aNoNo
03-07-2002, 08:56 AM
Maybe the stock analysts are catching on to pension accounting - it's really not that difficult. There should be some jobs for pension actuaries in deciphering companies pension footnotes. See below.
SBC Uses Pension Fund Earnings To Boost the Firm's Bottom Line
SBC Communications Inc. has found an insurance policy for its earnings even if its business sags this year.
Even as SBC's pension-fund investments fell along with the rest of the market last year, the telephone concern increased its assumptions about how much its pension-fund investments would earn, a move that boosted its bottom line last year and is expected
to do so again in 2002.
By raising the expected return on its pension investments by one percentage point to 9.5% and slightly altering its inflation assumptions, the local phone company is likely to add eight cents to earnings per share this year, according to a report by Goldman Sachs Group & Co. analyst Frank Governali. Mr. Governali said SBC made the change as its fund investments fell 7% last year.
Many large companies, including the regional Bell phone companies, have pension-fund investments that contribute
significantly to the bottom line. Accounting experts have criticized the assumptions as potentially arbitrary and inflationary to the
bottom line. Companies estimate the returns -- and differences between the estimates and actual returns -- can go unreconciled for
years if they aren't wildly out of line, says David Zion, an accounting analyst at Bear Stearns Cos. in New York.
In 2001, SBC's more generous assumptions about pension investments accounted for two-thirds of the growth in its operating earnings per share, according to Mr. Governali's report. Operating earnings
rose nine cents, with six cents coming from the changed pension assumptions. The operating figures exclude a variety of charges and gains and don't conform to standard accounting. In 2001, the San
Antonio company's net income was $7.26 billion, or $2.13 a share, on revenue of $45.91 billion. That compares with net income of $7.97 billion, or $2.32 a share, in 2000, when revenue was $51.37 billion.
In an annual report to the Securities and Exchange Commission filed last week, SBC also said it expects to write off between $1.5 billion and $1.9 billion to reflect the decline in value of certain assets, particularly Sterling Commerce, which it acquired for about $4 billion in 2000.
SBC's Chief Financial Officer Randall Stephenson said the increase in the company's pension assumption is in line with the actual long-term returns on its pension investments, which were 12.5%
during the past decade and 9.5% during the past five years. "I feel very comfortable with this," Mr. Stephenson said. "The history has demonstrated that it's achievable."
The company made the decision to increase the assumption more than a year ago, which refutes speculation that it changed the assumption to boost this year's earnings, Mr. Stephenson said. He added that since the change took effect in 2001 it wouldn't help the company meet its goal of a 5% to
7% growth in earnings this year because the change was in effect in both periods.
SBC is scheduled to meet with Wall Street analysts in New York Thursday.
Still, the company's move was surprising, Mr. Governali said, "given the weak market performance in the last few years." The move also contrasts with cuts by another massive company, General Electric Co., which lowered its assumption to 8.5% from 9.5%, reflecting the company's view of likely long-term returns on pension investments, a GE spokesman said.
SBC, has moved from being one of the most conservative in its assumptions on pension fund returns to being slightly more aggressive than most of its peers, Mr. Governali said, though he added its
assumptions are still well within normal range.
In 2000, the average assumption among S&P 500 companies with conventional pension funds was
9.2%, said Mr. Zion.
In 2000, the most recent year for which comprehensive data are available, most companies didn't change pension assumptions. Of the S&P 500 companies with traditional pension plans, 53 companies cut projected pension earnings, 216 didn't change them, 83 companies increased them and 11,
including Lehman Brothers Holdings Inc., Bausch & Lomb Inc. and Dynegy Inc. increased
them by a percentage point or more, Mr. Zion said.
"It's not a rate of return assumption that should change all that often," said Mr. Zion, unless a company makes significant changes in its investment mix or its view of the market.
SBC Uses Pension Fund Earnings To Boost the Firm's Bottom Line
SBC Communications Inc. has found an insurance policy for its earnings even if its business sags this year.
Even as SBC's pension-fund investments fell along with the rest of the market last year, the telephone concern increased its assumptions about how much its pension-fund investments would earn, a move that boosted its bottom line last year and is expected
to do so again in 2002.
By raising the expected return on its pension investments by one percentage point to 9.5% and slightly altering its inflation assumptions, the local phone company is likely to add eight cents to earnings per share this year, according to a report by Goldman Sachs Group & Co. analyst Frank Governali. Mr. Governali said SBC made the change as its fund investments fell 7% last year.
Many large companies, including the regional Bell phone companies, have pension-fund investments that contribute
significantly to the bottom line. Accounting experts have criticized the assumptions as potentially arbitrary and inflationary to the
bottom line. Companies estimate the returns -- and differences between the estimates and actual returns -- can go unreconciled for
years if they aren't wildly out of line, says David Zion, an accounting analyst at Bear Stearns Cos. in New York.
In 2001, SBC's more generous assumptions about pension investments accounted for two-thirds of the growth in its operating earnings per share, according to Mr. Governali's report. Operating earnings
rose nine cents, with six cents coming from the changed pension assumptions. The operating figures exclude a variety of charges and gains and don't conform to standard accounting. In 2001, the San
Antonio company's net income was $7.26 billion, or $2.13 a share, on revenue of $45.91 billion. That compares with net income of $7.97 billion, or $2.32 a share, in 2000, when revenue was $51.37 billion.
In an annual report to the Securities and Exchange Commission filed last week, SBC also said it expects to write off between $1.5 billion and $1.9 billion to reflect the decline in value of certain assets, particularly Sterling Commerce, which it acquired for about $4 billion in 2000.
SBC's Chief Financial Officer Randall Stephenson said the increase in the company's pension assumption is in line with the actual long-term returns on its pension investments, which were 12.5%
during the past decade and 9.5% during the past five years. "I feel very comfortable with this," Mr. Stephenson said. "The history has demonstrated that it's achievable."
The company made the decision to increase the assumption more than a year ago, which refutes speculation that it changed the assumption to boost this year's earnings, Mr. Stephenson said. He added that since the change took effect in 2001 it wouldn't help the company meet its goal of a 5% to
7% growth in earnings this year because the change was in effect in both periods.
SBC is scheduled to meet with Wall Street analysts in New York Thursday.
Still, the company's move was surprising, Mr. Governali said, "given the weak market performance in the last few years." The move also contrasts with cuts by another massive company, General Electric Co., which lowered its assumption to 8.5% from 9.5%, reflecting the company's view of likely long-term returns on pension investments, a GE spokesman said.
SBC, has moved from being one of the most conservative in its assumptions on pension fund returns to being slightly more aggressive than most of its peers, Mr. Governali said, though he added its
assumptions are still well within normal range.
In 2000, the average assumption among S&P 500 companies with conventional pension funds was
9.2%, said Mr. Zion.
In 2000, the most recent year for which comprehensive data are available, most companies didn't change pension assumptions. Of the S&P 500 companies with traditional pension plans, 53 companies cut projected pension earnings, 216 didn't change them, 83 companies increased them and 11,
including Lehman Brothers Holdings Inc., Bausch & Lomb Inc. and Dynegy Inc. increased
them by a percentage point or more, Mr. Zion said.
"It's not a rate of return assumption that should change all that often," said Mr. Zion, unless a company makes significant changes in its investment mix or its view of the market.