In the presentation we have these jewels by the CEO:
STRONG BALANCE SHEET
$333M in Cash
$294M in Debt
$500M in revenue in 2nd half of 2014 (they only had $60 million in 1st half of 2014)
Estimate $330M in cash at year end
In the conference call there was ZERO mention of liquidity problems or even the possiblity of liquidity problems.
6 weeks later they are BANKRUPT without any filings to the SEC warning of possible liquidity problems.
Thank you. This is just... Wow.
I am reminded of a situation we had here in Germany where the government heavily funded companies that went into the solar business (I mean developing and manufacturing panels, not resellers and constructors) in order to counter the cheaper competition from China and other countries. There were quite a few examples of "CEOs" that took the money, built plants with huge promises and the next day they were gone hiding in a newly acquired castle while te company unfortunately went bankrupt...
There is a statement regarding default from a section titled "risk related to our business" from their 10-k filing,
"Without significant sapphire revenue from Apple, we would still be required to repay in cash (on a quarterly basis) significant amounts of the Prepayment Amount beginning in 2015, which would limit our ability to invest in or operate other portions of our business, including our equipment operations, or to repay indebtedness at the time of maturity of such indebtedness. In addition, these repayments may exhaust all of our cash and,if we are unable to make a payment when due (or fail to meet our supply obligations), we will be in default and Apple will have the right to acquire control and possession of the ASF systems and/or our subsidiary (GT Advanced Equipment Holding LLC) that owns these systems (and to be paid in cash for any deficiency). The prepayment installments from Apple may also be cancelled prior to payment, or repayment accelerated, under certain circumstances, including if the ASF systems do not generate sapphire material to specification prior to an agreed upon date or we are unable to comply with certain financial requirements."
So are they trying to use chap 11 to avoid this?
Well...there it is. It appears from their own filing that they didn't deliver on their promises and there are consequences (which is 100% normal). This will get much uglier. I imagine there will be more coming out of this as well legally.
There is a statement regarding default from a section titled "risk related to our business" from their 10-k"
So are they trying to use chap 11 to avoid this?
Seems like it. Which is odd since they have months to pay it back.
To me they entered into this "oppressive" contract with bad intentions. The intention being to declare bankruptcy rather than meet terms. Chapter 11 can't be used to protect yourself indefinitely from your main creditor can it?
There really isn't anything remarkable here at all. The "Apple was surprised" comment, while perhaps technically true, is not the same as "Apple didn't plan for this." Part of the deal structure Apple surely planned for was the possibility GT would not be able to do what they promised. When that happens, the parties can avail themselves of the legal processes available. This includes a bankruptcy, the details of which can be very technical. The stay in bankruptcy is broad, and effective on filing.
Apple will now deal with the trustee. This is currently a Chapter 11, but most 11's are ultimately converted to 7s (liquidation). Apple then likely gets to purchase assets at a discount, create a new company they control to do the manufacturing. This is often a business tactic when an offer to buy a company is rejected. You then show up with a huge contract, get advantageous terms, then threaten a breach to get MORE concessions. The only way to avoid this once you are in someone's crosshairs is to simply say no. It appears GT didn't, so now they get to deal with the consequence.
And the thing is the guys responsible for this (GTAT CEO/CFO) already have there money.
The GTAT CEO has sold $10,000,000 in stock this year.
Solely because of this deal with Apple the GTAT stock went from $4 to $20 this year. And the CEO cashed in on it knowing full well the company would be insolvent in a matter of months.
The $10 million could be chump change. Imagine how much could be made off $400+ million in cash to buy and install equipment. What amount of mark-up was applied to the installed equipment and who applied it? Are you buddies with your suppliers, wink! Wink!, all speculation though.
Speaking of speculation, I read somewhere that the price of gas in the USA is ~$1 per gallon higher because they say they buy so many barrels of oil from X, then another Y buys the exact amount. No actual oil trades hands, but they get paid by we the general masses. Now that is criminal!
This sign of aggression from GT Advanced indicates that the technology for sapphire is not yet well-developed and that they have probably paid the consequences as a result.
Also, I think this may, contrary to recent reports, delay the ?Watch.
Incidentally, I wonder if GT Advanced and their shenanigans may be part of the explanation for bend-gate, because the pre-production prototypes might have had more structural rigidity due to the sapphire screen? Apple had to switch to a different glass product for production, and bend-gate caught them by surprise.
I doubt it.
The screen separated so it apparently was not a factor. That said, it may have helped prevent bending the other direction as would be the case in a typical back pocket scenario, but no one tried that. Bend-gate was just smear campaign, nothing more.
It was designed to allow a company A that is owed revenue by company B but owes payments to C to protect itself from C for a time if B is tardy. If B eventually pays all is good.
