FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

Apple Computer, Inc.
(Nasdaq: AAPL)
One Infinite Loop
Cupertino, CA 95014
(408) 996-1010
http://www.apple.com/

ALEXANDRIA, VA (July 17, 1997)/FOOLWIRE/ --- Apple Computer, Inc. released their third quarter 1997 results after the market close yesterday. Revenues for the quarter were $1.7 billion compared to $1.6 billion last quarter and $2.2 billion in last year's third quarter. International sales accounted for 53% of revenues in the quarter. Gross margins for the quarter were 20% compared to 18.9% last quarter and 18.5% in the year-ago third quarter. The company reported a net loss for the quarter of $56 million or $(0.44) per share compared to a net loss of $708 million or $(5.64) per share last quarter and a net loss of $32 million or $(0.26) in the year-ago quarter.

OPERATING LOSS. The company's loss from operations was $60 million representing a significant sequential improvement from the loss from operations of $186 million exclusive of charges for restructuring and writeoffs of in-process R&D. The company's loss from operations a year ago was $160 million. Operating expenses for the quarter were $408 million, down $81 million from last quarter, exclusive of charges for restructuring and the writeoffs of in-process R&D, and down $111 million compared to the year-ago quarter. One analyst noted that they are ahead of their projected expense reduction targets and asked if there were new targets. Apple responded that consistent with wanting to drive the break-even point below $8 billion, they will want to drive the operating expenses, which had been targeted at $400 million per quarter or $1.6 billion, lower.

UNIT SALES. In terms of sales, revenues increased by 8.5% sequentially. Unit sales were approximately 698,000 and represented a 6-8% sequential increase over last quarter. The sequential growth was driven largely by sales in the US education market, as well as greatly improved sales in Japan. Unit sales of Apple-branded entry level desktop products, which they are now referring to as "value product line" internally grew by approximately 27% during the quarter while sales of the flagship PowerMac products grew by 32%. Sequential growth in these two product lines were offset in part by a 29% reduction of Powerbook unit sales. They attribute the reduction in Powerbook sales to both an easing in the pent-up demand for their high-end 3400 series, which was introduced last quarter, as well as general softness in the entry level segment of the Powerbook space.

OTHER INCOME. Other income breaks down as follows: $18 million in interest income, $18 million in interest expense, a foreign exchange gain of about $6 million, and then a couple of other minor items. Claris was a little lower than last quarter at $55 million in revenue.

GEOGRAPHIES. On a geographic basis, unit sales in the Americas increased sequentially by 12%, while unit sales in Japan increased by over 60%. Part of it, again, was the availability problem relative to their high-end Power Macs. Japan really had strong demand even in Q2 and Apple couldn't supply product. Apple began shipping the Powerbook 2400 which was jointly designed by IBM and Apple and that received very strong market acceptance in Japan. Unit sales also increased by about 7% in the Asia/Pacific region and were down slightly in Europe overall, although they experienced strong sequential growth both in Germany and the United Kingdom. In terms of revenue, France was relatively flat sequentially, up about 3%, Germany was up around 37% and the UK was up around 19%. They have made a number of major management decisions in Europe and the team is getting in place. Seasonal revenues from the US K-12 education market were very strong and comparable to last year's levels. Sequential growth in K-12 education was offset to a considerable degree by sales of fewer Powerbooks as well as continued softness in the US consumer retail area.

LICENSEES. Licensees were up compared to the same quarter last year and probably did somewhere around 75,000 units in total which made the combined units close to 775,000. They have exempting agreements with their licensees covering MacOS 7. They are in the process of discussions to renegotiate those to cover MacOS 8 and Chirp. They have not reached definitive agreements yet. Relative to marketshare, they want to have a licensing program that provides for freedom of choice for their customers and they want to expand the Mac platform. But, they are going to compete vigorously against the clones and do everything they can to beat them in the marketplace by having superior products and a value proposition for their customers. Moving forward they expect a more dynamic MacOS market and they will participate very aggressively.

