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Slim Shady

 
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  • Comparing EPS Vs. Operating Cash-Flow Per Share (OCFPS) - A Lesson On Earnings Quality [View article]
    Brian - the cash flow numbers are being manipulated with proper accounting. You indicate you'd rather look at cash flows without properly understanding what those alleged cash flows represent, just taking their word for what they are.
    Sep 30, 2014. 04:03 PM | 1 Like Like |Link to Comment
  • Comparing EPS Vs. Operating Cash-Flow Per Share (OCFPS) - A Lesson On Earnings Quality [View article]
    Lloyd & Brian, Operating Cash Flow and Free Cash Flow aren't difficult to manipulate if that is your focus, which it is for Amazon. The fact that it shows up in the "Operating" section of the cash flow statement doesn't mean that it is derived from operations or is indicative of the cash flow being generated by the selling of goods and services.

    Reported "Operating" cash flow for Amazon includes Stock Based Compensation (which is all restricted units, not options). Issuing Stock is a financing transaction, rather than an operating transaction. Just because you pay employees with stock instead of issuing stock to a third party and paying them in cash doesn't turn it into cash flow derived from operating the business.

    Changes in Working Capital do not tell you how much cash flow is being derived from selling goods and services, but is rather how they have to finance their business. Borrowing from your suppliers by not paying them for 75+ days while receiving payment from your customers quickly is a positive business attribute and allows you to cheaply finance your business, but your company isn't more profitable because you are borrowing from your suppliers.

    Third, all kinds of items fall into Depreciation & Amortization which are ongoing business expenses such as Amortizing Internal Use Software, which is capitalized and amortized over 2 to 3 years, "other amortization" which could be the expensing of the video content library, and depreciation of capital leases, most of which is computer equipment for AWS which is obsolete in 4 years. Adding back D&A to get Operating Cash Flow is done under the assumption that long lived assets such as buildings must be depreciated for accounting purposes but really don't lose value over time. Only about 1/2 of Amazon's total D&A is actually for the depreciation of long lived assets with the other 1/2 just there to prop up their favorite "Operating Cash Flow" metric.

    Capital Leases have become the preferred route for Amazon recently to finance AWS and warehouses growing from only 831 million in 2012 to $3.562 billion in the last 12 months. Why? Well, they don't hurt your "Operating Cash Flow" because you add back 100% of the depreciation of your capital leases in that calculation. Second, they don't count against your "Free Cash Flow" because they are not included in the Cash Flow statement under purchases of Property Plant & Equipment, since they are non-cash transactions that are disclosed separately at the bottom of the cash flow statement. Payments on capital leases are included in the financing section of the cash flow statement, so they don't factor into Amazons calculation of Operating or Free Cash Flow either.

    Amazon even makes this disclosure:
    "Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cash payments for business acquisitions. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows."

    Perhaps the CFO that is leaving understands the accounting gimmicks that are being played to make the Cash Flow Metrics look better than they actually are and is getting out while he can.

    Sep 30, 2014. 09:52 AM | 4 Likes Like |Link to Comment
  • With Amazon Bears Proven Wrong, The Road To $400 Remains Open [View article]
    Good point Rocco - why be blinded by the realities of finance and economics when you've earned your degree from the Gary J School of Investing, where there is no textbook and the only theory is: -

    AMZN price
    1997 $5
    now - $328

    Unfortunately for you and Gary J, neither has created a time travel machine to go back to 1997 and invest in Amazon at $5 again. Looking at a chart from the past doesn't help you to invest in the future.

    Now you could look also look at the chart that shows the AMZN price of:
    12/26/13: $404
    9/22/14: $322
    In this case, I suppose your thesis would have to be bearish, because the price has gone down, and that's what the chart tells you.

