Coca-Cola Pensions
Coca-Cola Pensions
Question 1:
There was a positive change in the net pension liability (future liabilities from pension commitments of the company) for the year 2008 because there was a 4% growth in the full year revenue and a decline in the comparable operating income of 6.5%. in this year, there was $1.32 per diluted share which was above the guidance range of $1.28 to $1.31 the previous December. This was brought about by the strong execution in the North American region following the implementation of the September price increase as well as concrete results in Europe (Coca-Cola, 2009).
Question 2:
PBO refers to Projected Benefit Obligation and it ia pension concept that refers to the current value of an employee”s pension. The PBO considers how long the employee will be working for the company as well as any other future obligations relating to the employee’s pension. In this Coca-Cola’s Note 16 reconciliations of 2008, some of the effect on the PBO and the fair value of plan assets is reflected in the current period experience while some of it has been left out to be reflected as change in other comprehensive income of the company.
The effect of all the items (Service Cost, Interest cost, Foreign currency exchange rate changes, Amendments, Actuarial loss (gain), benefits paid, Settlements/curtailments, Special termination benefits and Others) on the PBO of the company in 2008 have been shown in this current period pension expense. However, the effect of Actual return on plan assets and Employer contributions on the PBO shall not been left out to be reflected as change in other comprehensive income of the company.
Service Cost Interest cost, which is the the cumulative sum of the amount of interest that is paid on a loan by a borrower. Coca Cola’s service cost, amount of interest cost, Actuarial loss (gain), and Special termination benefits for the year 2008 is stated as $205 is not reflected in the breakdown of the total fair value of plan assets given at the start of the year (Coca-Cola. (2009).
Question 3:
Some of the PBO and fair value of plan asset changes have been kept out of the current period net income because this is but a small notification which captures only the most significant items relating to the two. The rest of the information would be best expressed in subsequent comprehensive income notifications of the company.
Question 4
The action of Coca-Cola to decrease by 1 per cent the rate of increase in compensation levels means that the pension liability (PBO) and the current and future pension expense will also decrease. As the company will commit little money to the PBO and pension expense as compared to what it has been paying (Wahlen et al, 2010).
References:
Wahlen, M. James, Stickney, P. Clyde, Brown, Paul, Baginski, P. Stephen, & Bradshaw, Mark. (2010). Financial reporting, financial statement analysis, and valuation: a strategic perspective. Connecticut, Cengage Learning.
Coca-Cola. (2009). Coca-Cola Enterprises Q4 2008 Earnings Call Transcript. February 11, 2009 10:00 AM ET. Retrieved on February 16, 2012 from http://seekingalpha.com/article/120014-coca-cola-enterprises-q4-2008-earnings-call-transcript
