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    Highlights for week ending May 5, 2001
  • If you couldn't attend the stockholder's meeting in Savannah on April 24, 2001, you missed a great speech by Jimmy Leas, the author of the shareholder's proposal on pension and retiree medical choice. During the speech, the large television projection screens of Lou Gerstner were switched off his grimacing face to show a generic title slide. Read Mr. Leas' speech here...

  • Forbes: Recurring Gains? Excerpts: "It's curious how, in the face of slumping computer sales, International Business Machines isn't feeling the heat." "For the first quarter of 2001 IBM netted $1.75 billion, or 98 cents a share, up 15% from the first quarter of 2000, on revenues that were up only 9% to $21 billion. But investors should be wary of this happy earnings picture, says Bradley Rexroad, an analyst at the Center for Financial Research & Analysis, a Rockville, Md. research boutique. A fair amount of the earnings gains in 2000 had nothing to do with the strength in IBM's business operations." "The biggest item on Rexroad's list of artificial gains is the accounting for retirement benefits. IBM has been getting a nice kick to reported earnings from the robust state of its pension plans. Pension-related effects boosted the aftertax bottom line by $820 million last year, a 63% improvement in this source of profits from the year before, Rexroad says." "This shot in the arm comes in several forms. IBM has been shifting from traditional defined benefits for retirees to "cash balance" plans, which should cost less; the strength of the stock market (until 13 months ago) and the bond market has lowered the amount of additional cash IBM had to pour into the pension fund; and the company last year changed its assumption on the fund's future average returns from a somewhat optimistic 9.5% to a more Pollyannaish 10%." If link is broken, view Adobe Acrobat version [PDF--64 KB].
  • Business Week: The Numbers Game. Companies use every trick to pump earnings and fool investors. The latest abuse: "Pro forma" reporting. Excerpts: Sure, companies have always tried to present themselves in the best possible light. But some of today's practices, though perfectly legal, sail close to the wind: They seem designed to mislead unwary investors about the real financial state of companies that use them. Fading dot-coms, new tech giants, and venerable blue chips all hype their earnings. Cisco Systems Inc. subtracts payroll taxes on employee stock options in its earnings-per-share numbers. IBM lifts its earnings by assuming it would pay less into its pension fund, and Motorola Inc. boosts sales by lending huge sums to customers." ... "Company pension plans can become a fruitful source of extra earnings. Companies can't generally take money out of their pension funds, but by juggling several factors, including the actuarial present value of benefits, interest rates, and expected returns on assets, they can reduce or even eliminate what they have to pay into their plans in any given year, according to Gabrielle Napolitano, accounting maven at Goldman, Sachs & Co. For example, IBM picked up $195 million--1.7% of pretax income--in 2000, when it raised the expected rate of investment return from 9.5% to 10%..." If link is broken, view Adobe Acrobat version [PDF--64 KB].

  • Forbes: The Top 10. According to Forbes, Lou Gerstner is the 6th best paid U.S. CEO.
  • A new retiree group, the National Retiree Legislative Network (NRLN) has been formed with the goal of "securing federal legislation that will guarantee the fair and equitable treatment of retirees in private and public sector health and pension programs and which will improve the adequacy of benefits provided by such programs." Visit their Web site.

  • IBM Australia Employees Win Settlement. IBM GSA shiftwork employees at St Leonards and Clayton achieved a negotiated settlement in the Australian Industrial Relations Commission (AIRC) last Friday.

  • har_philby speaks of considerable speculation among many IBMers that the Chairman of the Board may exit the stage after May 20.

  • har_philby comments on the "1999 pension fiasco" and the effects of the Internet on IBM. Excerpt: "History will show that although the public boards on Yahoo were very important, other more private communications channels used by the same people on the Internet will have done more for the cause. Think of the boards as entertainment, and some information."

  • Dr. Denos Gazis, retired executive of the IBM Research Division, has just posted a new book online, titled the "Rise & Fall of IBM." Dr. Denos's book is based on his personal experiences and documented evidence over 34 years. It details the early growth of IBM's Research Division into a preeminent institution of research and discovery, and its decline under the current IBM management.

  • har_philby describes how "the Internet has nullified one of IBM management's greatest tools: compartmentalization." This post is a must read. Excerpts: "I have learned a lot about IBM in the last 2 years. Much more than I ever imagined from many people in and out of IBM, from criminal tax and murder investigators in Europe to hard working FE types in Chicago. The flow of information continues unabated, sometimes too much to fully absorb and too unbelievable to comprehend. On average, I get 10-15 pieces of information a day, from fax, the internet, and verbal means. It astounds me that so much information is not yet public about IBM and its practices over the last 70 years." ... "I feel comfortable that I can predict is the following..."

  • As of April 30, 2001, 2500 IBM employees and retirees have signed on to an open letter to Lou Gerstner. This open letter is the largest single concerted protest action by employees and retirees ever at IBM. But tens of thousands of employees and retirees have not even seen the letter. Please continue to circulate the Web site address for this open letter and encourage employees and retirees to sign on. View open letter. Sign open letter (do so from your personal e-mail account, not from your IBM account).
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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