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1、Session 39The “Buy side” Perspective An Analysts View of Financial DisclosureWayde Bendus, Vice President, Deutsche BankWhy are pensions still a relevant concern for the street?nUnderlying growth in pension benefit liabilities has been approximately 4.25%, before consideration for changes in discoun
2、t ratesnFunded positions have very likely deteriorated in 2004Despite the recent rise in short-term rates, long-term rates have stabilized over the past yearnLabor unions are aggressive protectors of benefits, even in highly distressed industriesnHeath care and wage inflation have been far outpacing
3、 overall inflation, increasing the burden of OPEB liabilitiesnBenefit pay outs are growing and have a significant impact on plan asset levelsbleed rate have been a significant offset to recent asset returns and employer contributionsnMany companies have yet to address under funded pensions on a glob
4、al basisdiffering rules on funding requirementsnPotential changes in accounting and ERISA rules could impact how companies manage their pension plansnAsset allocation is highly geared towards equity investments, which will result in significant volatility in funding positionsAverage S&P 500 pension
5、plannPension plan assets improved due to on average 19% market returns and higher employer contributions in 2003nPension liabilities increased due to accumulation of new benefits and lower discount rates Source: DB, Company reports, FactSetAverage PBO and FVA for the S&P 500Average Funding for the S
6、&P 500Average Assumption Used for the S&P 500Average S&P 500 pension plan (contd)nAggregate pension funding improved moderately in 2003 to approximately 87% from 82% in 2002Under funded plans improved to 82% from 78%nThe aggregated under funded position for the S&P 500 was approximately $170bnunder
7、funded plans were approximately $192bnSource:DB, Company reports, FactSetAggregate and Under FundedFunding Position for the S&P 500Year over Year Change in Distribution of Funding Levels for the S&P 500Aggregate and Under FundedFunding Level for the S&P 500GM Case StudynGMs US pension plans were ful
8、ly funded following its $18.6bn debt financed fundingnNon-US plans were under funded by $7.5bnnOPEBs represented a very large liability and grew by over $20.9bn in 2003GM Case Study (contd)(1) US plans onlynAsset returns and employer contributions on pension plans totaled $33.2bn yet the under funde
9、d status was only reduced by $18.0bnnLower discount rates and higher benefit pay outs eroded a significant portion of the gainsnHigh benefit pay outs, strong labor unions and rising benefit costs, in a market environment that is producing limited returns, will very likely take their toll on equity v
10、aluations for companies like GM over the longer termFunding StrategiesFunding with company stock Valuation analysisnAssumptions:Shares outstanding:100mmCurrent Stk Price:$50Current EPS:$5.00Expected return:8.50%Tax Rate:40.0%Cost of funds:0.00%Contribution:$100mmnValuation analysis:Pension Contribut
11、ion:_Expected Return:_EBIT_Interest Cost_PBT_Book Taxes_Net Income_Total New Shares:_Total New Net Income:_New EPS:_New Stock Price:_Funding with cash Valuation analysisnAssumptions:Shares outstanding:100mmCurrent Stk Price:$50Current EPS:$5.00Expected return:8.50%Tax Rate:40.0%Cost of funds:6.00%Co
12、ntribution:$100mmnValuation analysis:Pension Contribution:_Expected Return:_EBIT_Interest Cost_PBT_Book Taxes_Net Income_Total Shares out:_Total New Net Income:_New EPS:_New Stock Price:_Funding with company stock Valuation analysisnAssumptions:Shares outstanding:100mmCurrent Stk Price:$50Current EP
13、S:$5.00Expected return:8.50%Tax Rate:40.0%Cost of funds:0.00%Contribution:$100mmnValuation analysis:Pension Contribution:_Expected Return:_EBIT_Interest Cost_PBT_Book Taxes_Net Income_Total New Shares:_Total New Net Income:_New EPS:_New Stock Price:_$100.00mm 8.50 8.50 0.00 8.50 -3.40 5.10mm102.0mm$
14、505.1mm$4.95$49.50Funding with cash Valuation analysisnAssumptions:Shares outstanding:100mmCurrent Stk Price:$50Current EPS:$5.00Expected return:8.50%Tax Rate:40.0%Cost of funds:6.00%Contribution:$100mmnValuation analysis:Pension Contribution:_Expected Return:_EBIT_Interest Cost_PBT_Book Taxes_Net Income_Total Shares out:_Total New Net Income:_New EPS:_New Stock Price:_$100.00mm 8.50 8.50 -6.00 2.50 -1.00 1.50mm100.0mm$501.5mm$5.02$50.15
