resources to a Macintosh port of NeWS by contracting us to develop NeWS demonstration applications, some of which got a guernsey in Gosling, Rosenthal and Arden's NeWS Book
We were a recognised early player in the PostScript game because I landed the job of doing a technical review of one of the first two Apple LaserWriters to reach Australia for Australian Macworld. That led to PICA becoming the local distributor for Adobe and other early desktop publishing products, and to me contributing the final chapter to Roth, ed's Real World PostScript
In what may seem like several cases of deja vu, Michelle Arden was very keen to help us try to convince Adobe to open up control of the PostScript standard, yet within a couple of years Sun, having made themselves quite unpopular through the success of NFS, were then rolled by the rest of the Unix community who insisted on adopting X as the blessed window system ahead of the much superior NeWS.
Despite strong support from our main contact person, the inability to focus by Sun's Sydney office brought our efforts to a premature end, on one hand because they had initially tried to motivate us by suggesting we were in competition in the porting project with Keith Henson's Grasshopper Group. Then when I finally met Keith we became instant friends. Meanwhile Sun Australia also managed to hold up payment for our contracted work for 14 months.
Bottom line is that Sun's efforts with NeWS were in spite of Adobe. The significantly later Display PostScript did not borrow directly from NeWS in any way. If Sun ever gain a clue as to why they are being overrun by history, despite making a technical contribution over the years that has been disproportionate to their financial strength, one thing they could start with even at this late stage would be releasing NeWS to the public domain.
Re:Because.. (Score:4, Funny)
One more prof that Apple is still dying...
Re:Because.. (Score:5, Informative)
For example, with more debt you incur more yearly interest and your times interest earned ratio (net profits / interest costs) decreases, which can bring about questions of solvency.
Tech companies especially need to have very conservative ratios to show their financial viability. A lot of cash and not a lot of debt seems to be the rule of thumb when you look at the NASDAQ.
How does this compare with other companies? (Score:4, Interesting)
Re:How does this compare with other companies? (Score:4, Funny)
Re:How does this compare with other companies? (Score:5, Interesting)
However, being debt free is not necessarily a good thing. I was informed by an accounting / MBA friend that having corporate debt can be a very, very good thing when it comes to tax time. Apparently, it's useful to mortgage certain properties (including real estate, physical plant, etc.). This lets you write down things or depreciate them differently I think.
I'm sure there's accountants out there (though how many of them read Slashdot is an open question). Can anyone explain this? Or Refute it?
-- Kevin J. Rice, programmer (not accountant!), Chicago area.
Re:How does this compare with other companies? (Score:5, Informative)
If I were to invest $10 in a new research effort, if it were "borrowed" money the cost of capital would be only the interest on that $10 until I expected the research to pay back $10.
However, if that $10 came from my debt-free bank account, my shareholders would expect a certain rate of return on that investment which is typically much higher than interest rates are right now (which is why people invest in stocks in the first place, they're higher risk, but they expect higher returns).
Typically, cost of capital can be 15%, 20%, or more depending on the industry and stock performance. Borrowed money is cheap.
MadCow.
Re:How does this compare with other companies? (Score:5, Interesting)
So if Apple's not at risk of bankruptcy (they're not), they should have no problem finding cheap debt to invest. In this case, I think it's foolish for Apple to pay it's debt off.
Plus, the interest you pay on debt is tax deductible itself (as an expense) and that's just an extra bonus to load up on debt (assuming you can afford it, and aren't at risk of failing).
Re:How does this compare with other companies? (Score:4, Insightful)
However, you fail to consider the intangible benefits of being able to show investers that you went from $1 billion in debt to no debt whatsoever.
In 1997 Apple was in very bad shape, and investors and consumers were distancing themselves from the potential for losses and orphaned technology.
There is now a great reassurance to people who might buy Apple products that the company is recovered fully, will exist indefinitely, and can be safely counted upon.
Jobs likely expects the benefits to outweigh any loss of financial opportunity here.
Re:How does this compare with other companies? (Score:5, Informative)
It's up to the finance guys to say, "Hey, we can borrow another $300 mill for 5% while we're making 6% on our investments." If they can't say that, then they won't borrow more money unless they need it.
