These observations are not my opinions, they are well sourced historical facts from a time when I was steeped in pioneering globally distributed systems, massive object-relational data warehouses, building wireless mobile computing solutions, and some of the first SaaS products over the Web.
Keep dancing. But you don't do it well. None of that background, although impressive, qualifies you for the knowledge you claim about Apple's history. Especially since what you have previously spouted was deliberately skewed.
Apple didn't have anything close to $1.2 billion available to "run the business" (let's see if you can pay engineers or vendors with depreciation). They were about as financially strong as GM was last fall.
Depreciation is never allowed to be considered CASH... and it isn't liquid by any means... no matter how much you want to pretend that's where Apple's cash was located. You're blowing smoke.
Exactly where does the negative amount for depreciation enter into CASH? Let's look at the 10Q assets:
Looking there I see CASH and CASH equivalents of 1.018 Billion and short term investments of .212 Billion... That easily makes 1.240 Billion in liquid assets.
In addition, there are .336 Billion in finished goods, some of which historically can be counted as liquid assets, depending on past sales rates.
Other assets such as Accounts Receivable (one way of hiding lack of real sales that represent cash) went DOWN... so they were making more cash sales rather than credit sales.
Looking at the liabilities we find that money owed to banks (borrowed) is DOWN while long term debt remained about the same.
Where are they hiding all this red ink that supposedly reduced their cash holdings? If what you say is true, the SEC would have had all of Apple's BoD up on charges. They didn't. Ergo, it is you who is distorting the facts.
As to the three interlocking agreements between Apple and Microsoft that settled the Quicktime lawsuit (which could have resulted in huge losses to Microsoft), the following paragraphs are taken from Sections 5 and 6, Paragraph 5.6 and 6.6 respectively of the Preferred Stock Purchase Agreement between Apple Computer Inc., and Microsoft Corporation dated August 5, 1997:
" 5.6 PATENT CROSS LICENSE AGREEMENT AND TECHNOLOGY AGREEMENT. The Company [Apple Computer, Inc.] shall have executed and delivered the Patent Cross License Agreement and Technology Agreement substantially in the forms attached hereto as Exhibit A and Exhibit B, respectively." . . .
6.6 PATENT CROSS LICENSE AGREEMENT AND TECHNOLOGY AGREEMENT. The Purchaser [Microsoft Corporation] shall have executed and delivered the Patent Cross License Agreement and Technology Agreement substantially in the forms attached hereto as Exhibit A and Exhibit B, respectively.
In other words, the sale would NOT take place until the Patent Cross License Agreements were in place. Which makes it very clear exactly what is going on here—the settlement of the lawsuit.
Incidentally, the attached exhibit for MS's licensing of Apple patents had blanks were the amounts of the licensing costs to Microsoft were to be inserted while the exhibit for Apple's licensing of MS patents had no such costs attached... but the actual two final agreements were placed under a court ordered seal.
Is that enough of a "smoking gun?"
As further evidence of who lost and who won, Paragraph 4.7 of Section 4, explicitly states that the purchaser knows that these shares are sale restricted! Stress mine:
"4.7 RESTRICTED SECURITIES. The Purchaser understands that the Shares to be purchased by the Purchaser hereunder are characterized as "restricted securities" under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the Securities Act and applicable regulations thereunder such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Purchaser is familiar with Rule 144 of the SEC, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. The Purchaser understands that the Company is under no obligation to register any of the Shares sold hereunder except as provided in the Registration Rights Agreement.
Whow... that's some limitation on MS's "investment." I can smell the cordite from here...
In addition, some reports indicate that Microsoft had to pay up to $2 billion to Apple in licensing fees over the next five years... and Apple's books seem to show that kind of income coming from undisclosed sources.
"What wasn't widely reported about the July 1997 agreement was the subtle mention of other payments Microsoft agreed to make in addition to investing a paltry $150 million in stock. That amount was never publicly disclosed, but Apple's financial records suggest it was substantial. Despite losing $850 million the year before, over a billion dollars in 1997--of which around 600 million was related to buying NeXT, and suffering a billion dollar drop in revenues between 1997-1998, Apple mysteriously managed to maintain its investments and actually accumulated cash.
It wasn't until 1998 that Apple began selling off its shares in ARM, and those sales took place over several years. Prior to that, how did Apple manage to spend nearly two billion dollars more than it earned across two years, lose 14% of its income, and still manage to sit on the same $1.2 billion in cash without pawning anything?"—Source.
