Skeeter, let me try and shed some light on what Carl was trying to say relative to micron's cash flow and the impact of depreciation on cash flow.
Cash flow simply consists of net profits, less increases in working capital less capex for the period, plus depreciation (if there were taxes paid, only a portion of depreciation). The profits is simple, that is difference between what they sold their stuff at and what it costs them. A small problem arises in calculating the cost. For accounting reasons, capex is not considered costs and must be depreciated over the life of the cap. Thus the word "cost" include in it the depreciation charges. However, the cash to pay for those past capex was already expended in prior periods, thus in the current period the depreciation is a cash-less cost. Meaning they could show a loss, but if their depreciation charges were larger then the loss, they may still have a differential positive cash flow. Off course, in MU's business you die if you do not keep with capex for new technology, and as I mentioned above, current capex have a negative impact on cash flow. In the case of MU, their drastic decline in sales, actually results in a decrease in working capital (particularly receivable), which of course has a positive impact on cash flow. Carl was trying to show a case where MU could lose money yet have enough cash on hand to survive. That is true (since TXN was so generous in providing $750 MM in the package deal), short term, but sooner or later, all these expensive capex come back to bite them.
Zeev |
