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To: Alias Shrugged who wrote (173729)	6/18/2002 11:53:42 PM
From: Alias Shrugged	Respond to of 436258

Post 4 ============================================== I have projected pension expense for the period 2002 through 2006. I have simply "rolled forward" the liabilities (ie, assumed that the liability side of the picture unfolds as projected). The BASELINE CASE is (a) actual asset returns for the period 2002 - 2006 equal 10% and IBM continues assuming a 10% return. Several Alternate Cases will be explored. BASELINE Results: (10% asset assumption; 10% returns 02 - 06) Pension Prepaid Expense EOY Pension Year MRAV MV (Income) Surplus Asset ----------------------------------------------------- 1994 27055 28607 11 997 1135 1995 28110 26780 (252) 974 1987 1996 30073 31209 (285) 4552 2272 1997 31763 34281 (420) 5314 2692 1998 33939 38475 (454) 5032 3146 1999 36477 41593 (638) 11150 3784 2000 40223 45584 (896) 7055 4679 2001 43335 44594 (1025) 956 5705 2002 44758 39565 (1117) 2013 6822 2003 45614 41234 (1139) 3092 7961 2005 46049 42905 (1050) 4151 9011 2005 45854 44533 (897) 5128 9908 2006 46051 46051 (855) 6063 10763 Surprisingly, Pension Income for 2002 is expected to increase from $1.025 billion to $1.117 billion, despite the ugly investment experience of 2001. Note that although the MV as of 1/1/2002 dropped, the smoothed MRAV value keeps chugging along. PLEASE NOTE: The best guess for 2002 Pension Income is $1.117 billion. This figure will not change unless IBM changes assumptions. Going from a 10% assumption to a 9.5% assumption will lower pension income by approximately $225 million for 2002. (.5% x $44758 mil) A more realistic scenario is assets return ZIP in 2002 and only 5% 2003 through 2006. IBM, however, continues to assume 10% growth. Scenario I: Expected = 10%; Actual = 0% in '02; 5% in '03-'06 Pension Prepaid Expense EOY Pension Year MRAV MV (Income) Surplus Asset 1994 27055 28607 11 997 1135 1995 28110 26780 (252) 974 1987 1996 30073 31209 (285) 4552 2272 1997 31763 34281 (420) 5314 2692 1998 33939 38475 (454) 5032 3146 1999 36477 41593 (638) 11150 3784 2000 40223 45584 (896) 7055 4679 2001 43335 44594 (1025) 956 5705 2002 44758 39565 (1117) (2329) 6822 2003 44746 36892 (1052) (3505) 7874 2005 43792 36308 (824) (4791) 8698 2005 41645 35591 (218) (6244) 8917 2006 39294 34679 387 (7875) 8530 Pension Income starts decreasing and flips over to pension expense in 2006. By 2006, the surplus has changed to a deficit of $7.875 billion, but the Company has recorded a prepaid asset of $8.530 billion. This $16 billion difference (in other words, IBM by 2006 should have a pension liability of $7.875 billion recorded, not an asset of $8.530 billion) will need to be reversed over time via higher pension expense.