Thursday, January 29, 2009


I, uneducated and maybe wrong here, see a dark spot in Apple's reports of late. Their hush-hush hived-off money arm, Braeburn Capital, was for years the vehicle for investing Apple's ever-rising cash position. Their guesses must have been as bad as everyone else's in 2008, because here it is clear that over $8bn was lost in the year, and $8.6bn in the last quarter. This compares with a 2bn gain in 2007.

I am not panicking, but, it does go to show that "hidden" deferred iPhone revenue isn't the only money, good or bad, sloshing around the nether regions of Apple Inc. filings. Did Apple have exposure to bad banks? Bad homebuilders? Chinese or clean-energy ETFs? Madoff? What led to a 10 million dollar a day evaporation?


KC said...

Sorry, you misunderstood the Cash Flow statement. It DOESN'T say Apple lost $8B in investments in the past year. It says, Apple BOUGHT $8B worth of assets in the past year. Of that $8B, $7B is usually short term investments, highly liquid, and of high quality. Apple notes whatever potential losses they expect on those investments in their footnotes. It's a nominal amount. They specifically mention their goal is capital preservation, and are risk-averse, in their conference call. The other $1B are capital assets, like the new campus they are building in Cupertino.

There are 3 sources of cash in a Cash Flow statement. Cash from the business. Cash from their investments. And, Cash from financing. None of the three sources, indicate profit or loss. They just indicate inflows and outflows. The Net Change in Cash, the combination of the 3 sources of cash, is to reconcile the cash position from one year to the next. I hope that helps.

KC said...

Also, if you want to see profit and loss, on their investments, you need to look at the Income Statement. There, look at the line that starts with Gain/(Loss) on Sale of Assets. As I noted before, Apple includes a footnote in their 10Q or 10K where they "mark to market" their assets. Essentially, that means, they indicate whether some of their assets might have lost value using accepted accounting principals. As long as I've been looking it's a nominal amount.

abe said...

Thanks for the explanation, that makes more sense. What of the +2bn figure from the year before?

KC said...

I'm not really sure where you are looking for the $2B gain from the year before, presumably 2007.

As I tried to say before, the CashFlow statement is just inflows and outflows of cash, it says nothing about profit. For example, if you sell $2M worth of stuff for $1M, you may have lost $1M on it, but the Cash Flow statement won't show that. It will only show an inflow of cash of $1M.

The CF statement is just a way to reconcile your cash position at the end of a year or quarter. Nothing more, nothing less.

When the CF shows a negative number, it means Apple spent cash, in this case to buy money mkts and the like. It's not a LOSS. When the CF shows a positive number under CF investing activities, that's a cash inflow, or a sale of money mkts. In neither case do we know whether there's a gain or loss. It's just cash in or cash out.