Re:How does this compare with other companies? (Score:5, Interesting)
For a simple example lets look at buying stock on margin. Take Microsoft, let's say Bill and Steve each have $1000 to invest in MS and the current share price is $25. Bill chooses to buy 40 shares for $1000 (ignoring commissions), while steve listened to his MBA friend and bought 80 shares, taking a loan for $1000 and puting up his own $1000. The next day MS comes out better than expected earnings and the price pops to $30 per share. Both sell their stock. Bill gets $1200 (40x$30) while Steve gets $1400 (80x30-1000) I'm rounding off the $0.11 in interest expenses.
Now if the news had been bad, and the stock fell to $20, the opposite would have happened, Bill would have $800 (40x$20), while Steve would have $600 (80x$20-1000), again ignoring the $0.11 in daily interest.
With debt financing you multiply the regular returns by the inverse of the percentage you put up. (If you put up one fifth of the intial capital you will recieve five times the return on the asset (before interest expenses), if it returns 10% annually the owner will get more like 50% annually, if it returns -5% annually, the owner will get -25% annually (again before interest expenses). In our examples above the asset returned 20% but due to the differences in financing the investors got very different returns.
Armed with this knowledge the optimal situation would be nearly no owner investment and almost all debt financing, assuming an investment is likely to produce returns. However, lenders will require a higher interest rate to projects that have less owner investment decreasing the returns (the asset must return more than the interst rate for this to work, it becomes increasingly difficult to find investments that will do this. In the stock market there are regulations limiting you to debt equal to your starting capital, and if you start to loose money the broker will issue a call requireing either additonal investments or he will sell your asset to bring it back in line with the rules. With a big successful company lenders stop at about 3/4 of total investment (3:1 leverage). Houses allow a ton of leverage (the old rules were for 20% (5:1 leverage) down but I know of people who put less than 10% down (10:1 leverage). Feel free to ask any further questions, this format is not ideal for math topics
Re:How does this compare with other companies? (Score:5, Informative)
Re:How does this compare with other companies? (Score:5, Funny)
$4.8 billion (Score:5, Informative)
Re:$4.8 billion (Score:5, Informative)
Get serious. It's cash reserves, collecting Bank interest.
Daily operations of $4.8 Billion would make zero sense due to the fact it takes them 6 months to generate that much in gross sales alone.
It would be quite difficult to claim zero debt now wouldn't it?is that a good thing? (Score:5, Interesting)
Though cash in the bank is very safe, at least.
Re:is that a good thing? (Score:5, Interesting)
However, there are too many variables for a non-insider to really know. Most companies have finance people who are at least competent enough to make these kinds of decisions. This is Finance 101 stuff.
Chris
Lets see... (Score:5, Insightful)
Re:Lets see... (Score:5, Insightful)
This is more of a business decision to run a debt-free company. With 4.8 billion cash on hand they could have been debt free before now.
Re:Lets see... (Score:4, Interesting)
Seriously! You ever get stuck making house calls to fix friend's computers? Ever since I've convinced people to go mac they've been more functional (making dvd's, photo albums, burning CD's, No Email viruses) and I get almost no calls from friends asking for help. They don't have the same issues as with Windows or even worse would be linux.
Re:Lets see... (Score:5, Informative)
I just bought five albums on iTunes. Not one of them was on an RIAA label. One of the labels I bought from is owned by the artist himself (Pete Namlook's FAX label [hyperreal.org]). The others were similar independent labels (Ninja Tune [ninjatune.net] and Tresor [tresorberlin.de]). There is non-RIAA music on iTunes in spades, and I will continue to buy from them.
Re:Lets see... (Score:5, Informative)
I believe membership fees for the RIAA are based on gross revenues... ahh this [riaa.com] outlines it.
In some ways the RIAA is like the ACLU [aclu.org], almost everyone hates it at some point until it is defending a constitutional right that they care about.
-Shawn
Where did the money come from (Score:4, Interesting)
SuDZ
debunk (Score:5, Funny)
Re:debunk (Score:5, Funny)
Re:debunk (Score:5, Insightful)
Yeah, and your mother owes you millions for dropping you as a child, since those of us who weren't dropped, went to the store and bought a $40 optical scroll-wheel mouse ;-)
(Sorry, pet peeve for those who complain about the fact that a computer, designed+marketed to be EASY TO USE, comes out of the box with only one mouse button but is perfectly capable of using a fancier one if your heart desires).
