Formerly About Advanced Micro Devices Message Board

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Politics : Formerly About Advanced Micro Devices

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To: tejek who wrote (100034)	3/26/2000 6:49:00 PM
From: Charles R	Read Replies (1) of 1572509

Ted, <I am not an accountant but depreciation is not an expense but rather its a tool or formula that participates in determining how much taxes are to be paid by a company each year and for calculating taxes on capital gains. Depreciation results in less tax and not more and therefore is beneficial.> Companies or individuals typically like accelerating depreciation if they are making a lot of money so that they can reduce tax burden. So, depreciation will improve cash flow due to lower taxes assuming the company is paying taxes. AMD does not pay any taxes right now because of accrued tax credits over the last 3 years. I expect that to change in Q2 or Q3. Depreciation reduces EPS - this is the part I was referring to as being unattractive to management. <In fact the major reason for delaying production at Dresden is that the agreement (and its been a while since I read it) with the German state of Saxony requires that AMD start repaying Saxony the monies Saxony provided for construction when Dresden gets to a certain level of production....a provision by the way that is not unusual when the government assists in a development. These loan payments have got to be huge(probably many millions per month) because Dresden was a big project. Therefore it makes no sense to start production at Dresden until Fab 25 in Austin is completely maxed out. > You just brought up another reason for pushing out Fab30 production. Loan payments reduce cash flow but have no impact on EPS or taxes. The only real impact is on the balance sheet. AMD balance sheet is not too pretty right now so delaying payments makes sense. However, I expect the balance sheet items to improve dramatically in the next couple of quarters so the issues we are talking about are very transient. Depreciation and related accounting stuff is pretty complex and companies tend to play a lot of games in this area so it is safe to say that I am simplifying the story here. May be accounting experts on the thread can comment. Chuck

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