    Your new paradigm theory of sexy names and ubiquity does nothing to help investor returns. The airline industry was likely one of the sexiest industries of it's time with expanding ubiquity around the globe, but because of the terrible economics of the business, almost every airline has gone bankrupt at least once in its lifetime.
    Sep 22, 2014. 02:31 PM | 20 Likes Like |Link to Comment
  • Amazon: The Twitch Acquisition Is, For Now, Highly Irrelevant [View article]
    Only in Bizarro land would a company's equity cap go up by $3.7 billion for doing a $970 million acquisition of a company whose product is to watch other people play video games. If it really added that much value, Google or Yahoo would have paid more.
    Aug 29, 2014. 10:42 AM | 7 Likes Like |Link to Comment
  • Amazon's Profit Margins Are - Like The Curate's Egg - Good In Parts. At Its Core, It Will Remain A Low-Margin General Retailer For Years To Come [View article]
    But the price went up over the long term...so according to your logic

    "Great Companies go up over the long term", Microsoft went up over the long term, therefore, Microsoft was a great company in 1999.

    Cmon Gary, simple logic...it is not a difficult concept.
    Aug 11, 2014. 10:33 AM | 1 Like Like |Link to Comment
  • Amazon's Profit Margins Are - Like The Curate's Egg - Good In Parts. At Its Core, It Will Remain A Low-Margin General Retailer For Years To Come [View article]
    "Great Companies go up over the long term"

    Gary, You could've made the same argument for Microsoft in 1999...

    Microsoft

    1986: $0.15 Earnings: less than $0.01
    1999: $52.53 Earnings: $0.71
    2000: $19.51 down 63% Earnings: $0.85

    Amazon
    1997: $ 5 Equity Cap: $1.3 bln Net Income: -$31 million
    1/21/14: $407
    Now: $ 317 Equity Cap: $146 bln TTM Net Inc: $180 million
    2015: ??
    Aug 11, 2014. 10:20 AM | 1 Like Like |Link to Comment
  • Who Is John Galt And What Stocks Would He Buy? Part I [View article]
    Actually Joey, I get more financial information from the Private companies I invest in than the information public companies are mandated to disclose, all without the coercion of the government. Private companies have an incentive to provide information because they need access to capital and would not get it without the increased disclosure. Public companies would likely disclose significantly more information if it weren't for the threat of frivolous lawsuits they face from the disclosures that they make. The SEC provides a veil for public companies to disclose the absolute minimum amount of information and allows them to present the information in a manner (GAAP accounting) that is not particularly useful in evaluating the true economics of a business.
    Aug 6, 2014. 11:59 PM | 1 Like Like |Link to Comment
  • Amazon.com's Free Cash Flow Has Not Been Doing Too Well, Either [View article]
    Cayman - Amazon is only free cash flow positive because it sells equity to pay its employees and it borrows money from its suppliers, neither of which demonstrates that the primary operating activity of the company, the selling of products and services to customers, can generate cash flow.
    Aug 4, 2014. 12:23 PM | 6 Likes Like |Link to Comment
  • Amazon.com's Free Cash Flow Has Not Been Doing Too Well, Either [View article]
    Cayman, it is included as Property and Equipment on the balance sheet, but it is NOT included in Cap Ex in the Cash Flow Statement, because it is a "non-cash" transaction. That is the reason for the Supplemental Cash Flow section of the cash flow statement AND the statement directly from Amazon's 10K that is listed above which clearly states "free cash flow does not incorporate the portion of payments representing principal reductions of debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements". How much clearer does it have to be for you?
    Aug 4, 2014. 12:17 PM | 5 Likes Like |Link to Comment
  • Amazon.com's Free Cash Flow Has Not Been Doing Too Well, Either [View article]
    Cayman,
    FCF is NOT hit with Capital Leases, because they are NOT included in the Cap Ex line. Take a look at the Cash Flow statement, look under Supplemental Cash Flow Information, and you will see the line item Property and Equipment Acquired Under Capital Leases. Payments on Capital Leases are under the financing section, but the depreciation on the capital leases IS in the D&A line, so free cash flow gets a boost by the depreciation but does NOT get penalized by the payments.