Here the major creditor is the only possible source of revenue. B and C are the same. How can the company now do anything else but chapter 7.
Maybe they expect Apple to blink and pay more money than contractually obliged to avoid owning a company Apple would prefer were arms length.
The screen separated so it apparently was not a factor. That said, it may have helped prevent bending the other direction as would be the case in a typical back pocket scenario, but no one tried that. Bend-gate was just smear campaign, nothing more.
Dude, the flexural stiffness of gorilla glass vs. sapphire is irrelevant compared to the properties imparted by rest of the phone.
I wonder if characterizing the contract as "oppressive and burdensome" represents a violation of their non-disclosure clause?
How did it implode for GT Advanced?
a) They signed a deal.
b) Their CEO sold a block of stock, clearly knowing that he was going to be unable to deliver on the terms of the deal.
c) They didn't deliver on the terms of the deal.
d) Apple withheld a payment that depended on those terms.
e) They declare bankruptcy, blaming Apple and the withheld payment.
f) Their shareholders lose >90% of their equity value.
g) They escalate the bankruptcy into a plant closure in Massachusetts?
h) They float a meme about Apple's "oppressive and burdensome" terms as the reason for the whole mess.
If Apple wants the sapphire from this manufacturing process, they should buy the Mesa plant (which is already permitted, staffed, and equipped), and bring in real people to run it. Alternately, they should pull all of their equipment out of the plant and move it to any place where they can get the product.
Here's my wholly speculative sense of what happened. GT Advanced tried to play chicken with Apple, relying on their sense that Apple has a very limited ability to deal with production delays or the time cost of retooling. So they calculatedly pressured Apple's plan for a sapphire iPhone launch, only to find that Apple was perfectly happy to switch to a producer who wasn't playing games - Corning, or whoever is building the screen glass on the production phones. So Apple played chicken right back, and withheld the final loan payment (which must have been in the original contract). Apple makes better chicken. :-)
Incidentally, I wonder if GT Advanced and their shenanigans may be part of the explanation for bend-gate, because the pre-production prototypes might have had more structural rigidity due to the sapphire screen? Apple had to switch to a different glass product for production, and bend-gate caught them by surprise.
Excellent speculation.
To add to yours, it seems that Bendgate might have spread to the CEO of GT, as sog has made us aware once or twice; a bent CEO. And your surmising that a sapphire prototype would have provided a more rigid structure and avoided Bendgate is perfect. It explains everything.
Edit: I notice that you have made two posts in six years. Quality, not quantity; nothing wrong with that.
Thank you. This is just... Wow.
I am reminded of a situation we had here in Germany where the government heavily funded companies that went into the solar business (I mean developing and manufacturing panels, not resellers and constructors) in order to counter the cheaper competition from China and other countries. There were quite a few examples of "CEOs" that took the money, built plants with huge promises and the next day they were gone hiding in a newly acquired castle while te company unfortunately went bankrupt...
Same situation in the US. Obama threw $500 million in taxpayer money right down the drain foolishly funding Solyndra.
Governments should NEVER subsidize businesses for any reason. Corruption and fraud can be the only result.
It was designed to allow a company A that is owed revenue by company B but owes payments to C to protect itself from C for a time if B is tardy. If B eventually pays all is good.
Here the major creditor is the only possible source of revenue. B and C are the same. How can the company now do anything else but chapter 7.
Maybe they expect Apple to blink and pay more money than contractually obliged to avoid owning a company Apple would prefer were arms length.
Maybe, but the problem may also be debt holders for operating capital or supply contractors. Or the bankruptcy may affect IP rights, etc.
This is why you have contracts. When sh$t hits the fan, you revert back to the contract to see how what's left will get divided up. Everyone, including Apple is going to lose some money. It just won't be material to Apple's financials. GTAT and many of its other creditors are in trouble.
Ok here is the opening paragraph from the 10-Q. It's fairly honest.
Since the Company's subsidiary, GTAT Corp. entered into the Master Development and Supply Agreement (“MDSA”), facility lease and related agreements with Apple Inc., on October 31, 2013, the Company has expended significant capital resources in order to fund the establishment of its sapphire growth and fabrication facility in Mesa, Arizona ("the facility"). During the three and six months ended June 28, 2014, the Company incurred significant costs in connection with (i) the purchase, installation and qualification of production equipment and related production processes, and (ii) inventory losses and production inefficiencies to date at the facility. Such inventory losses and production inefficiencies are discussed in additional detail below within Note 2, Significant Accounting Policies under the heading Sapphire Production Ramp Up Costs . The capital resources expended in connection with the purchase and installation of production equipment and the costs incurred in commencement of operations have had a significant impact on our liquidity and financial results.