Re:debunk (Score:5, Insightful)
The hockey puck wasn't hated because it only had one mouse button. It was hated because it wasn't easy to use. It will go down in history as the worst designed mouse ever.
Re:debunk (Score:4, Funny)
2) You should take a look at the folllowing list of Mac software that requires a 2nd button:
If you don't intend using any of those, you should be ok.
Lesson Learned... (Score:5, Funny)
Good for everyone (Score:5, Insightful)
Choice is good - including platform choice.
Re:Good for everyone (Score:4, Interesting)
They kickstarted the horribly lagging USB device market. A lot of windows GUI elements seem to come from Apple. Zen seems to be heavily iPod inspired, for all I know, maybe we'd be stuck with ugly Nomads and Nomad clones.
Before Jobs took over, the PC market looked like a bunch of ugly square beige boxes, since, we now get a bunch of ugly multi-colored varying swoop-shaped windowed boxes. I haven't checked to see if there are any G5 inspired PC cases yet.
Market share isn't everything! (Score:5, Insightful)
Who needs the market share when you've got a cool 4 billion bucks in the bank, and the mind share - apple equals style and coolness, like it or not.
Now back to my beige box... :(
Re:Market share isn't everything! (Score:4, Informative)
market share decreases, their price would go UP
Check 1. Apple's market share HAS decreased since the mid 1990s, and yet their price points, even when not adjusted for inflation, have gone down. The cheapest apple laptops used to be in the $2500 range. Now they're at $1100.
expensive computers to maintain
Check 2. Not in my experience. I have spent less money maintaing the apple computers in my house than the PCS. In fact, going back to my still running Mac Classic, the only problems I've ever had have been with power supplies and hard drives. The power supplies were always replaced for under $100.
with no applications to run
Check 3. The mac currently has an analog for every major PC application. It runs nearly every open source application. And even if Apple dissipated, there would still be development. There is still development for the Amiga.
cannot comunicate easily with others computers
Check 4. My macs communicate fine with Linux, fine with Windows. Office suites use the same formats. Internet apps work the same. They all use Samba file and printer sharing. But maybe you use mostly IBM mainframes. I hope so, because the mac works with them too.
It's good to see FUD is alive and well in the PC community. I'd hate to think you guys learned nothing from Microsoft.
How about me? (Score:4, Funny)
Cool! That puts them in a great position (Score:5, Funny)
KFG
Interesting for a public company (Score:5, Interesting)
It makes me wonder about Jobs' (or the CFO's) motivations. Strictly speaking, this would be the smartest move if Apple were to pursue a Leverage BuyOut (LBO), which is basically a reverse IPO. I can't see them doing this, but would give them a chance to radically reposition the company without requiring stockholder approval.
Just thinking out loud...
.
that sounds right (Score:5, Informative)
according to their last sec filing, they had 300 million in debt and about 5 billion cash.
see this for details. [yahoo.com]
Addicted to OS X (Score:5, Interesting)
Apple has always had pricey, but cool stuff. I paid a premium for my Apple II (serial number 79 !! - I used it to write the free Chess program that was on the demo cassette for the Apple II).
I paid a premium for my first Mac in 1984.
Sometimes, more expensive products are just worth it.
-Mark
Buy SCO? (Score:4, Funny)
Re:Buy SCO? (Score:5, Interesting)
According to their last 10-Q (Score:5, Interesting)
I remember back to something Steve Jobs said back in 97 or 98 when asked how he was going to grow desktop market share. His response was something along the lines of 'We have 6% of the desktop market, Mercedes has 6% of the automobile market. Why aren't you predicting the end of Mercedes?'
iMac, iPod and iTunes really helped them accumulate some iCash.
Plausible based on last quarterly report (Score:4, Informative)
According to their balance sheet, they had $3.7B in cash as of Dec 27, 2003. At that time they also had a little over $300M in debt. The numbers add up with what is reported in the story, so I wouldn't say there is any reason to believe it isn't true. I would think that something like this would make a press release, but maybe they are waiting for the market close?
Debt isn't necessarily bad... (Score:4, Insightful)
It's how a company uses its debt and the amount of debt relative to things like cash flow, equity, etc., that's important.
Seems reasonable (Score:5, Informative)
What they don't mention is that (of course) they have plenty of accounts payable. Not explicitly debt, they are still liabilities that are owed. No big deal, though, every company's got that.
