{"id":2094,"date":"2010-11-16T15:09:10","date_gmt":"2010-11-16T20:09:10","guid":{"rendered":"http:\/\/www.credittrends.com\/blog\/?p=2094"},"modified":"2010-11-18T10:38:08","modified_gmt":"2010-11-18T15:38:08","slug":"honeywell%e2%80%99s-hon-pension-announcement-a-smokescreen%e2%80%94it-does-impact-the-firm-and-its-valuation","status":"publish","type":"post","link":"https:\/\/www.credittrends.com\/blog\/2010\/11\/16\/honeywell%e2%80%99s-hon-pension-announcement-a-smokescreen%e2%80%94it-does-impact-the-firm-and-its-valuation\/","title":{"rendered":"Honeywell\u2019s (HON) Pension Announcement a Smokescreen\u2014It Does Impact the Firm and its Valuation"},"content":{"rendered":"<p>Honeywell (<a href=\"http:\/\/seekingalpha.com\/symbol\/hon?s=hon\">HON<\/a>) announced a change to its method of pension accounting whereby it will reflect changes in market value each year instead of the smoothing them, which helped show a healthier plan when market values were declining for Honeywell. Now that market values are rising, Honeywell is desirous of changing its methodology.\u00a0 The company then revised its earlier results in conformity with the changes.<\/p>\n<p><!--more-->The following is important to bear in mind, whether for Honeywell or other firms sure to shortly announce stepped-up contributions:<\/p>\n<p>The effects of the stepped-up contributions are real and many. Honeywell\u2019s 2010 contribution of $1 billion with another $1billion contribution in 2011 are large in relation to the firm\u2019s current and prospective free cash flows.<\/p>\n<ul>\n<li>Such large contributions impact all facets of their business\u2014operating budgets, supply chain, hiring, possible M&amp;A, and capital spending.<\/li>\n<li>Large contributions impact financial structure and credit<\/li>\n<li>Stepped-up contributions tacitly admit past cash flows were overstated. This is why <a href=\"http:\/\/www.credittrends.com\/blog\/ct-capital-llc\/\">CT Capital<\/a> currently makes these adjustments for any firm with significant underfunding.<\/li>\n<li>The tag line \u201cthe contribution does not impact operating earnings\u201c is false. They do.<\/li>\n<li>Large contributions may impact debt covenants.<\/li>\n<li>Even with the large stepped-up contributions, the plans may still be severely underfunded\u2014as Honeywell\u2019s continue to be\u2014see table below. For that reason, Honeywell, in its press release states: \u201cit expects interest rate to increase\u201d, which will help its discount rate. A 7% discount rate is not in touch with reality and thus one should expect such large contributions out of Honeywell to continue.<\/li>\n<li>Honeywell speaks to its corridor. That will not impact the actual contributions that must ultimately be made.<\/li>\n<li>A thorough analysis must be made of all such companies\u2019 actuarial methods\u2014from the ratio of retired to active employees to assumptions underlying the financial reporting. They truly impact market valuation.<\/li>\n<li>See <a href=\"http:\/\/www.credittrends.com\/blog\/ct-capital-llc\/\">CT Capital\u2019s <\/a>\u00a0prior <a href=\"http:\/\/www.credittrends.com\/blog\/2010\/11\/09\/pensions-what-the-ups-2-billon-bond-sale-represents\/\">analysis<\/a> where it indicated and pinpointed firms such as Honeywell and UPS (<a href=\"http:\/\/seekingalpha.com\/symbol\/ups?s=ups\">UPS<\/a>) were sure to revise their pension funding<\/li>\n<\/ul>\n<p>\u00a0<a href=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/11\/Honeywell.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-2095 lazyload\" title=\"Honeywell\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/11\/Honeywell.jpg\" alt=\"\" width=\"648\" height=\"889\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 648px; --smush-placeholder-aspect-ratio: 648\/889;\" \/><noscript><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-2095\" title=\"Honeywell\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/11\/Honeywell.jpg\" alt=\"\" width=\"648\" height=\"889\" \/><\/noscript><\/a><\/p>\n<p>For additional information, contact <a href=\"http:\/\/www.credittrends.com\/blog\/contact-us\/\">Kenneth S. Hackel<\/a>, CFA.<\/p>\n<p>\u00a0Related articles:<\/p>\n<ul>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/11\/09\/pensions-what-the-ups-2-billon-bond-sale-represents\/\">Pensions\u2014What UPS\u2019s $2 billon Bond Sale Represents<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/10\/25\/death-taxes-and-health-care-costs\/\">Death, Taxes, and Health Care Costs<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/19\/ibm-%e2%80%93-again-pension-underfunding-a-leading-indicator\/\">IBM \u2013 Again, Pension Underfunding a Leading Indicator<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/08\/with-35-an-10-year-stock-returns-negative-why-are-pension-funds-assuming-8-returns\/\">With 3-,5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns?