REVENUE,
PROFIT, AND VAPOR PROFIT AT IBM
by James Marc Leas*
Vapor profit
is the paper boost to IBM profit from pension fund accounting rules.
The profit boost is purely an accounting
rule treatment: no money is transferred to IBM from the pension fund.
In the table below, the after tax profit column
is broken down into vapor profit and all other profit.
5 year cumulative growth is the 2001 figure
minus the 1996 figure for each column.
Source:
IBM annual reports
Dollar
figures in millions of dollars
pretax after tax vapor all other
year revenue profit profit
profit after tax profit
1996 $75,947 $8,587 $5,429 $157 $5,272
1997 $78,508 $9,027 $6,093 $377 $5,716
1998 $81,667 $9,040 $6,328 $550 $5,778
1999 $87,548 $11,757 $7,712 $799 $6,913
2000 $88,396 $11,534 $8,093 $1,266 $6,827
2001 $85,866 $10,953 $7,723 $1,450 $6,273
5 year cumulative growth $9,919 $2,366 $2,294 $1,293 $1,001
5 year % increase 13.06% 27.55% 42.25% 823.57% 18.99%
5 year average annual growth 2.50% 5.00% 7.40% 52.20% 3.50%
Lou Gerstner's key accomplishment was
boosting vapor profit
IBM revenue
growth averaged only 2.5% per year for the past 5 years.
IBM profit
from all sources other than vapor profit grew only 3.5% per year for the past 5
years.
Vapor profit
is one of IBM's fastest growth engines.
Over the past
five years vapor profit grew 823%, an average compound growth of 52% per year.
Mr. Gerstner
built vapor profit more than he built profit from operations during these past
five years.
Vapor profit
growth was 56.3% of IBM's after-tax profit growth these past five years.
Vapor growth
was $1.293 billion of total profit growth of $2.294 billion.
Vapor profit
accounted for 18.8% of IBM's after tax profit in 2001 and 13.2% of IBM's pretax
profit.
Mr. Gerstner
boosted vapor profit by slashing retirement pay for tens of thousands employees
and by withholding
cost of living adjustment for retirees.
Since vapor
profit is not real money transferred to IBM, no benefit accrued for the company
or its shareholders.
In slashing
retirement pay, Mr. Gerstner implemented age discrimination, and that legacy
lingers.
IBM can no
longer legitimately claim it is an equal opportunity employer.
Executive pay
is tied to the profit report. Growth in vapor profit boosted the pay of Mr.
Gerstner and other executives.
The company
was damaged when executives boosted their own pay by slashing pensions long
promised to employees.
Thousands of
talented employees left to join the competition.
Enron management
used various accounting schemes to enrich themselves at the expense of the
company, the shareholders,
and the employees. IBM's
actions to boost accounting rule vapor profit in order to hike executive pay
are comparable to
some schemes used at Enron
* For further information contact James Marc Leas,
802 864-1575 (office), 802 734-8811 (cell),
jolly39@juno.com, vermontpatentlawyer.com
James Leas was the proponent of resolution 4 that
was voted at the IBM stockholder meeting on April 30, 2002 in Louisville,
KY.