IBM – Again, Pension Underfunding a Leading Indicator

July 19th, 2010 by hackel Leave a reply »

IBM, although a very strong credit, has been shrinking equity and buying back its shares (see our earlier articles: CFOs Making the Same Mistake and The Folly of Share buybacks).

It has also been underfunding its pension. When firms look to squeeze cash, the pension is an obvious target, and more often than not, disappointment, especially relative to expectations, is on the way. A couple of weeks ago we wrote IBM is underfunding its plans.

Please see our related articles on pensions and free cash flow implications of underfunding:

  1. Details Matter
  2. Pensions-Buyer Beware
  3. CNBC Strategy Session – Underfunded Pensions Earnings Bombshell
  4. CNBC’s Herb Greenberg – Underfunded Pensions are Red Flag for Investors
  5. The Next Shoe to Drop?
  6. The Other Shoe – Part 2
  7. With 3-, 5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns?

Disclosure: No positions

Kenneth S. Hackel, C.F.A.
CT Capital LLC

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For additional information on the implications of pension underfunding and its impact on free cash flow, cost of equity and return on invested capital, pre-order- “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.


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