"This is a very long and complex topic. One of discussion here at my office. It is kind of a puzzle of sorts. If you are still confused after reading the TMF articles I would be happy to go over a specific SCF line by line and (try to) explain what is going on."
I'll take you up on your offer Witty, let's use Morgan Stanley Dean Witter's 1999 10-K:
fiscal year (dollars in millions) 1999 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,791 $ 3,276 $ 2,586
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Non-cash charges included in net income:
Cumulative effect of accounting change -- 117 --
Gain on sale of businesses -- (685) --
Deferred income taxes (160) (55) (77)
Compensation payable in common or preferred stock 675 334 374
Depreciation and amortization 541 575 338
Provision for consumer loan losses 529 1,173 1,493
Everything up to this point is relatively self explanatory. Non-cash charges are added back or taken out.
Changes in assets and liabilities:
Cash and securities deposited with clearing organizations or
segregated under federal and other regulations 839 (3,641) (1,691)
What does this mean? I'm guessing that it is some kind of receivable.
Financial instruments owned, net of financial instruments sold,
not yet purchased (22,081) 11,127 1,730
Big ticket item here. I'm not sure what to do with this except to balance this off w/ its opposite in the CF from financing section.
Securities borrowed, net of securities loaned (8,798) (5,061) (10,561)
Another problem here. I can't find anthing that complements this item anywhere else in the CF statement.
Receivables and other assets (11,276) 2,114 (13,808)
Payables and other liabilities 5,669 6,095 19,058
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Net cash (used for) provided by operating activities (29,271) 15,369 (558)
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Receivables and Payables are self explanatory.
CASH FLOWS FROM INVESTING ACTIVITIES
Net (payments for) proceeds from:
Office facilities (656) (358) (301)
Here's their Capital Expenditures.
Sale of businesses, net of disposal costs -- 1,399 --
Purchase of AB Asesores, net of cash acquired (223) -- --
Buying and selling businesses.
Net principal disbursed on consumer loans (8,769) (2,314) (4,994)
Purchases of consumer loans -- -- (11)
Sales of consumer loans 2,997 4,466 2,783
How should these three items be treated?
Other investing activities -- -- (5)
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Net cash (used for) provided by investing activities (6,651) 3,193 (2,528)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments for) short-term borrowings 9,994 5,620 (1,336)
Securities sold under agreements to repurchase, net of securities
purchased under agreements to resell 21,327 (14,407) 3,080
Here's the other half of that Balance Sheet item from the Operating Cash Flow section.
Net proceeds from (payments for):
Deposits 2,200 (796) 2,113
Issuance of common stock 270 186 194
Issuance of put options 9 -- --
Issuance of long-term borrowings 7,552 9,771 6,619
Issuance of Preferred Securities Issued by Subsidiaries -- 400 --
Issuance of Capital Units -- -- 134
Payments for:
Repayments of long-term borrowings (6,618) (7,069) (3,964)
Redemption of cumulative preferred stock -- (200) (345)
Redemption of Capital Units (416) -- --
Repurchases of common stock (2,374) (2,925) (124)
Increase debt but buyback shares. Does anyone else think this is an odd way to use their money?
Cash dividends (575) (519) (416)
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Net cash provided by (used for) financing activities 31,369 (9,939) 5,955
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Dean Witter, Discover & Co.'s net cash activity for the month of
December 1996 -- -- (1,158)
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Net (decrease) increase in cash and cash equivalents (4,553) 8,623 1,711
Cash and cash equivalents, at beginning of period 16,878 8,255 6,544
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Cash and cash equivalents, at end of period $ 12,325 $ 16,878 $ 8,255
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The really confusing items for me are the "Financial instruments owned..." and "Securities borrowed, net of securities loaned".
Marv
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