Any company that desires to join the globalization bandwagon needs to follow the rules and ensure that their financial statements reflects their true performance. If not then beware because the Gloablization Police is watching!

The allegation by SEC is that Dell met or beat the analysts’ earnings expectations by using a cookie jar reserve, from 2002 to 2006. Dell received from Intel, the computer chip maker payments not to use chips from Intel’s rival Advanced Micro Devices. It gets even more interesting, these payments accounted for 76% of Dell’s operating income in early 2007. 

So this is what Dell did. They put the payments that they got from Intel in reserves. Every time their financial results were below expectations they would use somepart of the reserves to bridge the gap. And this is how they kept looking good to the analysts, the street and the shareholders.

Well they paid the price. The company did not accept or deny the charges, they have agreed to pay $100M to settle charges. Their CEO Michel Dell agreed to pay $4M. A few more executives also agreed to pay fines.

Another accounting fraud, settled by fines!

Leverage and liquidity ratios are the two key metrics that counterparties and credit rating agencies look at while evaluating investment banks.  When Bears Sterns’ failed in March 2008, confidence in the industry as well as Lehman began to decline. At that time the executives felt the need to manipulate the financial statements in order to stop the declining confidence. 

In the 2^nd quarter of 2008, they started to manipulate their balance sheet by using accounting tricks, referred in Lehman world as Repo-105. The Normal repo transactions consisted of selling assets with the obligation of repurchase within a few days. These are considered a financing activity; and these sold assets stay on the bank’s balance sheet. Repo 105 made use of an accounting rule where, if the assets sold were valued at more than 105% of cash received, the transaction could be called a true sale and the assets removed from Lehman’s books. $50 billion of assets were removed from the balance sheet in this way, improving their leverage ratio from 13.9 to 12.1 at the time.

Throughout 2008 Lehman made false claims of having billions of dollars in available cash to repay counterparties, showing a far better liquidity picture than what was true, significant portions of the reported amounts were encumbered or otherwise unavailable for use. September 12, 2008, 2 days after reporting $41 billion in liquidity, true available funds totaled only $2 billion. And 3 days later, on September 15, 2008 Lehman filed for bankruptcy. An end to another behemoth.

GE met or exceeded analysts’ earnings per share expectations every quarter from 1995 through 2004. Well I would say if a company meets or exceeds analyst’s expectations continuously for such a long time that should raise some red flags. It was found that on 4 separate occasions in 2002 and 2003, high level GE personnel approved accounting that was not in compliance with GAAP (Generally Accepted Accounting Principles).

The four different violations were:

• Beginning in January 2003, an improper application of the accounting standards to GE’s commercial paper funding program to avoid unfavorable disclosures and an estimated approximately $200 million pre-tax charge to earnings.
• A 2003 failure to correct a misapplication of financial accounting standards to certain GE interest-rate swaps.
• In 2002 and 2003, reported end-of-year sales of locomotives that had not yet occurred in order to accelerate more than $370 million in revenue.
• In 2002, an improper change to GE’s accounting for sales of commercial aircraft engines’ spare parts that increased GE’s 2002 net earnings by $585 million.

Like in most other such cases, GE did not accept or deny the charges but agreed to pay $50 Million to settle.

Reading an article recently I found some interesting information about Social Security, the present state and the future. Presently Social Security is taking in more money that it needs to pay the beneficiaries. This surplus is being delivered to the U.S. Department of Treasury, which in exchange gives the Social Security Administration an IOU in the form of special non negotiable bonds (at present there are $1.9 trillion worth of these bonds with the Dept of Treasury). So when the tax revenues going into the Social Security system start to fall short, the SS Administration will start cashing in the IOUs. The Treasury has already spent that money, so when the SS starts cashing in the IOUs, the Treasury will have to look for ways to raise the money- hike taxes, reduce spending on things like education, infrastructure.

Even though we will be able to reap the benefits of Social Security, we will be paying more taxes and getting worse services (education and infrastructure being a few).

But the Social Security system will be in trouble once the IOUs are redeemed. The system will then have a deficit and will have to reduce the benefits or increase the payroll taxes.

One solution to the problem as suggested in the article was to change the way the benefits are calculated. Instead of raising the benefits at the rate at which the wages are increasing, i.e 1-1.5% higher than the cost of living indexes, they should be raised by the increase in cost of living. This would always give you the same purchasing power. It will reduce the burden on the system and help get the system back on its feet.

Till a solution is put into place we can all hope that some day we will be able to reap the benefits of the Social Security tax we pay today.

The reason for the disparity is the higher demand for women’s products, which in turn is pushing the prices. Women have a higher rate of employment growth than men, more are living single- single women spend more on themselves than men, so there is more being spent on women’s jewellery and clothing thereby pushing the prices and finally leading to a higher inflation rate for women.

With this the company has widened its lead over Walmart as the company with the largest revenues in the USA. Oil is definitely the gold of this century, and perhaps the next too.