I don't get it Elroy, what's your point?
Well, its not very complicated at all. You gave the numbers yourself.
For the year the numbers are $1,141MM Net income with a pension credit of $1,111MM.
Sure the pension picture will be a drag on earnings but you can grow out of this problem.
Do you understand what a pension credit is? For LU it is a boost to reported earnings, not a drag. It has nothing to do with the business operations of Lucent, it has to do with managing the pool of assets that they plan to use to meet their obligation to retirees. The pension credit has NOTHING to do with selling telecom equipment, and the benefit does not deserve the 10x 20x 30x multiple that you might assign to net income, because the credit doesn't grow- rather, it goes away. If you subtract the non-cash pension credit from the fiscal 2004 net income, you get essentially break even for the year.
In other words, on sales of $9 billion last year, LU broke even, but had a non-cash pension benefit of $1.1B. OK.
Now next year, if they do $9.7B, and giving the pension credit/benefit a neutral affect, how do you expect them to get to 14% cash operating on $9.7B from a zero operating margin on $9 billion? Answer - they won't.
Dig a little here. The numbers are good. Cost of Sales around 58% of total revenues.. benchmark. 42% Gross margin - benchmark. R & D around 14%... SG&A 14%... total oper. expenses at 28%... operating income at nearly 14%.... we know there is a bigger benefit from taxes in the works... I don't get it Elroy, what's your point?
I guess you don't understand what is a pension credit. All the expense ratios (R&D, SG&A) you listed are artificially low, because LU takes the actual cash cost, and then subtracts the non-cash credit, making the expense lines look less in accounting term than they are in actual cash terms. Do you understand that point?? For example, if LU's cash SG&A in a given quarter were ~$100m, but the pension credit allows them $25m reduction in that amount because that is the appropriate line item to apply the credit, LU spent ~$100m in cash for that expense, but only reports $75m because the benefit from the pension plan has to show up somewhere, and that is the appropriate line item.
The net result is that once LU's pension plan is in line (no significant credit or debits), LU is a ~1% opearting margin company.
I expected better from Elroy...
Why? I don't know you. Anyway, good luck with the house of cards, just try not to be the last one holding the bag.... |
