1. REVIEW OF 10K WRITE-UP Final Project - MSA 730 Spring II
Eric Nielsen John Harris, CPA, CFA Professor
05/03/2015
Executive Summary:
This report provides an analysis and evaluation of the current and prospective profitability, liquidity and
financial stability of Leggett and Platt Inc. Methods of analysis include trend as well as ratios such as
profitability, solvency and liquidity. Additional calculations include rates of return (ROA, ROE) to name
a few. Most calculations can be found in the attached spreadsheet. Results of analyzed data show the
before and after period adjustments including but not limited to: LIFO conversion and goodwill
impairment charges.
Results of data analyzed show that most ratios are aiding in displaying the transparency that LEG is
showing on how various items on the balance sheet, income statement and statement of cash flows record
after important changes.
This report finds the prospects of LEG in its current position is extremely strong despite the pullback in
net income in 2013 which will be discussed in further detail further on. The major areas of strength
reported through the 10K are the durability of the cash flow from operations and how they support the net
earnings or net income.
This is a company that has strong sustainable earnings that are generated through cash flow and more
importantly are generated from cash flow from operations as a source of cash flow.
The quality of the earnings for LEG seems to be of my highest opinion. LEG was very forthcoming in
their numbers when it came to a number of important items such as but not limited to: acquisitions,
impairments, depreciation/amortization.
The usual suspects as we would like to call them such as profitability ratios including ROA,ROE, profit
margin are all mentioned in this report and in particular if need to be analyzed would be found in the
attached spreadsheet.
In fact,as one goes through this report it will be found that LEG is completely above aboard in all their
transactions.
In my professional opinion it is evident that LEG has shown transparency with favorable and non-
favorable items that impact the financial statement. There is in-fact a recurring theme that shows a clear
trend most of the time with 2011 being a sub-par year but still delivering the goods. In 2012, we see those
metrics and ratios change considerably where it is proved that 2012 was unquestionably the best
performing year that LEG had reported. In 2013, certainly performance of these ratios that are important
to analyst pulled back, however the CFO will tell the story that yes net income has still remained strong.
BriefEconomic Analysis
The current economic environment is ridden with geo political risk, unprecedented low interest rates and
a national debt reaching 7.5 Trillion. All this while by having unprecedented levels in the Dow Jones
Industrial Average (17,840 as of April 30 2015). As well as all time highs in S&P 500 (2,085 as of
4/30/2015).

2. We have to remember that it was 8 years removed that our equity markets were testing all time highs as
well. Subsequently was the greatest recession this country has ever seen. In fact, most companies got hit
significantly with a tidal wave of business challenges that typically go along with a recession to lack of
investment that translate to deflationary conditions not suitable for businesses to thrive. Profitability ratios
that impacted cash flows and income statement flowed through to corporate earnings which plummeted.
So as we dug ourselves out of the 2008 economic crisis the economy began seeing green shoots and
various instances of growth in a myriad of sectors globally.
Regarding Leggett and Platt, this is a firm that has stayed consistent since 2011 and increased Net Income
via Cash Flow from Operations with a significant increase in 2012. We are able to notice a drop off in
earnings in 2013 that is primarily due to an unusual or infrequent impairment charge of $63mm that
directly impacts net income. This charge does help investors get an accurate idea of the value of the
company's assets. Assuming it’s a one-off case, it cleans up books and improves ratios such as ROA and
ROE providing better transparency to investors and analysts.
Net Cash Flow from Operating Activities dipped from $449 to $416 in 2013 from 2012. This will be
important when we match up CFF and CFI which were net sources of cash pulling down Net Income but
proving that by and large Net Income was being created and leveraged by CFO. This is important notion
that we look for. This shows that the firm, although experiencing earnings volatility, is able to maintain
its blue chip status as public company. In other words the company is durable.
Also taken into consideration is the dividend payout ratio which was 106%, 67% and 88% in 2011, 2012
and 2013, respectively. Dividend payments in 2012 utilized approximately $200 million of cash while the
three payments in 2013 utilized roughly $125 million of cash. In fact, 2013 marked the 42nd consecutive
annual dividend increase for the company, with a compound annual growth rate of 13% over that time
period.
In 2013, Operating cash for the full year was strong, helped in part by improvements in working capital
levels. LEG consistently has produced more than enough cash from operations to comfortably fund
dividends and capital expenditures, something they accomplished for over 20 years.
