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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (202)	4/19/1998 12:03:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Porc, Wayne: << Keep in mind they have already been charged to earnings and VL makes no mention of any of this [i.e., that future cash payouts for workers' medical benefits will not be reflected on the income statement if and >when they are actually made]. >> Porc: >They are included in the VL earnings and cash flow numbers at the >time the workers' rights to these expected future payouts first accrue. The failure to do so previously was one of the bases for the claim that >the current figures are inflated. That is what I was saying too. The amounts that are accruing at present are being charged currently (and appropriately IMO). The liabilities that were accumulated in the past are only a balance sheet item now. They were one shot charges in 92 and 93. The trend has been for reduced health care benefits for employees. When the old liabilities come due they will require significant "cash" outlays. It is possible that they will be much more than is being charged and accrued at that time. So real Free Cash may be lower than is reported by VL at that time. This will be compounded if the medical rate of inflation keeps falling or stays very low. Companies will be tempted to move future liabilities that were recorded in 92 and 93 under different and less favorable assumptions back into the income statement. The opposite of the way they were recorded as non-cash charges against earnings before. This will produce the appearance of earnings that do not exist. That is my concern even though I have no evidence of it yet.