1、Session 39 Workshop:Analyzing Defined Benefit Pension Plans & Postretirement Benefits,Greg Clifton VP/Senior Analyst Moodys Investors Service,中國培訓(xùn)師大聯(lián)盟 www.china-,2,Rating Methodology,3,Cash Flow Considerations,Pension plans Understand contribution requirements Rough estimate can be made with SFAS 87

2、 information Due to undisclosed credits, some companies may not face large contribution requirements for several years Can be offset by contributing stock,OPEB Primary focus on benefits paid (recorded on “pay-as you-go” basis) Can obtain benefits paid information in the rollforward of the APBO Can a

3、nalyze growth in: Net periodic postretirement cost Benefit payments Can use above rates to project future benefit payments,4,Balance Sheet,Adjustments: For pensions Recorded Debt Per Balance Sheet +Add: Off-balance sheet liabilities (e.g., lease obligations, guarantees) +Add: Net underfunded PBO fro

4、m notes to financial statements = Adjusted Debt OPEB may include the underfunded amount of the APBO in adjusted debt in certain circumstances,5,Income Statement,As Adjusted By Moodys: Service cost (no adjustments) Interest cost (adjusted only if Moodys disagrees with discount rate) Amortization of p

5、rior service cost (Not used) Recognized net actuarial gains (Not used) Amortization of transition asset (Not used) Actual losses on plan assets, or Actual gains up to the amount of interest cost = Adjusted Net Periodic Pension/OPEB cost,6,Financial Statement Information A Closer Look,7,Pension Plan

6、Funded Status,Financing cost of the plan,Changes in actuarial assumptions (i.e. attrition, retirement, mortality, discount and comp. Increase rates),PBO: Projected benefit obligation. PV of benefits earned to date incl. projected salary increases,Economic position of the firms pension plans = Fair v

7、alue of plan assets - PBO,Actuarial present value of benefits earned during the current period (by virtue of having worked another year),8,BS and IS Reporting,Economic position of the firms pension plans = Fair value of plan assets - PBO,Net balance sheet entry for plan status,If plan level pension

8、liability (ABO - plan assets), diff. must be recognized as a min. liability v.s. intangible asset + charge to comprehensive income.,Expected long term return on plan assets. Key subjective driver of net periodic pension cost.,Amortization/smoothing of prior year gains and losses from reestimate of P

9、BO and accumulated deferred return on assets.,Mostly amortization of prior service cost due to plan amendments,Reported pension cost in P&L.,9,Assumptions v. Reality,Proxy for fixed income returns,Proxy for equity returns,Discount rate used to compute benefit obligation. Rate at which pension obliga

10、tions could be settled . Should move in line with Moodys Aa.,Should reflect reasonable assumptions given asset mix,10,Case Study Dow Chemical,11,Solution: Part I,1.What is the funded status (i.e. underfunded PBO) of the U.S. plans (PBO FVA)? 2003: $(2,304) 2002: $(2,536) 2.What is the funding ratio

11、(FVA / PBO) ? 2003: 82.9% 2002: 79.0% What is the amount of benefits paid for 2003? Pension: $737 OPEB: $166 Do analysts care about benefits paid? Why or why not ? Pension: No, they are paid out of the plan OPEB: Yes, they are generally paid by the company,12,Solution: Part I,5. How much money did t

12、he company contribute to the plan in: 2003: $235 2002: $112 How much does the company expect to contribute in 2004? Pension: $37 OPEB (best guess):$166-170 7. To be discussed,13,Solution: Part II,2003 2002 What is the total amount of recorded debt?$13,109$13,036 What is the underfunded PBO? 2,304 2,

13、536 Pension adjusted debt:$15,413$15,572 Total equity$9,175$7,626 What are the leverage ratios (BV) 58.8% 63.1% What are the pension adjusted leverage ratios? 62.7% 67.1% Debt + Equity: Book$22,284$20,662 Adjusted$24,588$23,198,14,Solution: Part III,2003 2002 EBIT$ 2,341$ 32 Total Net Periodic Pensi

14、on Income (28) (145) Service Cost (242) (219) EBIT, as adjusted:$ 2,071$ (332) % EBIT changed (11.5)% (1,000)% Net income (loss)$ 1,730$ (338) Total Net Periodic Pension Income (28) (145) Service Cost (242) (219) Pension interest cost (773) (748) Actual gains (losses) 773 (1,230) Net income (loss), as adjusted$ 1,460$( 2,680) % Net Income (loss) changed (15.6)% (693)%,15,How Might