Ultimately LEG's financial profile remains strong. They ended 2013 with net debt to net capital below the
conservative end of their long-standing targeted range. In April 2013 they repaid $200 million of notes
that matured and ended the year with nearly all of their $600 million commercial paper program
available.
BRIEF OVERVIEW OF LEG:
Leggett & Platt, Incorporated was founded as a partnership in Carthage, Missouri in 1883 and was
incorporated in 1901. The Company, a pioneer of the steel coil bedspring, has become an international
diversified manufacturer that conceives, designs and produces a wide range of engineered components
and products found in many homes, offices, retail stores, automobiles and commercial aircraft. As
discussed below, our operations are organized into 20 business units, which are divided into 10 groups
under our four segments: Residential Furnishings; Commercial Fixturing & Components; Industrial
Materials; and Specialized Products.
LEG as they are known by their stock ticker symbol is heavy into acquisitions of other companies that can
aid them in being competitive with in house manufacturing and design that positions them to be a
perennial player in the industry. In fact, per the 10K, about half of their wire output and roughly 15-20%
of steeltubing output to manufacture their own products.

3. The industrial materials group has the most diverse group of customers including but not limited to:
bedding and furniture makers, automotive seating manufacturers, aerospace suppliers and OEM's,
mechanical spring makers, and waste recyclers/removalbusinesses.
LEG's strategic direction uses a financial metric called TSR - total shareholder return. It is one of the most
important metrics that they use to measure long term performance. TSR = (Change in Stock Price +
Dividends)/Beginning Stock Price). Leg's goal is to achieve TSR in the top 1/3 of the S&P 500 companies
over rolling three-year periods through a balanced approach that employs all four TSR sources: revenue
growth, margin expansion, dividends, and share repurchases. For the three-year measurement period that
ended December 31, 2013 they generated TSR of 56% (16% per year on average), which placed them in
the top one half of the S&P 500.
LEG currently pays a quarterly dividend of $.30 per share. In fact their dividend payout target is 50-60%
of earnings. Looking closely at the 10K the dividend payout ratio (dividends declared per share/ earnings
per share) was 106%, 67% and 88% in 2011, 2012 and 2013, respectively. Furthermore, The Company
has consistently (for over 20 years) generated operating cash in excess of our annual requirement for
capital expenditures and dividends. This will be revisited later when FCFF and FCFE are discussed in this
write up.
LEG has international operations principally located in China, Europe, Canada and Mexico. Also they
have a number of patents and trademarks they are heavily involved in which may play into their research
and development.
Overall LEG has a a very unique and interesting business model that has been successful for them for a
number of years and appears to be in play going forward.
Financial Statement Analysis : COMMON SIZE
Balance Sheet: When we look at the common size percentages of the balance sheet from 2011 through
2013 we start to see an pervasive trend build. We can analyze the percentages and look at certain ratios
and categories to tell the story that has been playing out with Leggett and Platt over the last few years.
For example if we look at the percentage that makes up total inventories we see that the numbers are
pretty consistent over the last 3 years but have increased from 15% to 16% of the assets. Total property
and equipment oscillated during the three year window as in 2011 it was 61% of the assets dipping to
55.6% in 2012 and then jumping back up to 59.2% in 2013. This was followed by a similar line pattern
with accumulated depreciation and then finally flowing through to Net property plant and equipment
emulated the same pattern.
As far as Goodwill being recognized as an asset this is a trend that leaves some interesting clues. In 2011,
goodwill was $921mm. In 2012, that Goodwill number spiked to $991mm. This is important later as we
see that LEG will be forced to take a goodwill impairment charge. This indicates to us some type of
acquisition.
With respect to current liabilities, there is a discernible trend as the percentages increased from 20.1%
(2011), 22.5% (2012) and in 2013 26.7%. A big portion of 2013 increase is due to a jump from 8.8% to
10.9% in accounts payable. We will look closer into why that is further in the report.
In terms of long term liabilities we see a discernible trend in the other directionas the percentage
allocations have been decreasing each year. In 2011 35%, 2012 33.2% and 2013 28.3%. We can see right
away that long term debt has been decreasing which is the driver of this. Deferred taxes increased in 2012

4. to almost 70mm up from 58mm in 2011. In 2013 they fell back down again. In 2012, a $27 million net
tax benefit primarily related to the release of valuation allowances on certain Canadian deferred tax
assets,partially offset by deferred withholding taxes on earnings in China.
