Talking Up 'Net Debt' Allows Some Firms to Take a Load Off
Some companies have found a good cosmetic use for their cash hoards: making their fat debt loads appear a little slimmer.
AT&T Corp., Dana Corp., Qwest Communications International Inc. and Verizon Communications Inc. recently have talked up "net debt" instead of "total debt." Net debt generally means a company's debt, minus the cash and cash equivalents it has on hand.
The net debt figures are lower, often billions lower, than total debt. Many companies took to emphasizing net debt figures as investors were sobering up from the boom and once again worrying about their companies' debts. For their part, companies have long sought creative ways to beautify public pronouncements about their earnings and financial health. They describe charges that crop up in not-so-rare fashion as "nonrecurring." They also like to steer discussions toward measurements like net debt, pro forma earnings or Ebitda (earnings before interest, taxes, depreciation and amortization) that have legitimate uses but are poor substitutes for net income or total debt.
"My concern is that the casual investor may not catch the word 'net,' " says Steve Paspal, a senior analyst with Sovereign Asset Management, a unit of John Hancock Investments. The emphasis on net debt can be so pronounced that it's easy for investors to lose sight of the larger total-debt figure, particularly when many investment professionals are blase about the difference, even when it's gigantic.
In the text of its first-quarter earnings press release, Verizon didn't mention anywhere its total long-term and short-term debt of $54.1 billion. Instead, it highlighted net debt, which was 8% lower at $49.9 billion.
New York-based Verizon, the nation's largest phone company by revenue, generated $5.8 billion from operations in the first quarter, more than enough to cover expenses. It is applying extra cash and money from asset sales to repay debt. Last year the firm cut $10.2 billion from its total debt. "We feel net debt is appropriate because we've told investors that we're using that cash to pay debt," says Verizon spokesman Bob Varettoni.
But as with any figure that makes a company look better, investors ought to be careful. The cash that companies like to subtract from their debt isn't always readily available for repaying debt. And some companies exclude certain aspects of their total debt from the net figure they highlight for the public. Dana Corp., for instance, excludes about $841 million in debt at one of its units. Factoring in cash, it has net debt that's 41% lower than its total debt of $3.4 billion. AT&T's net debt excludes $1 billion in debt related to changes in foreign-exchange rates and, taking cash into account, is 38% smaller than its total debt of $17.5 billion.
Until recently there wasn't much point in highlighting net debt because it was usually about the same as total debt, notes Moody's Investors Service credit analyst Dennis Saputo, who says net debt is often a valid measure these days. In the past, large companies rarely kept more than a few hundred million in cash unless they were planning a big acquisition. But that has changed as companies like Verizon and AT&T have cut back on capital spending and sold off huge portfolios of assets.
Cash stockpiles have ballooned and the difference between net debt and total debt has become significant. Verizon, for example, had $704 million in cash on hand at the end of 1998. By the end of 2002, the amount had doubled to $1.4 billion and was $4.1 billion at the end of the first quarter, as the company prepared to pay off a large chunk of debt. As of last week, AT&T's cash pile had grown to $5.3 billion from only $231 million in the first quarter of 1998.
"Cash is cash," says Robert Gensler, manager of the T. Rowe Price Media and Telecommunications Fund. "You should get credit for it." He says net debt is typically a reasonable way for an equity investor to look at a company's debt, particularly now that the liquidity crunch that caught many companies off guard about 18 months ago has largely eased.
But companies might not use their cash to pay off debt if they turn unprofitable, are burning cash, restructuring, starting up, planning an acquisition or share buyback, or saving up to pay a big bill. And some companies' cash treasure includes money that is held by foreign subsidiaries and can't be readily tapped without blistering tax penalties, says Brad Rexroad, an analyst at Assay Research LLC in San Diego. Many companies are required by lenders to keep a certain amount of cash on hand. Others have underfunded pension plans, or might need to keep cash handy because they'd probably have trouble getting access to new credit.
Phone carrier Qwest, for instance, points to the $2.4 billion in cash on its first-quarter balance sheet, which gave it net debt of just under $20 billion, or 11% less than its total debt of $22.3 billion. The Denver company has been aggressively selling off assets to raise cash and reduce its troublesome debt burden.
Glenn Reynolds of CreditSights Inc., an independent research firm in New York, says junk-rated Qwest is among those that could have trouble with access to capital and therefore isn't likely to be in a position to fully empty its pockets, making the net-debt term less meaningful.
