Mr. Fun:
I start with operating earnings (not earnings as reported) so I do not adjust for taxes, nor do these earnings include interest received or paid. I started with Operating Income of $1,356MM for the quarter which excludes "one-time" merger and acquisition expenses and IPR&D charges.
I show Inventories at $5,179 this quarter, and $4,332 last quarter, so the increase was $847MM (not $604 MM). I show the increase in contracts in progress as $232 MM (not $222 MM). I have the net increase in A/R (after changes in the allowance for doubtful accounts) as $734MM, (not the $249 MM you show). I have an increase in other current assets as $368MM, (not the $97MM you show).
I also show the following items which you did not include:
1. Post retirement benefits decreased $15 MM -- this is a use of cash
2. Accounts payable increased by $295 MM -- this is a source of cash
3. Accrued P/R and benefits increased by $277 MM -- this is a source of cash
4. Other liabilities decreased by $58 MM -- this is a use of cash.
I have no estimate for depreciation and amortization at this point, but excluding those sources of cash I show a net negative cash flow of <$326MM> for the quarter (before income taxes). I cannot tell from the statements available how much income tax was actually paid for the quarter (which of course would be a negative cash item).
So making a few SWAGs, let's assume that taxable income is around $856MM (giving effect to your $500MM depreciation and amortization estimate), and assuming a tax rate of 25% (a total SWAG) we would have taxes paid of $214MM.
So, net net I would come to an operating cash flow of <$40 MM>. But this ignores an important issue -- one-time merger related cash expenses. The history of LU clearly indicates that these acquisition costs (and I'm not talking about non-cash IPR&D charges) are clearly recurring. Every quarter we have LU buying companies to fuel growth. Although not a traditional consideration for on-going analysis, I
think it's fair to consider these costs akin to real R&D expenditures.
Now I realize that both of us needed to make certain assumptions to arrive at our respective conclusions, but even assuming that you are correct and I am wrong I would contend that a $228 MM operating cash flow on reported earnings of $888 MM is a poor show.
TTFN,
CTC |
