Session 39 The “Buy side” Perspective – An Analyst’s 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 discount 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 outpacing 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 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 pension 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 for the S&P 500 Average Assumption Used for the S&P 500

Average S&P 500 pension plan (cont’d) 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 $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 GM’s US pension 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 (cont’d) (1) US plans only Asset returns and employer contributions on pension plans totaled $33.2bn 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 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:$100mm 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 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 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:$100mm 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:__________ $100.00mm mm 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 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:__________ $100.00mm mm 100.0mm $501.5mm $5.02 $50.15