· Textbook Material:
Title: Financial Statement Analysis, 10th Edition
Author: K. R. Subramanyam and John J. Wild
Physical Text: ISBN: 978-0-07-337943-2
Published by: McGraw Hill
Attached is a template that should be used.
Complete the Case Study Assignment: Interpreting Pension and OPEB Disclosures
Complete Case 3-1, Colgate on page 210 in your textbook, Analyzing and Interpreting Pension Disclosures. Refer to the Colgate annual report in Appendix A of your textbook.
Refer to Colgate’s annual report in Appendix A at the end of the book and answer the following questions:
- a. What type of pension plan does Colgate have for a majority of its employees? What are the primary other postretirement benefits (OPEBs) that Colgate offers its employees?
- b. Separately for pensions (U.S. and international) and OPEBs, answer the following questions for both 2006 and 2005:
- (1) What is the closing net economic position of the plan? Is it a net asset or net liability?
- (2) What is the closing amount reported in the balance sheet? Is it a net asset or net liability?
- (3) Where in the balance sheet are the reported amounts included?
- (4) For 2005, what causes the reported amounts to deviate from the net economic position?
- (5) Identify the amount of accumulated benefit obligation (ABO) and the projected benefit obligation (PBO). Which amount is recognized in the balance sheet? Which is closer to Colgate’s legal obligation?
- (6) What is the net economic position of each plan if it is terminated?
- (7) What is the closing value of plan assets? Which asset classes does Colgate invest in and what proportions?
- (8) What is the reported benefit cost that is included in net income for the year? What are its components?
- (9) Identify and quantify the nonrecurring amounts that are deferred during the year.
- (10) What is Colgate’s actual return on plan assets? How much does it recognize for the year (when determining reported benefit cost)?
- (11) Identify how the reported cost is articulated with the net position included in the balance sheet. (Hint: How are the net deferrals recognized—or not recognized—on the balance sheet?) What are the differences between 2005 and 2006?
- (12) What are the key actuarial assumptions that Colgate makes? Has Colgate changed any assumptions during 2006? What effects will the changes have on Colgate’s economic and reported position and cost?
- (13) What is Colgate’s cash flow with respect to postretirement plans? What is the estimated cash flow for 2007?
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