Income Statement:
With regard to the income statement, net sales and cost of goods sold stayed fairly consistent in terms of
percentages. We begin to see a deviation when we look at gross profit. This shows in 2011 18.5%, in
2012 increased to 20.1 and in 2013 dipped slightly to 19.9%. Overall in a 3 year window these numbers
are fairly consistent.
We begin to see the financial deviate more clearly when we look at impairment of goodwill. For 2011 and
2012 there is nothing recorded however in 2013 it shows up as 1.7% of the consolidated statement of
operations.
Next we arrive at operating income aka EBIT ( Earnings before Interest and Taxes). This shows us an up
and down pattern from 2011 (7.3%) 2012 (9.3%) and in 2013 due to the impairment charge and a small
other income expense we see the percentage drop back down to 7.6%. The impairment charge is a
recurring theme that impacts several ratios on the balance sheet and income statement and will be
summarized later.
Income taxes were slightly increasing from 2011($59mm) to 2012 ($63mm) dropping off to $55mm in
2013. This of course impacted earnings from continuing operations (after taxes) had a significant
fluctuation over the last few years. In 2011 it was 173mm, 2012 increased markedly to $243mm (6.6%)
before falling off again in 2013 to $192mm (5.1%).
All of these figures build up to the net earnings aka net income ( the bottom line) metric where we again
see some significant fluctuation. In 2011 net earnings was 156.4mm (4.2% of statement income) in 2012
that figure increased significantly to 243.3mm (6.6%) and in 2013 fell back down again to 199mm
(5.3%).
It is important to mention other comprehensive income in this summary as it has to do with unrealized
gains and losses that are separate from the statement of operations. This pattern was a major loss
(35.9mm) in 2011 and in 2012 only 5.9mm and jumped up considerably to 23.7 in 2013. All of this is
important because other comprehensive income flows through to comprehensive income and does look
very different than traditional net income (net earnings) numbers.
So essentially on the income statement and the balance sheet we are starting to see a pattern that seems to
reinforce the theme that in 2012 Leggett and Platt had a strong year in terms of earnings and net income
and also was acquiring equipment and paying down debt. Subsequent to that we see a pullback in
earnings and net income as was described above.
When we look at shareholders equity we see some interesting percentage changes in terms of the common
size comparisons. First of all, total equity stayed fairly consistent on a percentage basis at around a low of
43% in 2011 to a high of 45% in 2013. However total equity as a number fell of considerably as a number
(from 1442 in 2012 to 1339 in 2013). This was mostly driven by the goodwill impairment charge. From a
ratio standpoint this increase the debt-to-equity ratio from (before) 0.63 to 0.66. This makes sense since
stockholder equity was reduced due to the charge.
When we look at other ratios that were impacted by the impairment charge we would be remiss if we did
not include ROA and ROE. Return on Assets shows how efficient LEG is using assets. Return on equity

5. shows how profitable the company is by showing how much profit LEG generates with money from
shareholders. In both cases after the impairment charge the ratios were much more favorable. This is
100% due to the numerator in both formulas (net income) correspondingly being reduced by the goodwill
impairment charge. In fact net income was reduced by the impairment from 262 mm to 199 mm.
One other ratio that would be important to mention that was impacted would be fixed-asset turnover. This
ratio increased from 5.9% to 6.5% as we would expect to see an increase due to lower fixed assets after
the impairment charge. Future fixed-asset turnover will increase as well.
Treasury stock purchases for the firm oscillated between -43% in 2011 and -37% in 2012 and back to -
43% of the balance sheet on the liability side of the equation compared to assets. This indicates that the
firm was repurchasing close to half of the outstanding shares in 2011 and 2013. In 2012 they had other
expenditures that translated to goodwill they seem to be focused on so it appears they took their foot off
the gas a bit in terms of repurchasing stock that year.
Some common ratios that would be important to pay attention to as an analyst include:
Solvency Ratios--> Current (1.5 in 2013) which decreased since 2012 and 2011. This is an indicator of
the ability of the company to pay back its short term liabilities. It is a bit concerning that its decreasing
over the last 3 years but it is still well about 1.0 which means the company is generally healthy.
Solvency--> Quick Ratio (0.95 in 2013) This is important metric to see if a company can pay back its
short term obligations with the most liquid assets. It has been trending down since 2011. Nothing to be
spooked about though.
Solvency--> Debt to Equity (1.22 in 2013) trending down to flat.
