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for week ending November 9, 2002
- TheStreet.com: Cash
Flow Paves Way for a Fall at IBM. Excerpt: "IBM stock has soared
almost 50% in a month, bolstered by a spreading belief that the tech
behemoth has weathered the IT spending slump. But a hard look at the
company's just-reported cash flow data suggests that IBM's business
may not be as sturdy as Wall Street thinks, leaving the stock vulnerable
to a steep drop. Among savvy investors, measures of cash flow -- the
amount of actual greenbacks generated by ongoing operations -- have
supplanted earnings as the favored method of analyzing IBM's financial
performance. Both bulls and bears see cash flow as the cleanest way
of gauging the fortunes of a large and complex company that has a relatively
opaque income statement. Earnings numbers, by contrast, can be obscured
by the presence of numerous noncash items." ... "IBM expects
to make $1.5 billion of contributions to the company's pension plan
to better balance its assets and liabilities. The company declined to
say over what period that contribution will be made. If it's one year,
that would take free cash flow down to $5.75 billion, or $3.35 per share.
But if it did $500 million per year over the next three years, it would
mean $3.94 per share of cash flows."
- Reuters: IBM
files for option to use shares to fund pension. Excerpt: "International
Business Machines Corp. (NYSE:IBM - News) on Wednesday filed with U.S.
regulators for the option to contribute up to 19.3 million of its shares
to its pension plan, which could then resell the stock if it chooses."
Krueger comments (full extract): "$1.5 billion is a very
large number, and has a high shock value. But I think we need to
put the number into perspective. IBM has about 130,000 employees
in the US. They only contributed to the pension fund once in the
last 12 years, and that was a very small amount. If they put in
$1.5 billion dollars by 2005, that will mean they will be contributing
approximately $750 per year per employee.. Doesn't seem like very
much given that the plan is supposed to be accumulating at a rate
of 5% of each employee's salary per year, does it?"
Cericola comments (full extract). Excerpt: If, as you cited,
IBM is selling $1.5 billion of IBM stock in order
to replenish the pension trust, the action is neither altruistic,
nor legally required. IBM could merely go on a payments program,
over the next five years to do that. The reason is a bit more sinister.
By their doing this, IBM's pension trust fund is temporarily in
surplus, and that means that in IBM's 4th quarter, it can again
report that there are pre-paid pensions generated by (hah!) operations,
and that some of those "pre-payments" will be taken into
the earnings statement. And, of course, executive bonuses will be
increased by this move. Bottom line: this action will benefit the
executives at the expense of the stockholders. And, just as in the
options buy-back program, the true expense never hits the books.
I was wondering when the folks at Armonk would again take advantage
of this particular hole in the accounting system. They did it in
the early 90's, with a stock set-aside for retirees' health costs,
- and then cancelled it when it suited their purposes.
- Poughkeepsie Journal: IBM
to feed pension fund. Excerpt: "IBM Corp. has come up with
a slightly different solution to bringing its pension fund up to par.
It may take IBM stock it holds in its treasury and put it into the U.S.
Personal Pension Plan." ... "The plan's report for 2001 showed
a value of $39.6 billion and a surplus of nearly $1 billion. At the
end of 1999, the combined U.S. and non-U.S. plans boasted a surplus
of more than $17 billion. By the end of 2001 that had shrunk to $686
- Poughkeepsie Journal: IBM
cited in additional age-bias complaints. Excerpt: "One chart,
for a Global Services action that cut 253 employees, shows that among
employees under age 40, pink slips went to 4.3 percent. But that rose
to 5.9 percent for those over age 40. Over age 50, it rose to 8.1 percent.
But when sorted by five-year age groups, the percentages vary from 3.7
percent for ages 40-44 to as high as 16 percent for 60-64. At IBM, spokeswoman
Kendra Collins said, 'We wouldn't have any comment on their number work.'
Rivera said IBM may argue that the actions are aimed at taking expenses
out. 'But the expensive people happen to be your older people,' he said."