For the three month period ended June 28, 2014, the Company recorded a loss from operations of $ 84,405 and a net loss of $ 86,381 . For the six month period ended June 28, 2014, the Company incurred a loss from operations of $ 139,043 , a net loss of $ 127,778 , and used $ 102,380 in cash for operating activities.
Under its Prepayment Agreement with Apple (as described in Note 3, Significant Agreements), the Company is required to repay the Prepayment Amount (as defined in Note 3, Significant Agreements) ratably (on a quarterly basis) over a five year period beginning in January 2015, either as a credit against amounts due from Apple's purchases of sapphire goods under the MDSA or as a direct cash payment. The Prepayment Amount is non-interest bearing. The Company’s obligation to repay the Prepayment Amount may be accelerated under certain circumstances, including if the Company does not meet certain operating metrics or financial covenants. See Note 3 for additional information on the Prepayment Agreement.
The Company is currently in compliance, and based on the Company’s operational plans and financial forecasts, the Company expects to maintain compliance with the operating metrics and financial covenants in the Prepayment Agreement and management believes that the Company will have sufficient cash resources to fund operations for at least the next twelve months.
The last bit is the problem. Was the company really in compliance? If not that's fraudulent.
The first paragraph that u list here is telling in that they said the three and six month leading to June they were in the hole. So basically from January to June. So is this hole all the money apple gave and more of their own. Or was their own loss b.s. And really the plundering of apples cash. He filed in March to sell stock in May, June and July.
Dude, the flexural stiffness of gorilla glass vs. sapphire is irrelevant compared to the properties imparted by rest of the phone.
My implication was that either type of glass would add strength and rigidity when bent the other direction, as it would be compressing into the phone which I believe would, if not substantially, measurably, stiffen the entire body of the phone.
It was designed to allow a company A that is owed revenue by company B but owes payments to C to protect itself from C for a time if B is tardy. If B eventually pays all is good.
Here the major creditor is the only possible source of revenue. B and C are the same. How can the company now do anything else but chapter 7.
Maybe they expect Apple to blink and pay more money than contractually obliged to avoid owning a company Apple would prefer were arms length.
Yeah, but wasn't it reported they filed to cease operations? Sounds like they are trying to save their other LLCs, but not sapphire.
Comments
Thank you. This is just... Wow.
I am reminded of a situation we had here in Germany where the government heavily funded companies that went into the solar business (I mean developing and manufacturing panels, not resellers and constructors) in order to counter the cheaper competition from China and other countries. There were quite a few examples of "CEOs" that took the money, built plants with huge promises and the next day they were gone hiding in a newly acquired castle while te company unfortunately went bankrupt...
[video]
(My apologies if that joke has already been done)
There is a statement regarding default from a section titled "risk related to our business" from their 10-k filing,
"Without significant sapphire revenue from Apple, we would still be required to repay in cash (on a quarterly basis) significant amounts of the Prepayment Amount beginning in 2015, which would limit our ability to invest in or operate other portions of our business, including our equipment operations, or to repay indebtedness at the time of maturity of such indebtedness. In addition, these repayments may exhaust all of our cash and,if we are unable to make a payment when due (or fail to meet our supply obligations), we will be in default and Apple will have the right to acquire control and possession of the ASF systems and/or our subsidiary (GT Advanced Equipment Holding LLC) that owns these systems (and to be paid in cash for any deficiency). The prepayment installments from Apple may also be cancelled prior to payment, or repayment accelerated, under certain circumstances, including if the ASF systems do not generate sapphire material to specification prior to an agreed upon date or we are unable to comply with certain financial requirements."
So are they trying to use chap 11 to avoid this?
Well...there it is. It appears from their own filing that they didn't deliver on their promises and there are consequences (which is 100% normal). This will get much uglier. I imagine there will be more coming out of this as well legally.
Seems like it. Which is odd since they have months to pay it back.
To me they entered into this "oppressive" contract with bad intentions. The intention being to declare bankruptcy rather than meet terms. Chapter 11 can't be used to protect yourself indefinitely from your main creditor can it?
There really isn't anything remarkable here at all. The "Apple was surprised" comment, while perhaps technically true, is not the same as "Apple didn't plan for this." Part of the deal structure Apple surely planned for was the possibility GT would not be able to do what they promised. When that happens, the parties can avail themselves of the legal processes available. This includes a bankruptcy, the details of which can be very technical. The stay in bankruptcy is broad, and effective on filing.
Apple will now deal with the trustee. This is currently a Chapter 11, but most 11's are ultimately converted to 7s (liquidation). Apple then likely gets to purchase assets at a discount, create a new company they control to do the manufacturing. This is often a business tactic when an offer to buy a company is rejected. You then show up with a huge contract, get advantageous terms, then threaten a breach to get MORE concessions. The only way to avoid this once you are in someone's crosshairs is to simply say no. It appears GT didn't, so now they get to deal with the consequence.