Adjustments and Analysis : Balance Sheet
Inventories:
In 2013, inventory increased primarily from acquisitions. With respect to inventory, the lower of cost or
market is used. All business segments use FIFO (first-in-first-out). In the consolidated financials an
adjustment is made at the corporate level to convert 55% of inventories to LIFO ( last-in-first-out )
method. In fact mostly steel inventories that are impacted. We have noted that 55% of inventories
converted from FIFO to LIFO and create a LIFO Reserve. In times of rising prices (of which we deem
this environment) LIFO will result in a higher cost of good sold. Also the computed LIFO inventory
would result in lower ending inventory values. We see on the spreadsheet in 2011 COGS for LIFO was
3,036 vs. 2,950 for FIFO, 2012 (3,030Lifo vs. 2959Fifo) and 2013 (3,001Lifo vs. 2,950 Fifo).
As was mentioned ending inventory would be impacted as well taken by the formula including purchases
beginning inventory and COGS. The results are an expected decrease in ending inventory values under
FIFO: 2011 (355LifoEI vs. 441FifoEndInv) 2012 (417LifoEndInv vs.489FifoEndInv) and 2013
(493LifoEndInv vs. 495.9FifoEndinv).
Inventory balances are of importance because inventory cost accounting impacts reported gross profit. As
we have shown in the spreadsheet calculations LIFO typically produces lower gross profit due to the
higher cost-of-goods sold. In the adjustments we are able to see in all three years that gross profit is in
fact lower. What does this mean? LIFO results in higher COGS, but it will also be more representative of
the current economic reality. As a result, profitability will be more accurate, and a better indicator of
future profitability.

6. It should be noted that steel inflation in late 2013 resulted in a significant change in full year LIFO
estimates. A full year LIFO benefit of $13mm changed instead to a full year expense of $2mm as steel
costs increased.
The results from the LIFO conversion adjustments tell us a lot. Specifically the Income Statement impact
results in lowering of Net Income because of the conversion. In fact during periods of significantly
increasing costs LIFO will cause lower inventory costs on the balance sheet and higher COGS on income
statement. This also means that profitability ratios will be smaller under LIFO. We are speaking
specifically about profitability ratios that include profit margin, ROA and ROE. The calculations have
been made for before and after and we see that all the above mentioned profitability ratios have all
shrunk. Also the inventory turnover ratio should be higher under LIFO than FIFO and we prove that in
the spreadsheet showing the before and after adjustments.
Shifting gears we look to see if there are any capitalized construction costs and there are none so this a
non issue to be concerned about.
We then look through the 10K to see if LEG uses any research and development and it’s a bit of a gray
area. We are unable to calculate precisely the cost of research and development because the personnel
involved in product and machinery development also spend portions of their time in other areas.
However, LEG estimate the cost of research and development was $20 million in 2011, $22 million in
2012 and $24 million in 2013. These costs are expensed and are such small amounts that they don't much
impact any of the financials.
Other important metrics around the financial statements we arrive at depreciation and amortization. We
are told in the 10K that Leggett and Platt uses straight line depreciation. The straight-line method is one
of several methods of depreciation that a business uses to report the expense of certain assets that last
longer than a year, such as equipment or buildings. A business uses depreciation to spread the cost of a
long-term asset over its useful life instead of expensing the entire cost at once. LEG's net income is
reduced by the amount of the annual straight-line depreciation expense.
Moving along to inquire if LEG has had any acquisitions. In 2011, there was roughly 7mm allocated
toward acquisitions. This spiked markedly in 2012 as acquisitions represented $212mm. Therefore in
2012 any specific assets you obtained in the acquisition -- both tangible assets such as buildings,
equipment and vehicles and intangible assets such as patents or customer lists will be treated in the same
manner as other assets. That means the tangible assets must be depreciated and the intangible ones
(except for goodwill) amortized over their useful lives. Through depreciation and amortization, a portion
of the cost of the acquisition eventually shows up on the income statement as an expense. LEG's use of
cash to purchase the business decreases the cash account by the amount of the acquisition
price. If LEG obtained a loan to buy the business, the loan is a liability. Working capital is a ratio
that would be impacted by LEG's acquisition and you would see that it is reduced on the
spreadsheet for the three years. So in 2012, there was a significant reduction in working capital
after the $212mm acquisition. Also as was mentioned earlier, in 2013 inventory increased
primarily from acquisitions that occurred in 2012.
We know that Leggett and Platt had goodwill impairments. In the fourth quarter a goodwill impairment of
$63mm in was written down. This impairment impacted the gamet of financial ratios including but not
limited to operating income, net profit margin, total debt-to-assets, debt-to-equity and fixed asset
turnover. All of the adjustments for the ratios mentioned pertaining to that $63mm charge are computed
and displayed on the spreadsheet. When we look at other ratios that were impacted by the impairment
charge we would be remiss if we did not include ROA and ROE.