BACKLOG CUT. Apple resolved availability problems for their high-end PowerMacs in the latter part of this quarter. As a result, they were able to bring down backlog from approximately $420 million to about $236 million at the end of this quarter. Ending channel inventories were comparable to those of the prior quarter with the exception of high end Power Mac inventories where they built back up to the more normal channel levels for those products. They are reviewing their position on channel inventory levels.

EVALUATING COMPETITOR MOVES TOWARD DIRECT MODELS. They know that Compaq, HP, Packard Bell, and others are trying to emulate at least in a hybrid way some build-to-order and direct approach to the marketplace. It is something that Apple is evaluating right now and they haven't finalized their plans in that area, but if they begin making moves similar to what some of their other competitors have -- those who formerly had an indirect model -- it would include plans about bringing the normal channel inventories down a little. Certainly Compaq has announced their intention to do that.

THIRD PARTY SUPPORT FOR RHAPSODY. They have made lots of progress in ISV support for their new operating platform. They announced a dual-line strategy with MacOS and Rhapsody at their developer's conference. They are scheduled to ship their first development release of Rhapsody by the end of the Summer. Yesterday they had a joint announcement with Computer Associates and they have announced that they will integrate their new object-based database, Jasmine.

GROSS MARGIN IMPROVEMENT. Gross margins improved moderately to 20% from 18.9% in the previous quarter. The improvement was due primarily to improved margins on value products as well as greater sales of their high-end Power Mac products, particularly the 8600 and 9600 Series products. The positive mix shift toward these high-margin products was offset in part by a reduced mix of Powerbooks. Pent-up demand for Powerbook 3400 eased relative to last quarter which was when it was introduced. Powerbooks represented only 13% of the unit mix this quarter compared to 22% last quarter.

AVERAGE SELLING PRICES. Average selling prices overall were down sequentially by about 6% due largely to mix and price reductions in the Powerbook space as well as sequentially lower peripheral connect rates. They think average selling prices, if anything, will probably be up a little going forward.

REDUCED SPENDING. In terms of operations, as anticipated, they achieved rapid results from their restructuring initiatives in the form of reduced spending. Operating expenses decreased sequentially by 17% and they expect a further reduction in operating expenses in the fourth quarter. They exited the third quarter with 11,021 employees -- 9068 full-time employees and 1953 temporary employees, contract, and others. This represents a reduction of about 2100 employees from the March quarter and 2700 from the year-ago quarter. They incurred approximately $60 million in restructuring costs during the quarter that were applied against their previously established reserves. Most of these costs consisted of employee severance payments.

NATSTEEL SINGAPORE DEAL. In the last week, they announced that NatSteel Electronics will acquire all of Apple's Singapore printed circuit board manufacturing assets and will supply main logic boards for Apple's regional demand fulfillment operations center in Singapore. This agreement was effective on July 14th. NatSteel expects to generate about 400 new jobs as a result of the arrangement and Apple is working with them to place as many of their Apple Singapore employees as possible. They expect to sell some of their facility in Singapore. They expect to sell the inventory related to their PCB manufacturing and related equipment. That is going to raise some money. Secondly, it should enhance their inventory turns. Thirdly, they believe it will also reduce their product costs.

LIQUIDITY. Apple finished the quarter with over $1.2 billion in cash or cash net of both long and short term debt of $152 million. The sequential decline in cash balances was due primarily to a net use of $204 million to fund operations, including the $60 million in severance payments previously mentioned, the net increases in inventory, and larger accounts receivable balances related to higher revenues. They are pleased with their asset management. They were asked about the status of their credit lines and indicated that they don't see the need to borrow. They ended the quarter with about $127 million outstanding of their Japanese short-term bank loan. The rest of it is all long-term debt out several years. They anticipate repaying half to two-thirds of the short term debt during the fourth quarter. In terms of liquidity, the company is still in a very strong liquidity position. They have investments which are doing extremely well. They also own a lot of real estate. So, they have other sources of liquidity internally. But, they don't see a problem because even though they used about $200 million in terms of cash for operations this quarter, as they continue to move the company closer to break-even, the cash usage for operations would move toward a break-even situation in the next couple of quarters so they feel pretty good about their cash position. They need about $500 million minimum to run the company, so they are well above that level in terms of availability. They currently don't have any of their receivables pledged and their receivables are over $1 billion worldwide, so the company has plenty of borrowing capacity should they need it, but with the current cash position, they don't have a need to utilize any of those sources.