Welcome to corporate America.
Yep. That's him.
Usually when someone is so ashamed with what they have done they point their finger elsewhere.
The $10 million could be chump change. Imagine how much could be made off $400+ million in cash to buy and install equipment. What amount of mark-up was applied to the installed equipment and who applied it? Are you buddies with your suppliers, wink! Wink!, all speculation though.
Speaking of speculation, I read somewhere that the price of gas in the USA is ~$1 per gallon higher because they say they buy so many barrels of oil from X, then another Y buys the exact amount. No actual oil trades hands, but they get paid by we the general masses. Now that is criminal!
My layman's view of this matter:
This sign of aggression from GT Advanced indicates that the technology for sapphire is not yet well-developed and that they have probably paid the consequences as a result.
Also, I think this may, contrary to recent reports, delay the ?Watch.
Incidentally, I wonder if GT Advanced and their shenanigans may be part of the explanation for bend-gate, because the pre-production prototypes might have had more structural rigidity due to the sapphire screen? Apple had to switch to a different glass product for production, and bend-gate caught them by surprise.
I doubt it.
The screen separated so it apparently was not a factor. That said, it may have helped prevent bending the other direction as would be the case in a typical back pocket scenario, but no one tried that. Bend-gate was just smear campaign, nothing more.
It was designed to allow a company A that is owed revenue by company B but owes payments to C to protect itself from C for a time if B is tardy. If B eventually pays all is good.
Here the major creditor is the only possible source of revenue. B and C are the same. How can the company now do anything else but chapter 7.
Maybe they expect Apple to blink and pay more money than contractually obliged to avoid owning a company Apple would prefer were arms length.
I wonder if characterizing the contract as "oppressive and burdensome" represents a violation of their non-disclosure clause?
How did it implode for GT Advanced?
a) They signed a deal.
b) Their CEO sold a block of stock, clearly knowing that he was going to be unable to deliver on the terms of the deal.
c) They didn't deliver on the terms of the deal.
d) Apple withheld a payment that depended on those terms.
e) They declare bankruptcy, blaming Apple and the withheld payment.
f) Their shareholders lose >90% of their equity value.
g) They escalate the bankruptcy into a plant closure in Massachusetts?
h) They float a meme about Apple's "oppressive and burdensome" terms as the reason for the whole mess.
If Apple wants the sapphire from this manufacturing process, they should buy the Mesa plant (which is already permitted, staffed, and equipped), and bring in real people to run it. Alternately, they should pull all of their equipment out of the plant and move it to any place where they can get the product.
Here's my wholly speculative sense of what happened. GT Advanced tried to play chicken with Apple, relying on their sense that Apple has a very limited ability to deal with production delays or the time cost of retooling. So they calculatedly pressured Apple's plan for a sapphire iPhone launch, only to find that Apple was perfectly happy to switch to a producer who wasn't playing games - Corning, or whoever is building the screen glass on the production phones. So Apple played chicken right back, and withheld the final loan payment (which must have been in the original contract). Apple makes better chicken. :-)
Incidentally, I wonder if GT Advanced and their shenanigans may be part of the explanation for bend-gate, because the pre-production prototypes might have had more structural rigidity due to the sapphire screen? Apple had to switch to a different glass product for production, and bend-gate caught them by surprise.
Excellent speculation.
To add to yours, it seems that Bendgate might have spread to the CEO of GT, as sog has made us aware once or twice; a bent CEO. And your surmising that a sapphire prototype would have provided a more rigid structure and avoided Bendgate is perfect. It explains everything.
Edit: I notice that you have made two posts in six years. Quality, not quantity; nothing wrong with that.
Same situation in the US. Obama threw $500 million in taxpayer money right down the drain foolishly funding Solyndra.
Governments should NEVER subsidize businesses for any reason. Corruption and fraud can be the only result.
This is why you have contracts. When sh$t hits the fan, you revert back to the contract to see how what's left will get divided up. Everyone, including Apple is going to lose some money. It just won't be material to Apple's financials. GTAT and many of its other creditors are in trouble.
The first paragraph that u list here is telling in that they said the three and six month leading to June they were in the hole. So basically from January to June. So is this hole all the money apple gave and more of their own. Or was their own loss b.s. And really the plundering of apples cash. He filed in March to sell stock in May, June and July.
Dude, the flexural stiffness of gorilla glass vs. sapphire is irrelevant compared to the properties imparted by rest of the phone.
My implication was that either type of glass would add strength and rigidity when bent the other direction, as it would be compressing into the phone which I believe would, if not substantially, measurably, stiffen the entire body of the phone.
Yeah, but wasn't it reported they filed to cease operations? Sounds like they are trying to save their other LLCs, but not sapphire.