7. Return on Assets shows how efficient LEG is using assets. Return on equity shows how profitable the
company is by showing how much profit LEG generates with money from shareholders. In both cases
after the impairment charge the ratios were much more favorable. This is 100% due to the numerator in
both formulas (net income) correspondingly being reduced by the goodwill impairment charge. It is
important to highlight in 2013 a net effect of reduction in net income was reduced by the impairment from
$262 mm to $199 mm.
Also important, a further decline in the business unit responsible for the impairment (CVP group
business) could result in future impairments which would negatively impact earnings in the future.
We now turn our attention to Liabilitiy contingencies. In the 10k LEG mentions that they are exposed to
legal contingencies related to various lawsuits and other claims that, if realized, could have a material
negative impact on our earnings and cash flows. They are a defendant in various legal proceedings,
including antitrust lawsuits related to the alleged price fixing of prime foam and carpet underlay products,
and other proceedings and claims. When it is probable, in management's judgment, that they may incur
monetary damages or other costs resulting from these proceedings or other claims, and they can
reasonably estimate the amounts, they record appropriate liabilities in the financial statements and make
charges against earnings. If assumptions or analysis regarding these contingencies is incorrect, LEG
acknowledges that they could incur damages which could have a material negative impact on our earnings
and cash flows. This in turn would impact a litany of ratios including profititabliity such as ROA, ROE,
and net profit margin.
The allocation of deferred taxes is important. Findings from the 10k tell us what occurred in calendar
years. In 2013, LEG recognized tax rate benefits totaling $17.5, primarily related to the impact of Mexico
tax law changes, the settlement of certain foreign and state audits, and a non-taxable bargain purchase
gain. In 2012 The tax rate benefited from the elimination of a $36.9 valuation allowance on our Canadian
net operating losses and other deferred tax assets. As a result of an increase in operating earnings in
Canada, the amalgamation of two Canadian subsidiaries, and the restructuring of intercompany debt
attributable in part to a change in Canadian tax law, we now expect those carryforwards and other
deferred tax assets to be utilized in future years. This 2012 benefit was partially offset by the accrual of
$11.2 of deferred withholding taxes in China on earnings that are no longer indefinitely reinvested in
China. In 2011, the tax rate benefited by a total of $5.2 from the release of certain deferred tax asset
valuation allowances and tax audit settlements. In 2011, we also incurred $1.7 of incremental tax on the
2010 repatriation of $112.6 of earnings from foreign subsidiaries. The net result is that it can impact
various ratios. One in particular we can look is debt-to-equity. Analysts often times argue that deferred
taxes should be considered in the debt portion of the debt-to-equity ratio. This was computed comparing
the recorded debt alongside the adjusted for before deferred taxes for all three years. The findings show
that the adjusted after deferred taxes debt-to-equity ratio is larger. This makes sense since the deferred
taxes would be included in the overall debt numerator of the formula. One would look at the deferred tax
section and notice that LEG management is accounting for valuation allowance or contra account with the
likelihood being 50% that there may be a reversal. In other words they are prepared to incur additional tax
expense that would impact shareholder equity. These things are not always to predict so they are
acknowledging the likelihood to utilize any benefits based on the future earnings scenario which is strong.
Moving along to leases recorded in the 10K. Essentially there is a schedule of leases and they are
operating leases. They will impact the debt ratio and debt to equity ratio as well as working capital.
The revenue recognition method is point-of-sale. This means basically that when transfer of ownership of
goods sold is not immediate and delivery of the goods is required, the shipping terms of the sale dictate

8. when revenue is recognized. Shipping terms are typically "free-on-board" or "freight-on-board"
destination. This in turn specifies which party (buyer or seller) pays for shipment and loading costs and/or
where the responsibility for the goods is transferred.
In terms of items that impact the income statement we can start by looking at unusual or infrequent items
and this was covered earlier with respect to the goodwill impairment charge for $63mm. This falls right
into that category but is not limited. The profitability ratios that were discussed earlier after the unusual or
infrequent goodwill impairment charge increased the profitability ratios such as ROA and ROE. Certainly
there are other items that could be considered for the category that might also impact ratios in a positive
or negative way.