- Poughkeepsie Journal: IBM,
ex-worker back in court in retaliation suit. Excerpt: "IBM
Corp. and a fired ex-employee are back in federal court over his allegation
that the company illegally retaliated against him for complaining of
age discrimination. Mark D. Cring, who worked at IBM's Tampa offices
until fired in 1999, alleged in court papers that IBM also tolerated
an executive there who brought guns to work and was abusive."
- Business Week: Q&A: Lou
Gerstner Takes the Gloves Off. Excerpt: "Q: Critics have questioned
the quality of IBM's earnings, suggesting that IBM's turnaround is due
to slick financial ploys. Why didn't you use the book to respond? A:
Those discussions were not relevant to a book that deals with a 10-year
history. We've responded in the last year with a lot more disclosure.
We've always told people that we made money on intellectual property,
and we always gave them the number. But they wanted to see it put in
the income statement, so we moved it to the income statement and broke
it out. We've always told people in the footnotes what the pension assumptions
were, but they wanted it more frequently and more visibly. So we now
give them more frequent and more visible discussion. For the most part,
the issues for IBM were disclosure. They were never accounting. A couple
of the issues that people have thrown into the bucket of financial engineering
I find strange."
comments. Full excerpt: "The quote about the stockholders
making billions so he should make millions leaves out how he made
those millions (vapor profit, selling off assets, screwing the retirees
and the employees). I wish I could have supplied the interviewer
with just one question. 'Lou, IBM was annually at the top of list
of the most admired companies, but since you took over they have
dropped totally out of the list (top 100 companies), why is that?'
A true answer would be. 'I took a great company and made it into
just another greedy, money hungry, profit at any cost company, that
treats employees like assets, firing and hiring them without concern
for the long term effect on the company. And forget the retirees,
they contribute nothing to the bottom line, so I used their pension
gain for profits, didn't give them fair COLA's, raised their medical
costs and just hoped they go away. Respect for the individual' as
a basic company principle is not cost efficient'."
- Business Week: So
Much for Cracking Down on the Accountants. Pitt is gone. But the
saga of Webster's appointment is strong evidence that the audit industry
and the Bush Administration are bent on evading reform. Excerpts: "Every
investor ought to be appalled by the attempt of the accounting industry
and the White House to reverse reform by stealth. What practical difference
does it make if the board is headed by a William Webster or by a truly
independent and expert figure such as former TIAA-CREF chief John H.
Biggs? Webster, according to well-placed SEC sources, lacks the technical
expertise that the job requires and was intended by his sponsors to
be an ally of the accounting lobby. A Webster-style board would likely
allow the accounting industry to revert to the weak self-regulation
that failed to prevent the fraudulent audits, bankruptcies, and stock
market calamity of recent months." ... "It's hardly surprising
that business conservatives resist regulation of, say, health, labor,
and the environment. You would think, though, that they would want to
have honest corporate books. American capitalism works only to the extent
that investors receive truthful information. The AICPA's behavior is
scandalous, but the deeper scandal here is the myopia of political leaders
who pose as champions of capitalism."
- Business Week: Revenge
of the Retirees. Excerpt: "When C. William Jones retired from
Nynex in 1990, the company feted the debonair managing director with
a toast-filled bash at '1095,' its tony midtown Manhattan headquarters.
The VIPs gave Jones a plaque commemorating his 30 years of service,
a Minolta camera, and a flurry of old-boy handshakes. Like hundreds
of others before him, they then sent Jones on his way, expecting him
to do as any company lifer does: go quietly into the good life, whittling
away his handicap at the club and logging some luxury travel with the
Little did they know that Jones, 64, would be back--not as an executive
has-been but as a leader in a rapidly growing movement: the revenge
of the company man. Jones now heads the 90,000-member Association
of BellTel Retirees. The group is one of many in a new, nationwide
organizing effort made up of former white-collar managers and execs
who are disgusted by corporate greed and outraged by pension and health-coverage
takebacks. It would be one thing, they say, if the promised benefits
were being slashed for the good of the company. Instead, they're watching
CEOs bank hundred-million-dollar fortunes. (Editor's note:
to Annex Research, Lou Gerstner’s total compensation in
the five years ending in 2001 was $366 million). 'It's not unions
out there saying this to executives,' says Karen Friedman, director
of policy strategies for the Pension Rights Center. 'These are people
who used to be them.'"