INVENTORY. Ending inventories was up slightly to $534 million from $509 million in the previous quarter. Quarterly turns were close to 11. They are also happy with their average sales days outstanding. They declined to 67 days from 71 days in the prior quarter.

OUTLOOK. As they look at the fourth quarter, they expect to continue to drive operating expenses down and to continue to reduce the company's break-even point. The break-even point now is somewhere around $8 billion per year in revenues. It is their goal to continue to drive costs down in the company and they would like to drive that break-even point down close to $7 billion. They will be working on that very strongly over the next several months. Right now what they are doing is reviewing all of their product roadmaps and projects in the company on a bottoms-up basis and anything that isn't really going to create value for their customers in their core markets is going to be on their list for evaluating whether they should continue to do it. Beyond saying that their near-term goal is to drive the break-even down to $7 billion, they don't know how much more they can cut the costs without continuing the evaluation. As they said in their press release, their highest priority is to return the company to sustainable profitability as quickly as possible. Although they are very motivated to achieve that objective, they do not expect to show a profit in the fourth quarter. Obviously they will continue to work aggressively toward the goal of profitability, but will refrain from predicting the precise timing. The company was asked about revenue expectations for the fourth quarter and responded that they were out of the business of predicting the exact time of returning to profitability and don't want to get into predicting what the revenue will be for next quarter. Traditionally, the fourth quarter is stronger than the third quarter. But, beyond an observation of normal trends, they don't want to predict revenue outlook.

STRONG MANAGEMENT TEAM. They indicated that they feel very good about the strength of the management team being able to continue to make progress toward getting Apple back on a growth path and profitable with their first priority being profitability. They are moving aggressively to recruit in a world-class CEO and selected a search firm today. The entire management team is incredibly energized because Steve Jobs is back in house bringing a fresh perspective. He is bringing a lot of energy and creativity to reviewing their product strategy, their marketing and sales strategy, and exploring opportunities for business partnerships that would strengthen the competitive position of Apple.

CRITERIA FOR NEW CEO. They were asked what they were looking for in a CEO given the track record of unsuccessful CEOs they have had since the departure of Steve Jobs in 1985. They responded that they have formed a committee that will be responsible for the search for a new CEO and includes the Chairman of Dupont, Steve Jobs, Mike Markula, and Fred Anderson. As far as the profile of the CEO, they want a strong leader who has a high energy level, hands-on, who can inspire people inside and outside the company. They want someone who can really turn on their developers, their customers, and their employees. They would like someone with good marketing instincts that understands the marketplace and it would also be desireable if they had industry experience and an industry reputation and is someone who is looking for a big challenge and has the energy level to meet that challenge.

WHY DID THEY TOSS AMELIO? They were asked, given that the performance this quarter looks pretty good, why was Gil Amelio moved out. They responded that Gil accomplished things like improving the quality within Apple. Under his tenure they accomplished reducing the expense structure of the company. They brought out some very good products and think Apple has one of the best product lines it has had in a while. Finally, they articulated an OS roadmap for the future. However, they had still not stabilized the topline of this business with regard to backorder roadmap and hadn't returned the company to sustainable profitability. So, it was the judgement of the board to ask Gil for his resignation and he agreed. It was a joint decision because it was their belief that what Apple needed was a strong leader who really had expertise in areas that Gil didn't such as this industry and really understanding customer requirements and understanding the marketing and sales side.

ANY INTERESTED BUYERS OR PARTNERS? They were asked if they had been approached by various companies for investment or buyout. They responded that it is their intent to return Apple to a success model as an independent company. It is their policy not to discuss issues related to business partnerships or potential interested parties until there is something to announce. Third, they haven't been approached by anyone.