In terms of discontinued operations we see that LEG has full year earnings from discontinued operations,
net of tax, increased to $7 million in 2012 versus a loss of $17 million in 2011, primarily due to the
absence of December 2011 restructuring-related costs (of $12 million, net of tax) and a $6 million tax
benefit in 2012. Also LEG incurred asset impairment charges and restructuring related charges totalling
$44mm in 2011. Of these charges, $25mm were associated with continuing operations and $19mm were
related to discontinued operation.
There were no extraordinary items. These would be events or items that would be both unusual in
occurrence and infrequent in nature. LEG has none to speak about. That being said, In December 2011,
we approved a restructuring plan to reduce our overhead costs and improve ongoing profitability. The
activities primarily entailed the closure of four underperforming facilities. LEG incurred a $37 million
pre-tax (largely non-cash) charge in 2011 primarily related to this plan, of which $18 million related to
continuing operations and $19 million was associated with discontinued operations. These activities were
substantially complete by the end of 2012.
FASB has issued accounting guidance effective for current and future periods. This guidance did not have
a material impact on LEG's current financial statements,and it is not believed it will have a material
impact their future financial statements.
It is also important to review the difference between net income and comprehensive income.
Comprehensive income would also include "other comprehensive income". Comprehensive income
change in a company's net assets from non-owner sources, including all income and expenses that bypass
the income statement because they have not yet been realized. The statement includes revenue, finance
costs, tax expenses, discontinued operations, profit share and profit/loss. The difference between the net
income and the comprehensive income is that some of these net assets are not passed onto the income
statement and are therefore recorded separate. The difference between net income and comprehensive
income is "other comprehensive income" items.
In 2013, LEG had gains on asset sales of $8.1 mm and bargain purchase gain from acquisitions as an
example that would be recorded under other comprehensive income. The difference between the two
figures is roughly $21mm.
Statement of Cash Flows
CFO was reduced from 2012 to 2013 at a clip of $449 to $416mm. Amortization of intangible assets was
close to $33mm. Goodwill impairment which has been an important clue about drop off in earnings we
know was $63mm. There was certainly a deferred income tax benefit of $36mm. There was a decrease in
accounts and other receivables that was $13.3mm. There was a substantial increase in accounts payable of
$35mm. This was mostly due to acquisition activity from 2012 and a small amount from 2013. This also

9. factored into an increase in accrued expense and other liabilities that was roughly 10mm. Cash flow from
operations is a very important metric that we evaluate against net income.
With regard to CFF or cash flow from financing there are a number of items of importance in terms of
where the cash went and how it was used. In 2013, there was an issuance of stock that was an inflow of
$37mm. Also in 2013 a significant amount of company stock had been purchased ($170mm) this was
much more than 2012 ($30mm). This has to do with the acquisitions that LEG was involved in 2012 and
did not have the money to do so. In any event this was an outflow. There was also a significant repayment
of debt which is a negative cash flow ($203mm- 2013) vs. ($11mm-2012) and ($3mm-2011). The other
major category under CFF is dividends paid in 2013 dropped to $125mm. In 2012, dividends paid was
$199mm and in 2011 was $156mm. So there is a trend showing and increase that is consistent with LEG's
strong earning in 2012 only to drop off in 2013. All these would be recorded as outflows. The biggest
shocker is when comparing CFF for 2013 vs. CFF for 2012. The difference is staggering. In 2013 the CFF
was $434mm and in 2012 it was $36.6mm. This is very telling in that LEG's net income is purely driven
in 2012 by cash flow from operations.
Cash flow from investing (CFI) in 2011 was $36.6 mm, in 2012 spiked to $294mm primarily because of
the acquisition that took place to the tune of $211mm. In 2013, the CFI was $75mm which pertains
mostly to additions to property plant and equipment. Incidentally, the additions to PP&E were roughly on
average about $75mm each year.
To look close to the statement of cash flows is critical because we need to understand if the cash flows are
sustainable and despite some differences from 2012 to 2013 in terms of acquisitions, goodwill, paying
down debt, assets and expenses we see that cash flow is very strong and very sustainable. One way we
know this is by computing FCFF or free cash flow to the firm. On the spreadsheet that number was
computed for all three years and shows strong free cash flow to the firm ( all money left over after paying
expenses and any expenditures). For 2013, the FCFF was $951mm in 2012 was roughly $1B and in 2011
was $870mm. Another metric that can be used to back up the claim of strong sustainable cash flows is
FCFE which is basically telling us how much cash can be paid to equity shareholders to a company after
expenses and debt repayments. This was also computed and was slightly higher than FCFF.