Other Observations and Discussion

Table 16.1 also shows that just under 20% of IBM's obligations in 2003 were pension obligations to its more than 300,000 current and former employees. For many older and personnel intensive firms, such as IBM, pensions are an important liability. Firms do not need to fund all their future pension obligations, and many firms do not. Some firms, however, are more conservative and may even overfund their plans—and then find themselves subject to an external takeover attempt, in which the acquiror attempts to gain control of the excess pension assets to finance the acquisition. The financial aspects of pensions are complex, but the financials contain a wealth of information about them. Unfortunately, it is almost impossible difficult to discuss pensions adequately in less than a chapter (or less than a full book)—and it would lead you far away from the main topic—so we shall not discuss it further.

Interestingly, Table 16.1 can also tell you how IBM's shifted its obligations from short-term debt into medium- and long-term debt in 2002, and then reversed (or no longer continued) this trend in 2003. This can be seen both in IBM's arrangement of long-term vs. current liabilities (Table 16.1), and within its long-term liabilities, in its arrangement between long-term notes and medium-term notes (Table 16.2). However, the passing of time itself makes outstanding obligations shorter-term, so you might like to know how its financial obligations for each year developed. If you dig deeper into the financial statement footnotes, you can indeed find these, too:

Pension obligations are very important for firms with many employees—almost as important as long-term debt for IBM!

The time dimension of IBM's obligations, and the prevailing yield

Term Structure of IBM's Liabilities Coming Due 2001 2002 2003 2004 2005 2006 As of 2001 $11,188 $5,186 $3,106 $1,501 $1,904 $2,261 As of 2002 $6,031 $3,949 $3,613 $1,670 $2,705

2007 2008 2009 $6,471 ^ ^ $846+$9,940 ^ $1,289+$225+$7,942

This shows that IBM changed its capital structure dynamically (e.g., it always financed itself with some short-term debt, so the next-year's liability term is always large), but for any given year further out, a static shift (i.e., in a given year, like 2006) is not as obvious. When thinking about obligations, IBM's CFO did not operate in a vacuum, but was probably very concerned with the yield-curve. Relative to 2000, short-term and medium-term interest rates had dropped significantly, but long-term rates were somewhat sluggish. Here is how the economy-wide rates changed over this period.

Maturity

2000

2001

2002

2003

Treasury, Short-Term

1 month

>5%

2.47%

1.63%

1.02%

Treasury, Medium-Term

3 year

6.22%

4.09%

3.10%

2.10%

Treasury, Long-Term

20 year

6.23%

5.63%

5.43%

4.96%

Corporate, Short-Term

1 Month

6.3%

3.8%

1.7%

1.1%

Aaa Bonds

Medium Term

7.6%

7.1%

6.5%

5.7%

Finally, the financial footnotes also tell a little bit about IBM's interest payments and unused Some more interesting credit lines.

information.

2001 2002 2003 Interest Paid and Accrued $1,235 $815 $663 Unused Credit Lines $16,121 $16,934 $15,883

To put the interest paid into perspective, in 2001, IBM earned $7.7 billion; in 2002, it earned $5.3 billion; in 2003; it earned $7.6 billion. To put the credit lines into perspective, they are about equal in size to IBM's long-term debt.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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