Qwest says the company already has committed the cash to pay down debt and won't use it for any other purpose. "The reason why we use net debt is that we've got cash on hand that we've already committed to pay down maturities," says company spokesman Tyler Gronbach. "We feel it is appropriate." He added that the company's business plan is fully funded so it doesn't expect to borrow more.
The effect of foreign-exchange rates on AT&T's second-quarter net debt of $10.8 billion is substantial. By the end of the second quarter, changes in foreign-exchange rates had added $1 billion to AT&T's debt because a weak dollar makes it that much more expensive for the company to repay bonds issued in euros, which now make up $4 billion of its debt.
The Bedminster, N.J., phone company excludes that $1 billion from net debt because it has a hedging investment designed to cancel out the effect, says Rich Sullivan, vice president of investor relations.
"I think net debt is a metric that's well understood," says Mr. Sullivan. "AT&T does all it can to make sure we're absolutely explicit about what it includes." Indeed, AT&T doesn't even force investors to read the fine print. It makes note of the foreign-exchange exclusion in its press release.
Dana, a Toledo, Ohio, supplier of auto parts that is now battling a hostile takeover offer, had second-quarter net debt of $2 billion, excluding $546 million the company's core business had in cash as well as the $841 million in debt held by the company's Dana Credit Corp. unit and the unit's $86 million in cash. The company isn't free to spend all its cash, says Treasurer Glenn Paton . It has to keep about $100 million on hand in order to abide by the terms of its letters of credit and workman's compensation programs, Mr. Paton says.
The company, he says, excludes its Dana Credit Corp. unit from most of its discussions with the public because the multifaceted leasing business doesn't fit terribly well with the company's core business.
"Most of the people who are interested in Dana are interested in it as an automotive company," Mr. Paton says. "They aren't interested in the leasing and they don't understand it."
"It's not a question of hiding anything. We've been doing this for 20 years now and nobody is complaining."
少量"净债务"背后的庞大负债
一些公司为其现金储备找到了一个好用途：粉饰臃肿的高额负债，使其看起来苗条一些。
美国电话电报公司(AT&T Corp., T)、德纳公司(Dana Corp., DCN)和Verizon Communications Inc.最近开始使用"净债务"而非"总债务"。净债务通常指的是一个公司的负债减去现金和现金等价物后的剩余部分。