    From the 10K: Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cash payments for business acquisitions. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.
    Aug 4, 2014. 11:22 AM | 5 Likes Like |Link to Comment
  • The Amazon.com 'Come To Jesus' Earnings Report [View article]
    With that kind of accounting logic, PeterXLX must be the CFO of Amazon...
    Jul 28, 2014. 08:59 PM | 3 Likes Like |Link to Comment
  • What Amazon's Earnings Won't Tell You [View article]
    "free cash flow is the key metric...I prefer to take into account all investing activities not just capital expenditures."

    Do you realize that you excluded from AAPL's free cash flow purchases of marketable securities (i.e. cash), of $24 bln, $38.5 bln and $32.4 over the last 3 years? For Amazon, they had net purchases of marketable secruities of 520mm in 2013 but net sales of marketable securities of $935 mm and $586 mm in 2012 and 2011. You may want to re-run your numbers before jumping to any conclusions.
    Jul 28, 2014. 08:11 AM | Likes Like |Link to Comment
  • Micron's Toxic Converts: The Beginning Of The End? [View article]
    >> 4) think an increasing stock price makes converts more expensive.<<
    You don't think the price of a convert is affected by the stock price?????

    Of course the price of the converts is higher if the stock price goes up, but a convert this deep in the money is essentially equity. The same number of shares will be issued regardless of the share price as long as they are in the money. The equity embedded in the convert has already been sold at a specific price when it was issued. That doesn't make it any more expensive, similar to if they had sold equity and the price goes up after the fact doesn't make the equity issuance "more expensive".

    Since you are obviously incapable of comprehending my responses, and don't care to understand, this will be the last you hear from me.
    Jul 27, 2014. 07:40 PM | 1 Like Like |Link to Comment
  • Micron's Toxic Converts: The Beginning Of The End? [View article]
    I'm doing quite well, thank you.

    If you do own thousands of options contracts, that is impressive given that you:
    1) still think of profitability you make on positions as "house money"
    2) don't understand that a deep in the money convert is essentially the same as stock
    3) think you can buy back converts in the market without paying a premium to the conversion price for the interest expense that would be paid until the company can force conversion.
    4) think an increasing stock price makes converts more expensive.
    5) wanted the company to "defease" the convertible bonds, when actually buying shares to offset the dilution is essentially the same thing and couldn't come to grips with that concept.

    "Once again, I am no wiser on converts having read your latest comment."
    Then either you're not reading the comments or lack the ability to comprehend. I can't help with either of those.

    "I've elaborated a rank order list of other choices and you are mute on the subject"
    Take a deep breath, and actually read the comments - here is what I wrote and I've put in brackets which issue it addressed...
    In hindsight, you wish that they had issued different securities than the converts, yet at that time this was a company that had never earned an economic profit over its history {in other words, issuing straight debt may not have been a viable option}. You wish that their customers would have paid for the acquisition of Elpida by providing low cost debt, but why would the customers provide a supplier with the ability to consolidate the industry which has enabled them to raise prices? {in other words, the likelihood of obtaining "customer" financing at low rates of interest is absurd} The reality is that their funding options were likely either selling converts {your next choice} or issuing more equity {your last choice}.

    So if your 1st and 2nd choices weren't viable, they issued converts, which was viable at the time.

    You asked me to address the following...
    Lets look at the present and forward:
    - Are you blissfully happy with the capital structure Ron Foster has put together?
    As of 5/29/14, they have $4.8 bln of cash, $3.75 bln of which is held by foreign subsidiaries. So they have about $1 billion in U.S. cash to weather a potential downturn in a notoriously cyclical business. Are you advocating they repatriate the foreign cash and pay 35% taxes on it? Are you suggesting they need to lever up more to repurchase what is essentially equity and expose themselves if there is a cyclical downturn? A business can take operational risk or financial risk, but taking both is a recipe for potential disaster.