I don't understand, though, why they're so eager to get rid of their debt. $300M isn't that much money (when they've got $3B cash, i.e.) and there's nothing wrong with a moderately leveraged firm (debt is of course usable capital, and they've effectively just lost $300M of "project money"), and I don't think that Apple was at any risk of defaulting.
If this debt was raised long ago (when rates were high), then I figure it's reasonable, but if this debt is recent, then it doesn't explicitly make sense to me (IANACFO), because that's cheap money for
To me, this seems to be an indication that Apple's going to be a bit more conservative and slow down new projects and products and such. When a company pays off debt, this must mean that interest rates cost more than the returns of the projects this money could finance.
This ranks Apple right up with Microsoft (since Microsoft started dividends a while back) as cash cow companies. I would be careful about buying.
Just my thoughts.br.
This is good news for all computer users. (Score:5, Insightful)
We all saw what happened when AMD became a viable competitor for Intel, processor speeds dramatically increased and prices dropped.
Without Apple continuing to innovate and capture user mindshare we'd all probably be stuck using something along the lines of Windows ME.
good insights from Feb 3 article (Score:5, Interesting)
The article [fool.com]
"Let's do the math: According to its latest earnings report, Apple averaged $349 in revenue per iPod sold. If prices remain stable, 3 million iPods would generate more than $1 billion in revenue. Four million units could produce $1.4 billion in sales. Apple sold $345 million in iPods during fiscal 2003.
Turning the dial to iTunes, Apple says that more than 30 million songs have been sold to date, with 17 million of those coming during the Christmas quarter. The Pepsi promotion should dramatically increase iTunes traffic. Add in the help from HP and paid downloads could pass 100 million during 2004. At that level, Apple should make a few pennies per song, up from zero now."
They still owe me! (Score:4, Funny)
The Wonders Of Spam (Score:5, Funny)
InternalMemos.com has the real memo (Score:5, Informative)
CFO Fred Anderson is Retiring in June (Score:5, Interesting)
I guess Fred feels his work is done now, because he is calling it quits on June 1. [apple.com] Anderson has been instrumental in solving Apple's financial problems from the day Gil Amelio hired him in 1996. He created the company's large cash reserves by liquidating unnecessary capital investments (plant), issuing a convertible debenture and selling some of their valuable ARM holdings. Then he managed the investment of those funds astutely enough to make the conversion of those outstanding notes to common stock a huge win for both the company and creditors. [macobserver.com] That 1999 conversion alone eliminated about two thirds of Apple's long term debt (conversely that means the issue had assumed most of Apple's debt). Really, this guy has done an outstanding job. You can thank him for their sound financials.
ok, so... (Score:5, Interesting)
The profit margin on software is about as high as a profit margin can be, and even when you consider that they spend money on R&D, salaries, advertising, buildings, manufacturing, computers, etc., etc. -- that's still an enormous mark-up from the market value of their products. (They both sell hardware too, and in Apple's case, there's a hefty mark-up on that as well, especially RAM--but not nearly as much as there is on software.)
So it'll be interesting to see what happens, as Microsoft slashes prices on core offerings to compete with Linux, and newer desktop environments and toolkits are developed across the board to compete with Apple. Still--I don't know about TCO, but there should be no doubt in your mind that these companies are overcharging.
Correction (Score:5, Insightful)
Also noted in the memo is that Apple has $4.8 billion in the bank at this time.
and
Apple has $4.8 billion in total assets
Are not synonymous. Assets include buildings, machinery, office equipment, which I'm sure Apple has laying around somewhere...
It was me (Score:5, Funny)
Apple has had several billions in cash for years (Score:5, Informative)
Maybe you remember the MacExpo keynote from 1997, where Steve Jobs announced that a) Microsoft had aquired shares of Apple worth $US 150 million and b) guaranteed that they would continue to offer MS Office for MacOS for at least another five years. Today this is still recalled by a lot of PC fans as the day Microsoft saved Apple by buying stock. But what most people did not see was that at that time Apple already had several billions in reserve (I think it were four) and the stock Microsoft bought was basically symbolic, the major news was the Office deal. (http://antibogon.org/Stepwise/TheHolyGrail.html [antibogon.org] mentiones that Apple was worth $US 7 billion at that time.)