净债务的数额比总债务要小，通常可以少上数十亿美元。许多公司开始强调净债务数据，这是由于投资者正在逐渐从股市泡沫中清醒过来，再次关注所投资公司的债务。对他们而言，长期以来，各公司一直都在寻找新的方法来美化其收益报告和财务状况：他们将并不十分鲜见的支出描述为"一次性的"；还喜欢把讨论的方向引向净债务、预估收益或Ebitda（利息、税项、折旧、摊销前收益）等衡量标准。这些衡量标准有其合法用途，但却难以替代净利润和总债务等标准。
John Hancock Investments旗下Sovereign Asset Management的高级分析师史缔夫?帕斯帕(Steve Paspal)表示，他所担心的是，漫不经心的投资者可能不会注意到"净"字。强调净债务很容易会让投资者忽视规模更大的总债务，特别是如果许多专业投资人士都对二者的差距无动于衷，即使二者的差距很大。
在公布第一财政季度业绩的新闻稿中，Verizon在任何地方都没有提及总计541亿美元的长期和短期债务。相反，该公司强调了较总债务低8%的净债务（499亿美元）。
按收入计算，总部设在纽约的Verizon是美国最大的电话公司，第一财政季度营运收入58亿美元，远超过其费用。该公司将额外的现金和资产出售的所得用于偿还债务。去年，该公司将总债务削减了102亿美元。Verizon发言人鲍勃?维若帝尼(Bob Varettoni)表示，公司认为运用净债务很贴切，因为公司已经告知投资者将用现金来还债。
但就像对待任何一个可以使一家公司业绩看上去更好的数字一样，投资者对净债务也应该保持谨慎。公司准备用来偿还债务的现金并不总是随时可以用来还债。一些公司还将总债务的某些方面从所公布的净债务中排除。以德纳公司为例，该公司将一子公司8.41亿美元的债务排除在外。再将现金考虑在内，其净债务比总债务34亿美元低41%。美国电话电报公司的净债务排除了10亿美元和汇率变动相关的负债，再把现金计算在内，其净债务较175亿美元的总债务少38%。
穆迪投资服务公司(Moody's Investors Service Inc.)信用分析师丹尼斯?萨普托(Dennis Saputo)表示，在公司收益中强调净债务还是最近的事，因为以前净债务和总债务常常是基本相同的。在过去，除非准备进行大规模收购，一家大公司手中很少有上亿美元的现金。但是现在，由于Verizon和美国电话电报等公司削减了资本支出，出售了大量资产，情形已经发生了变化。
现金储备的规模正在不断扩大，净债务和总债务之间的差别也日益增加。以Verizon为例，该公司1998年底手头有现金7.04亿美元。到2002年底，其现金额翻了一倍，达到14亿美元。由于准备偿还大笔债务，该公司第一财政季度末的现金甚至达到了41亿美元。截至上周，美国电话电报公司的现金储备已从1998年第一财政季度的2.31亿美元增至53亿美元。
T. Rowe Price Media and Telecommunications Fund经理罗伯特?根斯勒(Robert Gensler)表示，现金就是现金，这是一件好事。他说，净债务通常是股票投资者研究公司债务的合理方式，特别是由于大约18个月前让许多公司措手不及的流动资金危机现在已经基本解除。
但Assay Research LLC驻圣地牙哥的分析师布莱德?雷克斯罗德(Brad Rexroad)表示，如果公司出现亏损，需要现金开支，正在重组，处于起飞阶段，计划进行收购或回购股票，或需要积累现金来支付大额费用的话，这些现金未必会用来偿还债务。另外，一些公司的现金储备中包括由外国子公司持有的部分款项，使用前必须缴纳税收罚款。很多公司是应借款人的要求在手头保留一定数量的现金。还有一些公司养老金计划资金不足，或因难以获得新的贷款而需要有随时可以支配的现金。 例如，电话运营商Qwest第一财政季度资产负债表所反映出的现金为24亿美元，其净债务也因此不足200亿美元，较223亿美元的总债务低11%。该公司一直在大量出售资产，以增加现金并减少债务负担。
独立研究公司CreditSights Inc.驻纽约的格伦?雷诺滋(Glenn Reynolds)称，Qwest的信贷评级为垃圾级，属于那些可能难以获得资金的公司，因此不大可能让自己囊中空空如也，所以净债务对该公司来说意义不大。
Qwest称，公司已经答应将现金用于偿还债务，不会用于其他用途。公司发言人泰勒?格伦贝荷(Tyler Gronbach)表示，公司使用净债务的原因在于，公司手头有现金，而且已经答应将其用于偿还到期债务，因此公司认为用净债务是恰当的。他补充说，公司的业务计划已有充裕的资金支持，因此预计不会再借款。
外汇汇率对美国电话电报公司第二财政季度108亿美元的净债务影响巨大。截至第二财政季度末，汇率变动使该公司债务增加了10亿美元，这是由于美元走软使该公司偿还以欧元发行的债券时成本增加。欧元债券目前占该公司负债的40亿美元。
该电话公司负责投资者关系的副总裁里奇?苏立文(Rich Sullivan)称，公司在净债务中没有包括这10亿美元，是因为该公司进行了对冲投资，可以消除影响。
苏立文认为，净债务是一个很好理解的度量标准。美国电话电报公司已经竭尽全力，以确保公司对包括在净债务中的项目都解释得十分清楚明了。事实上，美国电话电报公司甚至没有强迫投资者去阅读其中的条文，公司在新闻稿中对汇率影响的排除进行了注释。
总部设在俄亥俄州托莱多的德纳公司是一家汽车部件供应商，目前正在努力摆脱一项恶意收购。该公司第二财政季度净债务为20亿美元，其中不包括公司核心业务所有现金5.46亿美元，也不包括子公司Dana Credit Corp.的8.41亿美元债务及8,600万美元现金。公司司库格伦?佩顿(Glenn Paton)表示，公司不能自由支配全部现金。根据信用证条款和员工赔偿计划的规定，公司必须持有1亿美元的现金。
他称，该公司公布的大多数业绩中均不包括子公司Dana Credit Corp.，这是因为子公司多层面的租赁业务和德纳公司的核心业务不是很和谐。
佩顿称，大多数对德纳公司感兴趣的人都认为该公司是一家汽车公司。他们对租赁不感兴趣，也知之甚少。
这并不是要隐瞒什么。公司采取这样的做法已经有20年，且没有人就此有过抱怨。
