Ways and Means of Relieving Underfunded Pensions

Committee's recommendation to full House of Representatives may ''free up cash for other corporate uses.'' Also: Interpool CFO resigns; Huntington Bancshares restates; Andrew CFO to become chairman; TI controller named CFO; and more.


On the heels of another report about underfunded pension funds, good news from Washington would be welcome — even at the expense of a little name-calling.

First, the report. Among companies that sponsor traditional defined benefit plans, deferred costs — defined as costs not yet reflected in the income statement — increased sharply in 2002, due to a steep drop in funding levels for the second straight year, according to a new Towers Perrin study.

Towers Perrin examined the annual financial statements of more than 300 major companies with pension plans, including 81 of the companies in the Fortune 100. According to the study, the level of deferred costs soared from an average of $770 million in 1999 to an average cost of nearly $1.4 billion at the end of 2002.

Furthermore, the average pension plan’s funded status at the end of 2002 had declined by more than one-third — from 120 percent to 77 percent — compared with three years ago. “This decline in funded status is largely attributable to the combination of negative asset returns along with a significant drop in interest rates, which push liabilities up,” according to Towers Perrin.

“Companies sponsoring pension plans are unquestionably in a challenging financial environment,” said Steven Kerstein, managing director of Towers Perrin’s Global Retirement consulting practice, in a statement. Deferred pension cost “is only one of many aspects of plan management that need to be addressed.”

Indeed, CFO.com reported in April that the percentage of employers with fully funded plans plummeted from 84 percent in 1998 to 37 percent in 2002, according to Watson Wyatt. And according to the Pension Benefit Guaranty Corp., which oversees the pension industry, total pension underfunding exceeds $300 billion at U.S. companies.

Members of the House Ways and Means Committee may have had those numbers in mind on Friday, when they recommended a pension reform bill to the full U.S. House of Representatives. Passed amid “partisan acrimony” during which “Capitol police were summoned,” according to Reuters, the measure would provide three years of relief for companies while a permanent measure is sought.

Defined-benefit pension plans would be allowed to assume a more generous return on investments, based on an index of high-grade corporate bonds, Reuters reported, rather than rely on the current formula, which is based on the yield of 30-year U.S. Treasury bonds.

Shortly after the announcement of the measure’s passage, Standard and Poor’s released a statement that its estimate of pension underfunding for the S&P 500 is under review.

“If the House approves the proposed three-year use of the high-grade corporate bond rate, which is currently yielding 128 basis points higher than the 30-year Treasury,” stated the press release, “the amount of pension underfunding among U.S. companies would significantly decrease, resulting in lower corporate contributions to their pension funds.” Added the S&P statement, “This change would free up cash for other corporate uses.”

Interpool CFO Resigns Amid Accounting Probe

Interpool Inc., which leases cargo containers and chassis to the transport industry, announced on Friday that its chief financial officer, Richard Gordon, had resigned the day before to become president of Morpheus Capital Advisors, an investment banking boutique.

In a separate press release, the company said it would further delay the release of its audited financial statements for 2002 and its restated financial statements for 2001 and 2000. Interpool added that its audit committee hired a special outside counsel, Morrison & Foerster, to conduct an inquiry into the causes of the incorrect accounting treatment that required the restatement.

Martin Tuchman, Interpool’s chairman and chief executive officer, said that the company plans to release unaudited, restated financial information for 2000, 2001 and 2002, as well as the first quarter of 2003, within the next few weeks.

However, the company stressed that its auditor, KPMG, does not expect to complete its work until the inquiry by Morrison & Foerster has been concluded. “Interpool is not able to predict how long the inquiry will take or when the company’s audited financial statements and Form 10-K will ultimately be ready for filing with the Securities and Exchange Commission,” it added.

The company said that Richard Gross, senior vice president of Finance, will serve as interim chief financial officer until a permanent CFO is named. Gordon will continue to be a member of the company’s board of directors.

Huntington Bancshares Restates Results

Huntington Bancshares said it will restate its earnings by $30 million in response to a Securities and Exchange Commission investigation into how it accounts for automobile leases. The SEC inquiry began after an operating lease restatement and after allegations by a former Huntington employee regarding certain aspects of Huntington’s accounting and financial reporting practices.

The company said the restatement is intended to correct certain timing errors related to origination fees paid to automobile dealers, deferral of commissions paid to originate deposits, certain mortgage origination fee income, the recognition of pension settlements, and liabilities related to the sale of an automobile debt cancellation product.

“The restatement and change in accounting practice announced today address a variety of issues raised by the SEC investigation,” said chairman and chief executive Thomas Hoaglin, in a statement. “While the investigation is ongoing, we decided to take these actions now and are continuing to cooperate fully with the SEC staff.”

Andrew Corp. CFO to Become Chairman

Andrew Corp. announced that vice chairman and chief financial officer Charles R. Nicholas will succeed Dr. Floyd L. English as chairman of the communications equipment maker, effective February 2004.

Nicholas has served as Andrew’s CFO since 1986. “Chuck and I have worked together for more than two decades to grow Andrew as a global company with an international reputation not only for quality products and services but also for the highest levels of corporate integrity,” said English, in a statement.

Marty R. Kittrell, vice president of strategic planning, will become the company’s new CFO. Kittrell joined Andrew in June 2002 when the company acquired Celiant Corp, where he was vice president and CFO.

Andrew also named Gregory F. Maruszak to the newly created position of chief compliance officer, where his duties will include implementation of Sarbanes-Oxley requirements. Maruszak, who joined Andrew in 1982, was appointed vice president and corporate controller in 1991 and vice president, finance, in 1998.

In another move, Daniel J. Hartnett, currently tax director, was promoted to the new position of vice president of tax and elected as a corporate officer of Andrew.

Controller at Texas Instruments Named CFO

Texas Instruments Inc. has announced that chief financial officer William A. Aylesworth will retire at the end of 2003. Kevin P. March, TI’s controller and a 19-year veteran of the company’s finance department, will become the new CFO, effective October 1.

Aylesworth joined TI’s finance development program in Dallas in 1967, the same year he earned a master’s degree in industrial administration from Carnegie Mellon University. He became CFO in 1985 and a senior vice president in 1988.

March, who joined the company’s finance development program in 1984, has served as director of finance and controller for several of TI’s semiconductor businesses and for the company’s analog European operations.

Charles R. Miller will replace March as controller. Miller, who had worked for Texas Instruments from 1976 to 1997, became a vice president of TI in 2002 when the company re-recruited him to lead the finance operation for its applications-specific semiconductor operations. IN the interim, he had been a senior financial director for i2 Technologies and the CFO of the applications development group for Sterling Software.

Short Takes

  • Coca-Cola Co. said Thursday in a conference call that it had found no evidence to support an ex-employee’s claims of accounting fraud or other wrongdoing at the soft-drink giant, according to Reuters.
  • More jumbo layoffs last week: Boeing Co. said it would fire 4,000 to 5,000 workers from its Seattle-based commercial jet unit by the end of 2003, while Ford Motor said it may cut as many as 2,000 workers.
  • Nationwide Building Society issued $2.45 billion in three-part floating-rate notes in the private placement market. Lehman Brothers Inc. and Merrill Lynch & Co. were the joint lead managers.
  • Global IT spending in 2003 is expected to rise by only 1 percent, according to IDC’s Worldwide Black Book.

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