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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: brushwud who wrote (100237)	3/27/2000 2:58:00 PM
From: tejek	Read Replies (2) \| Respond to of 1572336

When a company buys a machine, it reduces cash and increases equipment, both assets on the balance sheet. Then they expense the depreciation for the current fiscal period, reducing the value of the equipment asset, and keep doing so until the value of the asset is zero. Alternatively, if the total cost of the item were written off on the income statement, it would be mostly offset by an accrual for the remainder of its useful life. brushwad, This has gotten way off the point; Charles had said that AMD was not opening Dresden because of the depreciation expense whereas I say its because of the loan pymts that are triggered when production starts. My understanding is that depreciation is not an out of pocket expense like loan pymts and in fact can be used as an offset to income and result in a reduction of taxes. Depreciation does result in assets having less value and that becomes apparent when you go to sell the asset. However I don't think depreciation is the deterrent that is delaying the opening of Dresden; in fact the fab itself is probably undergoing depreciation right now and only depreciation on the equipment is being delayed. I think the deterrent is the construction loan repayments...a very healthy out of pocket expense. I suspect Sanders wants to be assured of a strong rate of production at Dresden to insure that there will be sufficient income to offset the loan repayments. In other words he does not want to use income generated by Fab 25 or other revenue producers in the company to pay for Dresden. The more I look at this argument, the more I believe it is the correct one. ted