Question-and-Answer Session
Operator
(Operator's instructions) Our first question comes from Batya Levi from UBS. Your line is open.
Batya Levi – UBS
Thanks a lot for the question. I wanted to follow up on the margins. If I adjust for the two (inaudible) you had mentioned, I think margins were flatter sequentially at about 44% of sales. I wanted to check if that's sort of in the ballpark. And also, looking into the first half, how much should we bake in for higher pension expense? And along with that and the top line pressure that you suggested will continue, do you expect the workforce reduction to offset that so basically should we expect margins to continue to move up in the first half from the fourth quarter level? Thanks so much.
Gene Betts
On your first question, I think you were referring to our EBITDA margin of approximately 44%, which includes the EMBARQ Logistics impact. Just to make sure we're clear on this, we said that the impact of removing EMBARQ Logistics on operating income margin was approximately 200 basis points. It's more like 250 to 300 basis points on EBITDA margin. So, post the sale of that, we would expect that to go up by 250 to 300 basis points from the 44% level.
I think your second question had to do with pension expense and this year, in 2008, we recorded approximately $30 million, and that excluded expenses related to employee separations. Our guidance accounts for an additional 10 million of pension expense in 2009. Now, you might think well, that doesn't seem like a lot relative to what's happening in the market, but keep in mind that the accounting methodology uses a five year smoothing assumption, and so actually when the markup was performing better in previous years, we weren't recording as much benefit due to the smoothing and likewise when you have a bad year it isn't as impactful.
Also, some of the other assumptions, in particular the discount rate — to use the discount to liability is very significant. As you can guess, with interest rates increasing, that increases the discount rate which has an offsetting effect on the liability. So, net-net we expect a $10 million increase in expense in '09. And as I said in my script, we expect the funding to be more like 150 million pretax, that would be like 100 million after tax, as opposed to 75 million pretax the last couple of years.
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