Shocks Seen in New Math for Pensions

mjd1001 · 03-31-2006, 10:37 AM

The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before.

In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that they will wipe out the net worth of the company.

"Old industrial, old economy companies with heavily unionized work forces" would be affected most sharply by the new rule, said Janet Pegg, an accounting analyst with Bear, Stearns. A recent report by Ms. Pegg and other Bear, Stearns analysts found that the companies with the biggest balance-sheet changes were likely to include General Motors, Ford, Verizon, BellSouth and General Electric.

Using information in the footnotes of Ford's 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford's balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford's retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment.

Applying the same method to General Motors' balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued.

Full article here: http://www.nytimes.com/2006/03/31/bu...in&oref=slogin

CarShark · 03-31-2006, 11:54 AM

That's...interesting.

So what exactly happens to companies that have a negative net worth, anyways?

**mgescuro** · 03-31-2006, 12:01 PM

OUCH....

Drat GAAP....

LAMRONH · 03-31-2006, 02:10 PM

They hope to hell Bill Forbes comes to their rescue???

GM-10 · 03-31-2006, 02:27 PM

Quote:

Originally Posted by CarShark

That's...interesting.

So what exactly happens to companies that have a negative net worth, anyways?

This would be a non cash change.

steverino · 03-31-2006, 10:24 PM

Quote:

Originally Posted by CarShark

That's...interesting.

So what exactly happens to companies that have a negative net worth, anyways?

Negative net worth means you file for bankruptcy and put it all on the tax payers. The government rules are so onerous, that they assume everyone retires tomorrow so the funds have to be there today. Real brilliant.
</IMG>

Mikkoo · 03-31-2006, 11:36 PM

I like old math better. :-)

03-31-2006, 10:37 AM	#1 (permalink)
mjd1001 6.2 Liter Vortec V8 Join Date: Apr 2003 Location: Daytona Beach, FL and Upstate NY Drives: 2008 Saturn Vue Redline Posts: 2,629	Shocks Seen in New Math for Pensions The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before. In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that they will wipe out the net worth of the company. "Old industrial, old economy companies with heavily unionized work forces" would be affected most sharply by the new rule, said Janet Pegg, an accounting analyst with Bear, Stearns. A recent report by Ms. Pegg and other Bear, Stearns analysts found that the companies with the biggest balance-sheet changes were likely to include General Motors, Ford, Verizon, BellSouth and General Electric. Using information in the footnotes of Ford's 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford's balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford's retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment. Applying the same method to General Motors' balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued. Full article here: http://www.nytimes.com/2006/03/31/bu...in&oref=slogin

03-31-2006, 11:54 AM	#2 (permalink)
CarShark Banned Join Date: Jun 2005 Posts: 1,041	Re: Shocks Seen in New Math for Pensions That's...interesting. So what exactly happens to companies that have a negative net worth, anyways?

03-31-2006, 12:01 PM	#3 (permalink)
mgescuro GMI Staff Member Join Date: Jan 2003 Location: San Francisco Bay Area Posts: 24,371	Re: Shocks Seen in New Math for Pensions OUCH.... Drat GAAP.... __________________ 2000 Saab 9-5 Aero 1995 Mercedes C280 1994 Jaguar XJ6 ...when all hope is gone, you know sad songs say so much... My Vision of Cadillac My Vision of Cadillac (REDUX)

03-31-2006, 02:10 PM	#4 (permalink)
LAMRONH 7.0 Liter LS7 V8 Join Date: Nov 2004 Location: Caveville, Neanderthallande Drives: 2007 black KIA Spectra EX. Have club, will travel. Posts: 8,947	Re: Shocks Seen in New Math for Pensions They hope to hell Bill Forbes comes to their rescue??? __________________ The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance. Cicero (106 BC - 43 BC), 55 BC

03-31-2006, 11:36 PM	#7 (permalink)
Mikkoo 6.0 Liter Vortec V8 Join Date: Feb 2003 Location: An American living in Finland Posts: 1,783	Re: Shocks Seen in New Math for Pensions I like old math better. :-) __________________ Previously owned Camaro's ; 1971 1973 RS 1977 Z28 1980 Z28 1982 Z28 1998 2000 Z28 Previously owned Corvette; 1988 Future ride; 2008 Corvette. 6spd manual, with Jetstream blue metallic paint.

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