So if Apple now claims to be debt free this does not mean at all that they finally earned enought to pay back their debt. They could have done that years ago. It just means that they decided (for some strange fiscal reasons) to pay back everything in 2004 (remember, debt is positive from a tax point of view) and that, as usual, Steve Jobs takes this non-news and transforms it into holy water for the mac users.
Posted from my blessed iBook
Thanks to Spam, to boot! (Score:4, Funny)
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"And what would you havve me do?" Said Emma. The Rain in Spain falls mainly in the plain.
Click here to unsubscrbe.
Re:How does this compare with other companies? (Score:4, Insightful)
If you have no need to do capital investments in things like plant and equipment or buying another company then debt is a BAD thing because you're paying interest and usually more than you'd get investing in a similar risk item.
Americans seem to have an idea that being in debt is a good thing. For some things like a House which will normally be a long term asset whose value will be more than the total cost of the debt this is an OK idea. For cars and such its usually not a great idea as the asset depreciates very quickly, for computers its even worse. Unless of course you use that asset for something useful like running your business (one of the reasons Graphics people don't care about the cost of a new Mac is that it pays for itself very quickly).
So lets look at Apple. Their major assets are their people and ideas. If they have enough revenue to continue to pay those people they shouldn't borrow for it. R&D is normally expensive but most of what Apple does is consumer design, software development and (some) assembly. CPU's, Disks etc are all developed by others - sometimes with input from Apple. For these things they don't need extensive physical assets like factories and machinery. They need enough space for everyone to work, and they can get someone else to build/assemble their designs at very little risk to themselves usually.
This is one of the reasons why tech companies usually have very little debt.
In Apples case debt would only be good if they needed to acquire another company and believed they could run the acquisition better than the current management or they needed to invest significantly in something else that required a large chunk of change up front.
Low debt may make a company a takeover target but in Apples case you'd 1. Have to pay a significant premium over the value of their cash assests and 2. be really sure you could run the company better than Steve and his key people. Otherwise you'd be buying a declining asset or looking to put a competitor out of business. Microsoft might like to try but the Anti-trust brigade would have a field day.
As long as Apple stays profitable and can fund its own R&D internally it doesn't need more debt.
Well, Apple said this would happen (Score:5, Informative)
Well, given that at the announcement of their last quarterly results they stated that they would likely pay off their debt this quarter, it seems likely that this is true.
But I thought Apple was still beleaguered (Score:5, Funny)
Where are the Wired magazine articles about how to "save" Apple?
Where in the hell is Dvorak when you need him?!
Re:First to say - Well Done (Score:5, Interesting)
They key is to manage the debt carefully, and make sure that the interest payments do not get so large that they start eating away at your profits.
Re:First to say - Well Done (Score:5, Funny)
Would you like to run for Congress?
Re:First to say - Well Done (Score:5, Funny)
Re:First to say - Well Done (Score:4, Informative)
As opposed to Red Ink Republicans? (Score:5, Insightful)
But you go right ahead and keep the faith. Obviously reality isn't bothering you enough to change your thinking.
Re:As opposed to Red Ink Republicans? (Score:5, Interesting)
US Budget Summary since 1789 [gpo.gov]
Inflation calculator. [westegg.com]
Okay, the largest budget deficit of the 1930's (Great Depression, New Deal) was about $3bn in 1939. That's about $31bn in 2002 dollars.
The largest budget deficit of the 1940's (WWII) was $55bn in 1943. That's about $585bn in 2002 dollars.
The largest deficit of the 1960's (Soviet Union, Space Race) was $25bn in 1968. That's $130bn in 2002 dollars.
The largest deficit in the 1980's (Soviet Union) was $221bn in 1986. That's $354bn in 2002 dollars.
The largest deficit of the 1990's (Iraq war?) was $290bn in 1992, which is $370bn in 2002 dollars.
The 2004 budget deficit is officially $521bn. However, that does not count the costs of war, which are $84bn in Iraq alone. All told, the current deficit is well over $600bn. Depending on the cost model, that equates to about $580bn 2002 dollars.
So in any case, the current US budget deficit is not larger than at least the one FDR carried, but its skirting damn close.
Re:First to say - Well Done (Score:5, Insightful)
Re:First to say - Well Done (Score:5, Interesting)
This still compares favourably with countries like France and Spain that did the same thing and didn't become sucessful
Re:First to say - Well Done (Score:4, Funny)
Hmm, maybe that's why the dollar is so weak compared to the pound....
