For the purpose of computing pension expense for financial reporting purposes, the calculation for certain employees incorrectly assumed that earnings during the first year did not accrue towards the calculation of an employee's pension benefit.
As disclosed in an earlier press release dated January 27, 2006, the Company's pension plan continues to be adequately funded under the guidelines of ERISA and, therefore, no cash contribution to the plan is required. However, accounting rules require recording a liability through a direct non-cash charge to equity if the actuarially computed benefit obligations exceed the fair value of the plan's assets.
Prior to becoming aware of the errors discussed above, management disclosed in the recent press release that 2005 would be the first year in which such a charge would be required and that such amount would approximate $19 million in the form of a non-cash reduction in shareholders' equity, not as an expense in the Statement of Income.
Adjusting the historical information to correct for the error would result in the charge being recorded earlier than 2005, as shown by the following pretax amounts: 2001 - $4.5 million; 2002 - an additional $14 million; 2003 - a complete reversal of the $18.5 million charge (because plan assets returned to a level in excess of plan obligations by the end of that year); 2004 - $14 million; 2005 - an additional $4 million.
The cumulative charge of $18 million at the end of 2005 approximates the amount projected in the earlier release. This charge to equity for each year will be reduced by the amount of the related income tax benefit, if it is determined that it is more likely than not that a tax benefit will ultimately be realized by the Company in future years for the amount of the charge.
marketing@alchempro.com
