Square D Company and Subsidiaries - Page 33

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          for the 1988 plan year should have been, if properly funded,                
          $24,254,478 ($27,041,478 less $2,787,000).  The yearend balance             
          on November 30, 1987, was in fact only $7,992,215.  The                     
          deductible contribution amount for the 1988 plan year was                   
          $13,243,405.5  During the 1988 year, $4,092,000 was paid for                
          PRMB's.  Accordingly, the increase in the required reserve at the           
          1988 plan yearend is $9,151,405 ($13,243,405 less $4,092,000).              
          Consequently, the total reserve balance should be $33,405,883 at            
          the 1988 yearend ($24,254,478 plus $9,151,405).  The November 30,           
          1988, yearend balance of the VEBA Trust, however, was $1,525,484,           
          which supports a conclusion that, in fact, no reserve was funded.           
               Petitioner claims that it continued to fund the reserve for            
          PRMB's during 1988.  Petitioner, however, ceased funding the VEBA           
          Trust for PRMB's after the December 1987 contribution, and                  
          sometime during October 1988, the VEBA Trust's assets were                  
          depleted.  If petitioner had funded a reserve for the provision             
          of PRMB's, it would not have depleted the VEBA Trust by October             
          1988.  What apparently caused that depletion was that all of the            
          assets of the VEBA Trust were used to pay welfare benefit claims            
          incurred, which is inconsistent with funding a reserve.                     
               Although petitioner did make reference to an insurance trust           
          on its financial statements, it gave no notice to shareholders,             


          5    This figure represents only the deductible contribution                
          amount for employees not covered by collectively bargained                  
          agreements.                                                                 




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