Re:First to say - Well Done (Score:5, Informative)
Solvency is the ability to cover current debts (loans due in less than 1 year) with current assets (cash, inventory, short-term paper etc...). As others have pointed out, carrying debt can have a number of advantages, including tax treatments, treasury management, leverage etc...
For example, loans increase the usable cash for a company, which allow you to make more money than you could with just equity. And, since someone else has loaned you the money your return on equity (ROE) is higher. Since high ROE is a good thing, debt is an important part of the equation.
Actually Corporate debt is not a Bad Thing (Score:4, Interesting)
Here's a pretty good case study [fool.com] from the Motley Fool on why taking on corporate debt is often better than trading away shares to make acquisitions. Basically, in this case, taking on a lot of debt is fine if it increases cash flow.
In general, if a company's risk rating is good, you could say that it is in fact wasting money by NOT taking on some debt in order to build infrastructure or make acquisitions.
As the Economist points out in an article called Debt is Good For You," [umich.edu] "dividends are paid out of companies' net-of-tax income,and are then taxed again in the hands of the recipients. Interest payments on debt, on the other hand, are tax-deductible."
"This means that a firm's overall value should increase as it substitutes debt for equity."
Re:why wait so long? (Score:5, Informative)
I don't understand why a company with $4.8 billion (or $5.1 billion pre-$300mill hit) would wait this long to pay off the $300 million owed.
When they say $4.8 billion in the bank, they don't mean $4.8 billion sitting there doing nothing. They mean $4.8 billion, part of which is earmarked for salaries in the next quarter, part of which is for office space, maintainance, etc, part of which is for production of new units, part of which is for research and development, and maybe a very tiny bit that's actually not earmarked for anything. And it's that tiny bit not earmarked for anything that they can use to pay off the debts. Remember: $4.8 billion is a lot of cash, but Apple is a huge company these days, and it takes a lot of cash to keep that going.
Re:why wait so long? (Score:5, Informative)
If the $300M was comprised of corporate bonds, (and the phrase 'which we decided to hold to maturity' indicates that it was) then paying them off earlier would have meant giving the bond holders back their capital. Since those bond holders would have had to reinvest at last year's lower interest rates, Apple would have been doing them a dis-service. By holding them to maturity they make those bond holders more likely to purchase Apple corporate debt in the future, which could lower their total borrowing costs down the line
Re:why wait so long? (Score:4, Informative)
Re:why wait so long? (Score:5, Interesting)
In fact, in successful companies, investors might actually prefer debt. If you and a friend have a project that will cost $1200 but will net you $1800 in a year, you each stand to gain $900 minus your investment. But you only have $800 total. If you get another friend in on it, all three of you will only net $200 apiece ($600 - $400). If you get $400 debt at 5%, then the two of you will make $1800 - $420 (debt + interest) = $1380 / 2 = $690 - $400 = $290.
So the current investors end up making more by taking debt. Of course new investors would love an opportunity at profiting from this project, but companies tend to look out for current shareholders more than anything else.
Re:Bad - Enterpise Value (Score:5, Informative)
Lets assume I want to buy Apple - all of it
First I buy all of the shares
Now I get access to their bank account - if the company has net debt (see Disney) I have to pay that off (either through loan payments, or through other means)
If the company has net cash (see Microsoft) I can take that money and do whatever I want with it
So Enterprise value of a company is
The cost of all of the shares of stock
Plus the debt of the company
Minus the cash/etc. of the company
End result is paying debt off from cash is a net wash on enterprise value because the cash is smaller, but the debt is as well.
End result is I prefer companies with smaller debt loads - it is easier to predict their earnings (every penny they make goes to profit, not debt service) however companies with large debt loads can have huge swings in earnings because the first 10 bucks they make go to debt service, and every penny beyond that goes to profit - so a small change in profits look a lot bigger (compare 10.02 to 10.01 dollars vs. 0.02 vs 0.01 as a percentage)
Re:Bad? (Score:5, Funny)
Indeed you are slightly mistaken here. Since Apple is now a debt free company, it makes it a more attractive buy for someone else since they do not have to take more debt, it makes it more attractive.
Oh. I see. Instead, we'll have to endure the "Apple is going to be bought by Disney" rumors again. Lucky us.