<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/08\/11\/what-investors-don%e2%80%99t-understand-about-pension-plans\/2\/\">What Investors Don\u2019t Understand About Pension Plans<\/a><\/li>\n<li><a href=\"http:\/\/www.credittrends.com\/blog\/2010\/07\/29\/pension-facts-why-the-hit-to-earnings-and-cash-flow-is-upon-us\/2\/\">Pension Facts: Why The Hit to Earnings and Cash Flow Is Upon Us<\/a><\/li>\n<\/ul>\n<p>Disclosure: No positions<\/p>\n<p><a href=\"http:\/\/www.credittrends.com\/blog\/about\/\">Kenneth S. Hackel<\/a>, CFA<br \/>\nPresident<br \/>\n<a href=\"http:\/\/www.credittrends.com\/blog\/ct-capital-llc\/\">CT Capital LLC<\/a><\/p>\n<p><a href=\"http:\/\/www.credittrends.com\/blog\/contact-us\/\">Contact CT Capital<\/a>.<\/p>\n<p><a href=\"http:\/\/feedburner.google.com\/fb\/a\/mailverify?uri=CreditTrends&amp;loc=en_US\">Subscribe to CreditTrends.com by Email<\/a><\/p>\n<p><a href=\"http:\/\/www.amazon.com\/gp\/product\/0071744355?ie=UTF8&amp;tag=credtren-20&amp;linkCode=shr&amp;camp=213733&amp;adid=0VR08J2ZHP6QA42KSCDA&amp;creative=393185&amp;creativeASIN=0071744355\"><img loading=\"lazy\" decoding=\"async\" title=\"Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/07\/Kens-Book4.jpg\" alt=\"\" width=\"96\" height=\"136\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" style=\"--smush-placeholder-width: 96px; --smush-placeholder-aspect-ratio: 96\/136;\" \/><noscript><img loading=\"lazy\" decoding=\"async\" title=\"Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/07\/Kens-Book4.jpg\" alt=\"\" width=\"96\" height=\"136\" \/><\/noscript> <\/a><\/p>\n<p>If you are interested in learning\u00a0more about cash flow, financial structure and valuation, order \u201c<a href=\"http:\/\/www.amazon.com\/gp\/product\/0071744355?ie=UTF8&amp;tag=credtren-20&amp;linkCode=shr&amp;camp=213733&amp;adid=0VR08J2ZHP6QA42KSCDA&amp;creative=393185&amp;creativeASIN=0071744355\">Security Valuation and Risk Analysis<\/a>\u201d (McGraw-Hill, 2010).<\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/11\/16\/honeywell%e2%80%99s-hon-pension-announcement-a-smokescreen%e2%80%94it-does-impact-the-firm-and-its-valuation\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p><div class=\"tweetthis\" style=\"text-align:left;\"><p> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Honeywell%E2%80%99s+%28HON%29+Pension+Announcement+a+Smokescreen%E2%80%94It+Does+Impact+the+Firm+and+its+Valuation+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D2094\" title=\"Post to Twitter\"><img decoding=\"async\" class=\"nothumb lazyload\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" \/><noscript><img decoding=\"async\" class=\"nothumb\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" \/><\/noscript><\/a> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Honeywell%E2%80%99s+%28HON%29+Pension+Announcement+a+Smokescreen%E2%80%94It+Does+Impact+the+Firm+and+its+Valuation+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D2094\" title=\"Post to Twitter\">Tweet This Post<\/a><\/p><\/div><!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Honeywell (HON) announced a change to its method of pension accounting whereby it will reflect changes in market value each year instead of the smoothing them, which helped show a healthier plan when market values were declining for Honeywell. Now that market values are rising, Honeywell is desirous of changing its methodology.\u00a0 The company then [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/11\/16\/honeywell%e2%80%99s-hon-pension-announcement-a-smokescreen%e2%80%94it-does-impact-the-firm-and-its-valuation\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[202,240,203,204,85],"class_list":["post-2094","post","type-post","status-publish","format-standard","hentry","category-general","tag-dia","tag-hon","tag-qqqq","tag-spy","tag-ups"],"_links":{"self":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/2094","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/comments?post=2094"}],"version-history":[{"count":0,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/2094\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/media?parent=2094"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/categories?post=2094"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/tags?post=2094"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}