    - Having seen the money Foster has left on the table exercising his stock options, and having seen the $250 million loss he generated on currency hedging would you have him manage money for you?
    Foster's personal stock options have no bearing - it could just be prudent risk management - I don't know enough about his personal finances to draw any conclusions. Given that the company's stock hadn't moved since he joined the company in 2008 prior to the Elpida acquisition and he is 63 years old, it doesn't seem imprudent to take some chips off the table without waiting for the highest tick price in what has been a highly cyclical business.
    As far as the $250 million loss on currency hedging, if it was in fact a hedge against the fluctuation of the profitability of the business based on currency movements, then yes, that is acceptable, because the business was $250 million more profitable due to currency movements. A CFO should not be speculating on currency movements. If it is truly a hedge, and the currency had moved in the other direction, it would have produced a $250 million profit and the business would have been $250 million less profitable. That's what hedging is. Would Ron Foster have been a financial genius in that outcome? Or are you suggesting they aren't hedging the operations of the business properly and if so, where is the data to back that up?

    - Would you try to get rid of these converts? How would you do it if so? There is no reason to try to get rid of the converts specifically, as they are essentially equity at this point. Getting rid of the converts is the same as buying back shares, unless you think the share price will fall below $14.23 on the 2014 notes, or below $10.93 for any of the other tranches.

    - Do you see the converts as an impediment to establishing a well explained policy of returning cash to shareholders?
    Not at all. What impediment is there? It can be confusing to people that don't know how to or take the time to read financial statements?

    - Is it a good or a bad thing that Intel and Sandisk have very impressive plans on how they will return cash to shareholders, and we don't?
    I think it's irrelevant what Intel and Sandisk are doing. MU needs to figure out on its own, based on its own situation, the best allocation of capital for the company.

    Is it a good or bad thing that MXIM, TXN and so many of our competitors have dividends and we don't?
    Whether a company pays a dividend isn't necessarily relevant. If you want to generate cash from your stock, you can sell a portion of it each quarter. Is it better for a company to pay a dividend or repurchase equity? It depends on the equity price. Given your bullishness for the equity price, you should prefer that they repurchase equity over paying a dividend.

    - Do you think we should declare a dividend while the converts are outstanding?
    Whether there are converts outstanding is irrelevant in the determination of whether to pay a dividend, but is related to the overall cash generation and uses of the business in conjunction with the option of repurchasing equity.
    Jul 27, 2014. 06:21 PM | 5 Likes Like |Link to Comment
  • Micron's Toxic Converts: The Beginning Of The End? [View article]
    Phred - I've simply pointed out the fallacy in your logic which concludes, over and over again, that the converts are toxic. Instead of trying to learn from someone that has over 20 years of experience in converts, you have chosen to take it as a personal attack.

    First, do you really own several thousand contracts of January 2015 35 calls which would imply you have nearly $1 million of premium for out of the money calls that expire in 6 months?

    Do you understand if you repurchase the converts prior to when you're able to force conversion you will end up paying all the subsequent interest payments discounted back to the present value in the purchase price? For accounting purposes you will eliminate the interest expense going forward, but for economic purposes it will have no effect.

    You still haven't realized that the company should be indifferent between buying back stock and buying back the converts. Instead, you strongly disagree.

    In hindsight, you wish that they had issued different securities than the converts, yet at that time this was a company that had never earned an economic profit over its history. You wish that their customers would have paid for the acquisition of Elpida by providing low cost debt, but why would the customers provide a supplier with the ability to consolidate the industry which has enabled them to raise prices? The reality is that their funding options were likely either selling converts or issuing more equity. You claim that they didn't need to raise the amount that they did, but that too is in hindsight.

    The point is that given the lack of funding options they had when they issued the converts, you should be thankful they were able to raise the capital they did in order to put themselves in a position to succeed going forward, which they have. Instead, you claim that every dollar the share price goes up, the more expensive the converts are. Yet had they raised equity when they needed funding instead of issuing the converts, you wouldn't say that the equity issuance was more expensive every time the stock was up a dollar.

    Don't take it personally, if you listen, you will be able to learn from it.
    Jul 27, 2014. 11:13 AM | 4 Likes Like |Link to Comment
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