Re:Witness... (Score:5, Insightful)
The reason why OSX "just works" on Apple computers is because Apple has complete control over the hardware.
The x86 world is so heterogeneous that if an OSX for x86 was released, it would have so many compatibility problems that Windows XP would look elegant by comparison.
And before you say "If Linux can run well on the desktop OSX should be able to as well", the answer is NO, Linux does not work well as a desktop platform yet precisely because of all the unsupported hardware and software.
And before you say "OSX has a fairly large number of commercial software availeable that could give it an edge over Linux as an alternative x86 desktop", the answer is NO, all that software would have to be redesigned, recompiled and retested for x86 which would take a very LONG time.
You OSX-for-x86 folks are so naive, it ceased to be funny a long time ago.
Apple's current business model of making their own hardware _AND_ software is working very well. It is the only way they can stay alive in a Redmond dominated world, and still compete with free (libre) alternatives like Linux.
Re:Witness... (Score:4, Insightful)
No, it's something you say to point out that Apple has a much smaller of hardware combinations to support.
to revolutionize the industry, it isn't necessary to support all hardware. You could support only ECS K7VTA3 boards, with an ATI video card. And that tiny slice of the PC world would still DOUBLE YOUR MARKET SHARE.
It would also put Apple directly in the crosshairs of Microsoft. There's no way Microsoft would overlook this challenge. It's not a matter of losing a few percent over years, but a real danger of mass exodus. Remember also that this is a Microsoft that just basically got off with a slap on the wrist with its anti-trust case. Can you imagine another Attorney General taking them on again soon?
your protestations that a huge amount of work would have to be done to port everything over to x86 simply betray that you haven't written code to compile cleanly on multiple systems.
Compile cleanly? You're not seriously suggesting that something that compiles cleanly is good enough to ship? Different hardware platforms and compilers will make bugs show up. You'll also need to increase QA capacity dramatically.
It's not very hard to port code to a different platform and get it to an alpha level. To get it ready to ship is another story entirely.
Also, while Adobe might port Photoshop to x86 OS X, do you imagine Microsoft would port Office to it?
All the applications that Apple depends on were originally written for the real computer market -- MS Office, Adobe, etc, and ported only as a way of squeezing a few more sales out of them.
Excel was originally developed on the Mac in 1985. Word was also developed on the Mac before there was a Windows version (a DOS version that doesn't really act like either predates the Mac version). The original version of Photoshop was written on a Mac Plus. So what are you talking about?
Why are Jobs & Followers limiting their potential market in this way ? The only answer is that they are afraid of being precisely the type of computer revolutionaries that they pretend to be in Super Bowl Ads.
I have a much simpler explanation: they are afraid of Microsoft. Why do you find that hard to believe?
Re:Witness... (Score:4, Insightful)
Re:Good for Apple (Score:4, Insightful)
Re:Good for Apple (Score:5, Insightful)
OK, I'm shopping right now anyway. I go to dell.ca and apple.ca and try to build equivalents.
Dell:
Dual Xeon 3GHz, 1GB RAM, 250GB SATA, modem, good keyboard low-end mouse, DVD+RW/CD-ROM, Audigy Soundblaster w/ firewire, ATI Fire GL X1 128MB, Win2K, no monitor:
$6,711 [CDN]
Apple:
Dual 2GHz G5, 1GB RAM, 250GB SATA, modem, Superdrive, Radeon 9800 pro, everything else standard, no monitor:
$5,044.00 [CDN]
OK so they aren't exactly equivalent. The Dell includes a floppy; the Apple's missing a mouse button. More, the Apple comes with optical sound connects, firewire800, and gigabit ethernet (no mention of the Dell's onboard networking in the summary). The Superdrive is way better than the Dell's DVD+RW. The Dell has a better video card by a bit. Some think that the Xeons would be faster but that probably depends heavily on application, and the g5's have a huge bus bandwidth. Not to mention other technology differences underneath it all, like case design and wireless integration. Oh, and, umm, bundled software and the operating systems.
Disclaimer: I'm comparing Apples and Dells because they're tier 1 manufacturers and people think Dells are cheap.
So, like, DUDE! why is the Dell costing $1600+ more than the Apple? Is it worth it? Which one is better made, longer lasting, which one is faster over all, which the better deal?