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    Highlights for week ending March 16, 2002
Call to Action: Pension reform, with TEETH, is needed NOW. Excerpt: "I would guess that more pension reform bills have been introduced in Congress during the last 3 months than in all of the preceding years since ERISA was introduced... It seems that in the wake of Enron, every congressman and senator wants to be able to assure the people at home that s/he did something constructive to prevent future workers from losing their retirement security. This is good news for those of us who have been lobbying for pension reform! But corporate lobbyists are working hard to ensure that any legislation that makes its way to the President's desk for a signature is all bark and no bite -- in their view, the pension reform words are ok, as long as corporations are allowed to do whatever they think is needed to remain 'competitive'. We must remember, as corporate lobbyists continue to remind Congress, that America's pension system is 'voluntary'. Massive grass roots activity is the way to counter this lobbying and get REAL pension reform. Our representatives in Washington need to understand that votes will swing on this issue." Read more, including how you can help...
  • Wall Street Journal: IBM's Overfunded Pension Plan Won't Pump Up the Bottom Line. Excerpts: "For years, Big Blue has been chalking up big profits from its overfunded pension plan, which, as critics have noted, has little to do with how well the company is doing in its main business of selling technology." ... "Pensions are a huge income item for IBM. The company disclosed in its recently released annual report that it recorded $1.45 billion in pension income from its U.S. and foreign plans in 2001, accounting for 13% of its $10.95 billion in pretax profit. That was up 14.5% from the prior year's $1.27 billion, when pensions produced 11% of pretax profit. This year, the number will come down, analysts agree." ...

    "Jeff Matthews of hedge fund Ram Partners in Greenwich, Conn., notes that from 1995 to 2001, when earnings per share rose 68% to $4.35 from $2.58, IBM's pretax profit rose only 8.9% to $11 billion from $10.1 billion. All of that gain -- and more -- can be accounted for via pension-fund gains. Mr. Matthews thinks IBM wasn't really the success many think it was under Lou Gerstner, who stepped down as chief executive officer on March 1. Pretax profit from selling goods and services 'actually dropped. They missed the entire technology market' boom from 1995 to 2001, says Mr. Matthews. Another value analyst, Ned Davis of Atlanta, looks at book value. He says that after a decade of 'growth,' IBM's book value is down 15% to $23.6 billion from $27.6 billion. During the 1990s, 'little real value was built up in IBM,' he concludes. Other things that boosted earnings per share in the Gerstner years have little to do with operations. Mr. Milunovich calculates that since 1995, 60% of IBM's earning-per-share gains came from having fewer shares outstanding as a result of buybacks, and 25% came from a lower tax rate."

    IBM's overall pension-fund assets declined 12% last year, even though IBM's official assumption was that they would increase 10%. That drop, coupled with benefits paid during the year, reduced IBM's "cushion" of excess funds above expected obligations to just $686 million from a huge $10.74 billion the year before. (A large surplus increases the likelihood that a company will enjoy income from its pension plan, but it isn't always necessary.) If link is broken, view Adobe Acrobat version [PDF--59 KB].

  • Something to ponder as you receive your year 2001 variable pay: The Register, Gerstner's long and lucrative goodbye. Excerpts: "Last year's salary and bonus netted him $12.6 million, and he cashed stock options worth $115 million. He probably has twice that many left to cash, and although we've long since lost count of how many he's received, and how much he's cashed, he was estimated as being worth $500 million in stock three years ago, and surely won't have got poorer in the interim. Although Sam Palmisano has replaced him as CEO, he remains chairman for another year, and then has a ten year consultancy contract which will include use of aircraft, cars, office space and apartment. The price of cabs and accommodation in Armonk must surely be criminal"

  • The 400 Group Insider Weekly: IBM layoffs impede on service. Excerpt: "Stealth layoffs at IBM add up to large numbers of employees out of work, and result in less-experienced workers servicing your shop."

  • Morningstar: Warren Buffett's Outlook for Stocks. Excerpt: "The irrational exuberance of corporate America with regard to its pension plans is a subject dear to Buffett's heart (and to my own), and this year's Berkshire annual report contains an interesting addition along these lines. You see, some of the businesses that Buffett recently bought have traditional pension plans, which means that Berkshire Hathaway had to publish a long-term expected rate of return for those pension plans." ... So, we have one of the world's greatest investors publishing in black and white that a mixed pool of stocks and bonds is likely to return about 6.3% over the next several years. At the same time, we have Federal Express assuming a 10.9% rate of return, Boeing assuming a 9.25% return, IBM assuming a 10% return, Whirlpool assuming a 10% return, and Weyerhaeuser assuming an 11% rate of return."
    • "albanyblue2000" comments. Excerpt: "The financial engineering that has been done by IBM executives during the past 4 years, I believe, has been done with just one thing in mind. And, that is the building of the fortunes of the IBM executives, and quickly. I believe that Gerstner ran out of ideas in 1996, and had to financially engineer, because he had no further plans for growth, no vision, and no new businesses other than the consulting business he knew well"

  • Poughkeepsie Journal: Court to hear IBM appeal in union sign case. Excerpt: "A brouhaha over a bedsheet sign made by union organizers at IBM Corp.'s Poughkeepsie plant gets its day in court Wednesday."
"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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