And another:
". . . Apple was ready to finally win a much bigger suit (1997) based on Microsoft's theft of QuickTime technology (via Canyon). Steve Jobs used this leverage to get Microsoft to do a patent "swap" where Microsoft pays Apple $500M-$2B over 4 years, and Microsoft also coincidentally bought some Apple stock ($150M) and started playing nice. Microsoft agreed to make Mac Apps for the next few years, and some other PR moves. Of course the press only reported the parts that reflected well on MS."—Source.
Somehow, Apple maintained itself during the build up of the iMac, all the way to the release of OS X in 2001.
With Apple, he steadfastly clung to total design and manufacturing control over the hardware and OS. If he had been a little less myopic in this area, he would have thrown everything into porting the Mac OS to the Intel platform ahead of Microsoft's anemic Windows wrapper around DOS, and Jobs / Apple would have owned the desktop future - crushing Microsoft's primary profit engine. But, Jobs was obsessed with total control of the platform stack - including going to war against commodity hardware manufacturers where everyone but Steve Jobs could plainly see they could never win the battle - and it cost him his job and almost bankrupt Apple."
He did??? More of your revisionist Apple history, UncommonNONsense. He did not have a chance to do it. Steve Jobs was not employed at Apple during that entire period—1985 to 1997—and in fact did not return to Apple until just before the release of Windows 98. It would be hard for an ousted Jobs to direct ANYTHING that Apple did during this period. Your scenario is trumped by the almost 12 year time span between Jobs ouster and the financial difficulties Apple was experiencing in 1997. His decisions had NOTHING to do with Apple's financial problems. Licensing MacOS to third party clone makers had everything to do with it.
You might also note that Steve Jobs got over-ridden on the pricing of the original Mac. Jobs wanted to sell it for $1699... but Sculley insisted on $2499, thus missing another opportunity to grab the initiative. That was the start of the disputes that eventually lead to Jobs resignation (not fired) from the BoD.
Do you know the difference between a Balance Sheet and a Cash Flow Statement? You displayed a Balance Sheet. This DOES NOT show how much cash Apple was generating or using to RUN THE BUSINESS. For instance - Depreciation is listed as a Source of cash. The cash listed here left the bank sometime in the past and is then amortized over the appropriate number of years depending on the type of expense that the cash was used for.
A Balance Sheet (see Cash Flow statement at bottom and quote on Liquidity below) is the accumulation of accounts. The Cash Flow Statement shows HOW the balance was derived. You don't seem to have the background or knowledge to discuss Apple's financial condition. No one would show a Balance Sheet to have a discussion about Cash if they had any background whatsoever in finance.
LIQUIDITY AND CAPITAL RESOURCESCash generated by operations during 1997 totaled $188 million. Cash generated by operations was primarily the result of decreases in accounts receivable and inventories, partially offset by the Company's net loss, adjusted for non-cash expenditures such as in-process research and development, as well as decreases in accounts payable.
You probably don't understand the ramifications of this statement. What this means is that Apple is only producing $188 million the run the business. Any gaps to cover costs must be made up by financing activities or selling additional equity. That's why the Microsoft deal was so critical. They got an injection of $150 million tax free. Apple didn't even have enough cash from operations to cover the tax payment if this was a settlement of a lawsuit. You can see that $188 million is not enough money to keep the parts and paychecks flowing. Since Apple was rated JUNK, financing isn't a good, or maybe even a viable option. Do the math.
Regarding your comments on the "lawsuit settlement"
"In other words, the sale would NOT take place until the Patent Cross License Agreements were in place. Which makes it very clear exactly what is going on here—the settlement of the lawsuit."
Sorry, I missed it. Where does it mention that this was in relation to the settlement of a lawsuit? That's correct... it DOESN'T. What I said very clearly before is:
I submit that there is more evidence that Apple was broke, needed cash, needed a competitive OS, plus needed Microsoft's business apps - then there is evidence that the $150 million was given to Apple as a settlement. Show me the smoking gun and I'll retract this analysis.
There is a section in their SEC 10Q/K reports titled "LITIGATION". Check your facts. There is nothing mentioned of material regarding a settlement with Microsoft. You made an assertion - you did not provide a shred of evidence. Assertions are not evidence or proof. My assertion is based on a financial analysis of Apple's condition, which according to both S&P and Moody's is JUNK GRADE:
LIQUIDITY AND CAPITAL RESOURCES [snip]Cash generated by operations during 1997 totaled $188 million. Cash generated by operations was primarily the result of decreases in accounts receivable and inventories, partially offset by the Company's net loss, adjusted for non-cash expenditures such as in-process research and development, as well as decreases in accounts payable.