FUTURE LAYOFFS. They were asked about future layoffs. They responded that they said at the end of last quarter that 4100 was their target, assuming that to get down to their expense levels it would all need to be layoffs. The bottom line is that they have had some attrition also. They believe that, given that they didn't outsource both their board and their final assembies test in Singapore but merely outsourced the boards, they basically have dropped their target down to 3700 from 4100. When you go back to the original target, it included about 500 cuts that were made in March. So, that 500 plus the 2100 drops 2600. They have noticed a couple hundred, so that's about 2800. With the Singapore deal, they expect 400 to go to the PCB plant, so that's about 3200. There is about another 500 or so to go.

Favorability ratings for the National Security Agency (NSA) have changed little since the fall of 2013

Respondents in the landline sample were selected by randomly asking for the youngest adult male or female who is now at home. Interviews in the cell sample were conducted with the person who answered the phone, if that person was an adult 18 years of age or older.

Among those with less education, favorable opinions of the NSA outnumber unfavorable views.

Favorable / Unfavorable / Other/Don't Know
Post-grad: 45 / 43 / 12
College grad: 53 / 39 / 8
Some college: 53 / 37 / 11
HS or less: 51 / 36 / 13

Unfortunately, you can't ask nature to sort her shit out.

Not the purposefully coordinated kind where everyone meets in a dark room somewhere to plot their actions, but the kind where everyone sharing fundamentally rotten values leads to effectively coordinated flock behaviour.

And that tells you that your simplistic view that obesity is due to a "difference in metabolism" can't be true

and if people who exercise stopped exercising for a few weeks, they'd balloon.

Obesity occurs when you keep eating even though your caloric needs are met; the difference is stored as fat. Most commonly that happens because processed foods are so efficient at delivering calories that you have ingested excess calories before your body tells you to stop eating, and because simple carbs are absorbed too quickly to be utilized. And the way to fix that is to eat foods that deliver calories slower.

Correction: September 23, 2010
An earlier version of the second graph in this post ("Percent of Adults Who Are Overweight/Obese") had reversed the labels for the rates of obesity and overweight populations. The graph has been corrected.

Without intentionally changing my diet, with the exception of ditching soda for iced tea, I lost 85 pounds in 10 months.

Once I stopped taking those pills, I slowly put the weight back on

Changing nutrition and exercising costs nothing

That's bullshit. Obese people have pretty much the same metabolism as skinny people. It's not your "metabolism" that makes you obese, it's how much and what you eat.

Causes of individual differences in BMR

  The basal metabolic rate varies between individuals. One study of 150 adults representative of the population in Scotland reported basal metabolic rates from as low as 1027 kcal per day (4301 kJ/day) to as high as 2499 kcal/day (10455 kJ/day); with a mean BMR of 1500 kcal/day (6279 kJ/day). Statistically, the researchers calculated that 62.3% of this variation was explained by differences in fat free mass. Other factors explaining the variation included fat mass (6.7%), age (1.7%), and experimental error including within-subject difference (2%). The rest of the variation (26.7%) was unexplained. This remaining difference was not explained by sex nor by differing tissue size of highly energetic organs such as the brain.[10]

Thus there are differences in BMR even when comparing two subjects with the same lean body mass. The top 5% of people are metabolizing energy 28-32% faster than individuals with the lowest 5% BMR.[11] For instance, one study reported an extreme case where two individuals with the same lean body mass of 43 kg had BMRs of 1075 kcal/day (4.5 MJ/day) and 1790 kcal/day (7.5 MJ/day). This difference of 715 kcal/day (67%) is equivalent to one of the individuals completing a 10 kilometer run every day.[11]

Anything that can seriously help people control their weight isn't a gimmick, it's a fix

In a 12-month clinical trial considered by the FDA, 38.3% of subjects who received the active Maestro device lost at least a quarter of their excess weight, and 52.5% of subjects lost at least 20% of their excess weight. On average, weight loss in those subjects with an active device was about 8.5% greater than that seen in subjects who received a Maestro electrical pulse generator that was not activated.
  ...
 
While the cost of the device has not yet been set, Lea said that getting the device implanted and activated will likely cost "somewhere between $20,000 and $30,000"--an amount that is more than gastric banding but less some of the most complex gastric bypass surgery.

and since the kids didn't have their "we're free range & ok" sign with them