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Strategies & Market Trends : Galapagos Islands

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To: Challo Jeregy who wrote (8011)	10/18/2002 4:39:16 PM
From: Jorj X Mckie	Read Replies (2) of 57110

Nice IBM write up. "IBM's Earnings Were Down; IBM's Earnings Per Share Were Up - Go Figure October 17, 2002 IBM reported that its earnings from continuing operations in the third quarter were down 1% from year ago. (Net earnings were down 18%, but this decline includes earnings - or lack thereof - from discontinued operations). Despite the 1% decline in earnings from continuing operations, earnings per share increased 2 cents in the third quarter versus year-ago. Well, you don't have to figure too long to find out what is going on here. Obviously, the number of IBM shares outstanding fell versus year-ago. Where will IBM get the cash to keep buying back its shares in order to keep bolstering earnings per share? It reported that its free cash flow in the third quarter was $1.4 billion - down 22% sequentially and down 52% versus year-ago. IBM said that it expected to contribute as much as $1.5 billion to its underfunded pension plan going forward in order to have the plan fully funded by 2005. This means that a significant portion of IBM's free cash flow in coming quarters is not going to be so free. So, I repeat the question: Where will IBM get the cash to keep buying back its shares? Will it have to put more debt on its books to maintain its buyback program? This, of course, is what corporations did during the Roaring "Nineties" to boost their EPS. And now they are paying for it in plummeting bond ratings. Wall Street went gaga over IBM's third-quarter report. What am I missing here?" ntrs.com Message 18131718

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