[snip]
Cash generated by financing activities in 1997 included the sale of $150 million of Apple Series A non-voting convertible preferred stock to Microsoft Corporation. Cash used by financing activities in 1997 included $161 million to retire notes payable to banks.
Over the last two years, the Company's debt ratings have been downgraded to non-investment grade. In October 1997, the Company's senior and subordinated long-term debt were downgraded to B- and CCC, respectively, by Standard and Poor's Rating Agency. In the second quarter of 1997, the Company's debt ratings were downgraded to B3 and Caa2, respectively, by Moody's Investor Services. Both Standard and Poor's Rating Agency and Moody's Investor Services have the Company on negative outlook. These actions may increase the Company's cost of funds in future periods. In addition, the Company may be required to pledge additional collateral with respect to certain of its borrowings and letters of credit and to agree to more stringent covenants than in the past.
The Company believes that its balances of cash and cash equivalents and short-term investments, and continued short-term borrowings from banks, will be sufficient to meet its cash requirements over the next twelve months. Expected cash requirements over the next twelve months include an estimated $130 million to effect actions under the restructuring plan, most of which will be effected during the first half of fiscal 1998. No assurance can be given that the $25 million in short-term borrowings from banks can be continued, or that any additional required financing could be obtained should the restructuring plan take longer to implement than anticipated or be unsuccessful. If the Company is unable to obtain such financing, its liquidity, results of operations, and financial condition would be materially adversely affected.
The Internal Revenue Service ("IRS") has proposed federal income tax deficiencies for the years 1984 through 1991, and the Company has made certain prepayments thereon. The Company contested the proposed deficiencies by filing petitions with the U.S. Tax Court, and most of the issues in dispute have now been resolved. On June 30, 1997, the IRS proposed income tax adjustments for the years 1992 through 1994. Although a substantial number of the issues for these years have been resolved, certain issues still remain in dispute and are being contested by the Company. Management believes that adequate provision has been made for any adjustments that may result from tax examinations.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE FISCAL YEARS ENDED SEPTEMBER 26, 1997 1997 1996 1995
----------------------------------------------------------------------------------- ------- ------ -------
Cash and cash equivalents, beginning of the period................................. $ 1,552 $ 756 $ 1,203
------- ------ -------
Operating:
Net income (loss).................................................................. (1,045) (816) 424
Adjustments to reconcile net income (loss) to cash generated by (used for)
operating activities:
Depreciation and amortization.................................................... 118 156 127
Net book value of property, plant, and equipment retirements..................... 70 70 6
In-process research and development.............................................. 375 -- --
Changes in operating assets and liabilities, net of effects of the acquisition of
NeXT:
Accounts receivable.............................................................. 469 435 (350)
Inventories...................................................................... 225 1,113 (687)
Deferred tax assets.............................................................. 83 (91) 42
Other current assets............................................................. 36 45 (59)
Accounts payable................................................................. (107) (374) 283
Accrued restructuring costs...................................................... 63 117 (47)
Other current liabilities........................................................ (9) 212 (10)
Deferred tax liabilities......................................................... (90) (348) 31
------- ------ -------
Cash generated by (used for) operating activities.............................. 188 519 (240)
------- ------ -------
Investing:
Purchase of short-term investments................................................. (999) (437) (1,672)
Proceeds from sales and maturities of short-term investments....................... 963 440 1,531
Purchase of property, plant, and equipment......................................... (53) (67) (159)
Cash used to acquire NeXT.......................................................... (384) -- --
Other.............................................................................. (60) (55) (102)
------- ------ -------
Cash used for investing activities............................................. (533) (119) (402)
------- ------ -------
Financing:
Increase (decrease) in notes payable to banks...................................... (161) (275) 169
Increase (decrease) in long-term borrowings........................................ -- 646 (2)
Proceeds from issuance of preferred stock.......................................... 150 -- --
Increases in common stock, net of acquisition of NeXT.............................. 34 39 86
Cash dividends..................................................................... -- (14) (58)
------- ------ -------
Cash generated by financing activities......................................... 23 396 195
------- ------ -------
Total cash generated (used)........................................................ (322) 796 (447)
------- ------ -------
Cash and cash equivalents, end of the period....................................... $ 1,230 $1,552 $ 756
------- ------ -------
------- ------ -------
Supplemental cash flow disclosures:
Cash paid during the year for interest........................................... $ 61 $ 49 $ 49
Cash paid (received) for income taxes, net....................................... $ (11) $ 33 $ 188
Noncash transactions:
Tax benefit from stock options................................................. $ -- $ 2 $ 15
Issuance of common stock for acquisition of NeXT............................... $ 25 $ -- $ --
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