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April 10, 1996

APPLE IS IN DANGER OF RUNNING OUT OF CASH, FUND MANAGER FEARS

By CBR Staff Writer

It all sounds a little over the top, but according to the New York Times, David Dreman, chairman of Dreman Value Investors of Jersey City, New Jersey has come up with yet one more thing for fans of Apple Computer Inc to worry about. Dreman reckons that the company could be perilously close to running out of cash, and says it can’t carry on as it has been for another 60 or 90 days without exhausting its coffers. The cash drain will cause a crisis, or force an enormous scaling-back or the sale of the company, he suggests. Problem number one is that the company expects turnover for the quarter just ended to be below the $2,600m of this time last year – and a decline like that really hurts cash flow. Second, it will be taking something like $700m in charges against the figures, and while about half of that is for non-cash items like write-downs of unsold stock, which does not represent cash going out of the company, the other half is for lay-offs and other restructuring costs that do bleed cash. And its Japanese subsidiary and its Netherlands-registered finance subsidiary together owe $400m – a $187m note due in March has not been paid, the Times says, and a $203m issue falls due this month. The company says that it is renegotiating these loans and is extremely encouraged about our ability to renegotiate, but it can no longer do so from the position of strength that the cash-stuffed balance sheet it enjoyed until recently gave it – Standard & Poor’s Corp and Moody’s Investors Service Inc have downgraded to junk status Apple’s $304m of long-term debt, which makes it harder and more expensive for the company to raise additional money. Apple had $1,500m cash at the end of 1994, only $1,100m at the end of 1995, and the charges and weak sales threaten to have blown a very big hole in that figure now.

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