IMOS paid off another 35.6M of debt in Q1. My question is, when the total debt reaches 0 in about 2.5-3 years, will the extra money count towards the bottom line? Are we looking at potentially 130M dollars of extra earnings once total debt reaches $0? If so, this could be a huge driver of EPS by 2015. Thanks in advance for the responses.
No, Boober. You are mixing balance sheet issues with p & l issues. IMOS uses free cash flow from its profits to pay down its debt. The primary impact on profitability here is the interest on the debt. Once it is paid off the interest goes away, creating more profit because that interest expense is gone. But IMOS re-financed its debt a few years ago and pays a very low rate. Once the debt is gone, the money that had been going towards debt can be used for dividends, buybacks, acquisitions, additional capex, etc. The future is indeed very bright for this company and its shareholders. They were able to pay down nearly $500 Million in debt during the TOUGH times- can you imagine what they can accomplish in Good times??????
No, the extra money will not count as extra earnings anymore than Google's and Apple's and Microsoft's piles of extra money counts as extra earnings for them. But at that time we WILL be debt free....................although most companies (except Apple) never want to be completely debt free and will always have SOME debt regardless of how much cash they have.
Short answer is no except the interest expense saving component. Paying off debt is a balance sheet transaction so there is no direct income statement impact. However, the company can use the extra cash to expand business so it might change revenue and expenses which are income statement items.