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To: Skeeter Bug who wrote (39585)	10/2/1998 8:56:00 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 53903

Skeets, With depreciation you hit on a very sore point and one where I agree with MU. Basically, Asian fabs are depreciated twice as fast as MU's American fabs. Though that kills eps in the short term, the lower tax rate helps the Asians find cash to expand for the next round. It also means that if both MU and NEC report a $100 million loss, that MU's is more real, cash impacting than NEC's, as a larger part of NEC's reported losses are simply depreciation writeoffs. Where I agree with Mu is that their depreciation expense does not reflect their true costs of replacing obsolete facilities and equipment. So, net, net, they are losing more than they report and the govt. isn't eating its fair share of the loss. And cash is sinking into the cess pool. MB

To: Skeeter Bug who wrote (39585)	10/2/1998 10:24:00 PM
From: Carl R.	Read Replies (1) \| Respond to of 53903

I agree that I could have been more clear, but the numbers add up this way: If they break even after depreciation, then adding back in the depreciation to get cash flow gives them a cash flow from operations for next year of $600 million. They have $250 million in the bank. They have a $100 million refund coming from Uncle sam due to the year just ended. This would give them $950 million to spend on equipment, if they broke even. Now if they lose another $200 million next year, these losses come directly out of what they have available to spend, leaving them with only $750 million to spend. Or working from scratch, a $200 million loss after depreciation is a $400 million cash flow for next year. The $250 million in the bank and the $100 million refund would remain the same. In a more extreme example, if they show a $500 million loss from operations as they did this year, they only have $450 million available to spend. Basically in my initial post I made the assumption that everyone here understood accounting, and didn't get into the details. On cash flow statements accountants typically list depreciation as a "source of funds". As we have discussed, it really isn't a source of funds, but rather a non-cash expense. I certainly wasn't trying to confuse or mislead anyone, and I apologize for getting into this whole can of worms. As a final comment I will once again point out that capital expenses are not the only possible use of funds. Increases in inventory or AR also use up cash, for example. On the other hand, increases in payables are a "source of funds". <VBG> My main point was that that if MU has a moderately better year next year than they did this year, they should be able to finance the equipment they want to acquire without too much problem. That I presume is why the analysts didn't bother asking where the money was coming from. Now coming up with enough money to modernize the TI fabs on the other hand may be biting off more than they can chew, once the TI money is gone. Carl