$127.55
0.34 (+0.27%)
International Business Machines Corp. (IBM)
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The Company is a globally integrated innovation company, serving the needs of enterprises and institutions worldwide.
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IBM lists unfunded pension liabilities on its balance sheet seperately from "other liabilities" which is unusual.
With the unfunded albatross hanging around at 13bil in 2006 they borrowed money and bought back expensive 6bil of shares.
In 2007 they did the same thing but the shares were even more expensive, 18bil.
In 2008 they did the same thing again except the unfunded liabilities wer 18bil, and the share buyback 10bil at an even higher share price.
Then the share price collapsed.
They recently announced a 5% increase to the dividend, and 3bil more to the share buybacks currently in place for a total aproved 2009 buyback program of 6bil or so.
So rather than pay down debt of 33bil or fund the pension of 18 bil, the executives would rather borrow to drive up the share price.
If the relocation to cheap labor countries does not make an awfully big difference, then tomorrows new executives will be explaining they were not at IBM when the bad executive decisions were made.
If you look at the cash flow statement, you'll see that they paid off over $6B in debt in the last 6 months. The balance sheet shows long term debt has fallen about $2B in the last 6 months. Also note that they've earned about $12.6B in the last 12 months, plus they have $12.5B in cash vs. about $52B in long term debt and liabilities.
mistrgolf,
Thanks for the reply. Net LT debt increased 10bil and 3bil in 2007 and 2008. In the first two quarters of 2009 you are correct they have reduced that by 5.5bil, which is a good sign for green thumbs and bad for my red. Otherwise revenues and income and cash are down in the most recent two quarters compared to the last two of 2008. I have not looked at more to see if this is typical seasonal changes for the company. No RL position here.
"IBM lists unfunded pension liabilities on its balance sheet seperately from "other liabilities" which is unusual."
So your argument against IBM is that they itemize their liabilities rather than hiding them in an aggregate figure?
Pensions are a lousy idea for a company anyways. No industrial company should take on the risk of guaranteeing an investment return for their pensioners or guaranteeing a payment in perpetuity. 401k's are clearly preferable: the company and its shareholders can know their liability and capital can be utilized more efficiently.
401k's are better for responsible retirees anyway. 401k's belong to the individual, not some collective pool that can be underfunded. Therefore 401k's offer more protection against loss than do pensions. 401k's also offer the benefit of being able to be passed on to a beneficiary.
In the future, we will look back at the sad mistake of company pensions and see that defined-contribution plans (such as 401k) are clearly superior -- for employers and employees alike.
herbs,
Thanks for the reply.
My argument is not that pension liabilities are listed. It is Pensons are a lousy idea for a comany anyway in an environment where their competitors employees cannot negotiate the same benefit, but an older company like IBM is stuck with "legacy" issues.
In no way, shape or form will 401k's turn out better for most retirees, but that is a seperate issue.