1、Session 39 The “Buy side” Perspective An Analysts View of Financial Disclosure,Wayde Bendus, Vice President, Deutsche Bank,Why are pensions still a relevant concern for the street?,Underlying growth in pension benefit liabilities has been approximately 4.25%, before consideration for changes in disc
2、ount rates Funded positions have very likely deteriorated in 2004 Despite the recent rise in short-term rates, long-term rates have stabilized over the past year Labor unions are aggressive protectors of benefits, even in highly distressed industries Heath care and wage inflation have been far outpa
3、cing overall inflation, increasing the burden of OPEB liabilities Benefit pay outs are growing and have a significant impact on plan asset levels bleed rate have been a significant offset to recent asset returns and employer contributions Many companies have yet to address under funded pensions on a
4、 global basis differing rules on funding requirements Potential changes in accounting and ERISA rules could impact how companies manage their pension plans Asset allocation is highly geared towards equity investments, which will result in significant volatility in funding positions,Average S&P 500 p
5、ension plan,Pension plan assets improved due to on average 19% market returns and higher employer contributions in 2003 Pension liabilities increased due to accumulation of new benefits and lower discount rates,Source: DB, Company reports, FactSet,Average PBO and FVA for the S&P 500,Average Funding
6、for the S&P 500,Average Assumption Used for the S&P 500,Average S&P 500 pension plan (contd),Aggregate pension funding improved moderately in 2003 to approximately 87% from 82% in 2002 Under funded plans improved to 82% from 78% The aggregated under funded position for the S&P 500 was approximately
7、$170bn under funded plans were approximately $192bn,Source: DB, Company reports, FactSet,Aggregate and Under Funded Funding Position for the S&P 500,Year over Year Change in Distribution of Funding Levels for the S&P 500,Aggregate and Under Funded Funding Level for the S&P 500,GM Case Study,GMs US p
8、ension plans were fully funded following its $18.6bn debt financed funding Non-US plans were under funded by $7.5bn OPEBs represented a very large liability and grew by over $20.9bn in 2003,GM Case Study (contd),(1) US plans only,Asset returns and employer contributions on pension plans totaled $33.
9、2bn yet the under funded status was only reduced by $18.0bn Lower discount rates and higher benefit pay outs eroded a significant portion of the gains High benefit pay outs, strong labor unions and rising benefit costs, in a market environment that is producing limited returns, will very likely take
10、 their toll on equity valuations for companies like GM over the longer term,Funding Strategies,Funding with company stock Valuation analysis,Assumptions: Shares outstanding: 100mm Current Stk Price: $50 Current EPS: $5.00 Expected return: 8.50% Tax Rate: 40.0% Cost of funds: 0.00% Contribution: $100
11、mm,Valuation 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: _,Funding with cash Valuation analysis,Assumptions: Shares outstanding: 100mm Current Stk Price: $50 Current
12、EPS: $5.00 Expected return: 8.50% Tax Rate: 40.0% Cost of funds: 6.00% Contribution: $100mm,Valuation 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 compa
13、ny stock Valuation analysis,Assumptions: Shares outstanding: 100mm Current Stk Price: $50 Current EPS: $5.00 Expected return: 8.50% Tax Rate: 40.0% Cost of funds: 0.00% Contribution: $100mm,Valuation analysis:,Pension Contribution: _ Expected Return: _ EBIT _ Interest Cost _ PBT _ Book Taxes _ Net I
14、ncome _Total New Shares: _ Total New Net Income: _New EPS: _ New Stock Price: _,$100.00mm,8.50,8.50,0.00,8.50,-3.40,5.10mm,102.0mm,$505.1mm,$4.95,$49.50,Funding with cash Valuation analysis,Assumptions: Shares outstanding: 100mm Current Stk Price: $50 Current EPS: $5.00 Expected return: 8.50% Tax Ra
15、te: 40.0% Cost of funds: 6.00% Contribution: $100mm,Valuation 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,-1.00,1.50mm,100.0mm,$501.5mm,$5.02,$50.15,