...This year, a retiree class action brought against Sears, Roebuck
& Co. pressured the company into offering partial relief after it
cut life-insurance benefits. And IBM workers continue to fight Big
Blue over its new cash-balance pension plan, which offers many workers
a substantially smaller payout than what they would have gotten under
the old system. So far, the group, made up of current and former employees,
says its efforts helped persuade IBM to exempt employees age 40 and
above from being forced into the new plan. But they are still fighting
for younger workers. 'These people were promised a secure retirement,'
says former IBM engineer James Leas, a retiree organizer, 'and now
they're not getting it.' IBM declined to comment."
- Wall Street Journal: IBM
Says Its New Initiative Will Save $2.5 Billion in 2003. Excerpt:
"International Business Machines Corp., which has been promoting
its vision of 'e-business on demand' to customers, expects to use the
technology to cut costs by $2.5 billion next year, said Douglas Elix,
head of its global services business." ... "Mr. Elix said
that 30% to 40% of the savings will come from reducing the number of
people needed, although he said many will be assigned to other projects
rather than laid off."
- Reuters: Gregg
eyes pension changes under Republican Senate. Excerpt: "Sen.
Judd Gregg said on Friday that under the Republican-controlled U.S.
Senate he may try to promote defined benefit pension plans which have
lost ground with corporations in recent years."
- Business Week: After
Pitt, Who? The hunt is on for a new SEC commisioner And while lots
of names are being offered, none so far seems to have all the right
stuff. Extract: "One complication is that President Bush has yet
to signal what he wants in the next SEC chief (see
BW Online, 11/7/02, "Wanted at the SEC: A Reformer's Passion").
Does he want someone who'll make peace with two Democratic commissioners
while pursuing more accounting and corporate-governance reforms? Or
does he want his next SEC leader to begin mending fences with Wall Street
and Corporate America? "
This week on the Alliance@IBM
to break the American Trance
by Granny D. Excerpt: "The new business hero, a Horatio
Alger on crack, did very well. The new model CEO derived from
that moment -- the ruthless mercenary who would come in to reorganize
a company and render it takeover-proof by rendering it inhumane.
This executive was worth millions per year, we were told. In this
way, a Darwinian system of corporate survival assured that the
most carnivorous, rather than the most responsible, would rise
to lead our most powerful commercial organizations. And if you
need an explanation for Fox News or Enron, this is the history
you need to remember. These super wealthy predators now, through
their political patronage, control both political parties. They
control Congress and the White House. They control elements within
your state house."
IBM CEO continues Lou Gerstner's policies of greed, by John
R. Kotson, IBM Retiree and former IBM Manager. Excerpt; "The
Wall Street Journal reports that IBM’s pension fund has
dropped from the 8th best funded plan at the end of 2000 to 344th
out of the 346 pension paying firms in the S&P 500 at the
end of 2002. An $11.2 billion surplus that existed at the end
of 2000 has disappeared. According to CNBC analysts, IBM must
contribute $1.5 billion to the fund to meet Government mandated
minimum funding levels. This will be the first contribution to
the fund in 8 years. IBM is desperately looking for ways to make
the profit statements look good to investors. Even though the
pension fund was losing money at a record rate, IBM reported more
than $1.4 billion in pension plan profits in 2001 pretax earnings
according to the Washington Post. This vapor profit is allowable
under distorted Federal Accounting Standards Board rules and is
used in computing executive performance bonuses."
Discrimination at IBM.