>>So financing upgrades via revenue isn't so far fetched.
>What does this mean?
I think that if we look at the Cash Flow, comming up with 170 million isn't out of the question. Note I'm saying that before I look at it. My first question would be what was the depreciation last qtr?
Also, APM is reviewing it's plans, and may not need to expend 170 million given the strategy changes. One of the links Don posted recently reiterated that you use the same equipment to produce MR/GMR heads as TFI, but need to add a few pieces here and there for some additional steps. So adding equipment to say, 2 locations instead of 3 (shutting down #3) could cut the upgrade cost. Such a shutdown would incur a charge to book for the write off, but not effect Cash Flow. It's also been pointed out that APM has upgraded their facilities in CA already and is in the process of upgrading other facilities (me memory fails me on the specifics).
Do you mean that you don't expect the situation in Malaysia to get bad enough that the bank must call loans in?
In the 80's, the banks did this to lots of american co's, causing some pain. Some companies could not expand revenues because of lack of financing. But it was more related to decreasing the ratio of loans to the banks capital than any concern about the default risk of the company. So I believe that it's possible the banks will call the loans.
Do you think there is a risk of the banks calling the unsecured loans simply if APM starts to show lossess and liquid assests are thin?
No, I don't think the banks are going to call the loans due to credit risk concerns. Too many benefits accrue to Malaysia (ie employment, taxes, interest income) and companies do lose money. Remember that it's the american trait to think qtr by qtr, whereas the asians reportedly think in terms of decade by decade.
One could wonder why APM didn't convert debt to equity at their peak, ie when the stock was trading between $30 and $60. In retrospect, it seems this would have made sense. But issuing additional shares to retire credit facilities would have diluted per share earnings and may even have precipated a decline. Also, APM is in the business of mfg heads etc, not timing the market. So I think they've been using good financial management (and leverage at a reasonable cost) to increase return on equity. |
