Sand Spring Advisors LLC
Pension Time Bombs
March 31, 2002
by, Barclay T. Leib
Given the hostile and increasingly militaristic world in which we live, defense/aerospace contractor Lockheed Martin has been a red-hot stock over the past two years, and particularly since last September.
Notwithstanding this fact, Lockheed Martin is quickly approaching Fibonacci resistance near $62.80, and objective sorts like us can't help but point out that back in 2000, 19% of LMT's operating income found its source not in sexy new air defense systems but in the company's pension fund accounting. Excess gains made on equity investments in the late 1990's combined with complex ERISA accounting (that allows pension fund returns to get smoothed over time) helped pad LMT 2000 operating income. In that year, pension fund "income" also represented more than 10% of "operating" earnings for 24 other major companies -- IBM among them.
How are those pension fund accruals and amortizations faring these day? We fear for LMT and others, the answer is: not well.
Subscribers are invited to read our 9-page report "Pension Fund Asset & Liability Blues." In it, we discuss a demographic time-bomb of mismatched assets and liabilities that could easily sink corporate profits for the next decade or two. We also update many of our other previously espoused views.
Non-subscribers are invited to gain immediate access to this article by signing up for a quarterly subscription below.
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