Honeywell 2014 Annual Report Download - page 39

various assumptions used to value our pension plans or when assumptions change. The primary
factors contributing to actuarial gains and losses are changes in the discount rate used to value
pension obligations as of the measurement date each year and the difference between expected and
actual returns on plan assets. The mark-to-market accounting method results in the potential for
volatile and difficult to forecast MTM Adjustments. MTM charges were $249 million, $51 million and
$957 million in 2014, 2013 and 2012, respectively.
We determine the expected long-term rate of return on plan assets utilizing historical plan asset
returns over varying long-term periods combined with our expectations of future market conditions and
asset mix considerations (see Note 20 Pension and Other Postretirement Benefits of Notes to
Financial Statements for details on the actual various asset classes and targeted asset allocation
percentages for our pension plans). We plan to continue to use an expected rate of return on plan
assets of 7.75% for 2015 as this is a long-term rate based on historical plan asset returns over varying
long term periods combined with our expectations of future market conditions and the asset mix of the
plan’s investments.
The discount rate reflects the market rate on December 31 (measurement date) for high-quality
fixed-income investments with maturities corresponding to our benefit obligations and is subject to
change each year. The discount rate can be volatile from year to year as it is determined based upon
prevailing interest rates as of the measurement date. We will use a 4.08% discount rate in 2015,
reflecting the significant decline in the market interest rate environment since the prior year-end.
In addition to the potential for MTM Adjustments, changes in our expected rate of return on plan
assets and discount rate resulting from economic events also affects future pension ongoing (income)
expense. The following table highlights the sensitivity of our U.S. pension obligations and ongoing
(income) expense to changes in these assumptions, assuming all other assumptions remain constant.
These estimates exclude any potential MTM Adjustment:
Change in Assumption
Impact on 2015
Pension Ongoing
Expense Impact on PBO
0.25 percentage point decrease in discount rate . . Decrease $14 million Increase $542 million
0.25 percentage point increase in discount rate . . . Increase $13 million Decrease $515 million
0.25 percentage point decrease in expected rate
of return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase $41 million —
0.25 percentage point increase in expected rate
of return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease $41 million —
Pension ongoing income for all of our pension plans is expected to be approximately $385 million
in 2015 compared with pension ongoing income of $254 million in 2014. The increase in pension
ongoing income in 2015 compared with 2014 results primarily from lower interest cost due to a decline
in discount rates at December 31, 2014 compared with December 31, 2013 and an increase in the
plans’ assets at December 31, 2014 compared with December 31, 2013 mainly due to strong asset
returns in 2014. Also, if required, an MTM Adjustment will be recorded in the fourth quarter of 2015 in
accordance with our pension accounting method as previously described. It is difficult to reliably
forecast or predict whether there will be a MTM Adjustment in 2015, and if one is required what the
magnitude of such adjustment will be. MTM Adjustments are primarily driven by events and
circumstances beyond the control of the Company such as changes in interest rates and the
performance of the financial markets.
Long-Lived Assets (including Tangible and Finite-Lived Intangible Assets)—The determina-
tion of useful lives (for depreciation/amortization purposes) and whether or not tangible and intangible
assets are impaired involves the use of accounting estimates and assumptions, changes in which
could materially impact our financial condition or operating performance if actual results differ from
such estimates and assumptions. We evaluate the recoverability of the carrying amount of our long-
lived assets whenever events or changes in circumstances indicate that the carrying amount of a long-
lived asset group may not be fully recoverable. The principal factors in considering when to perform an
impairment review are as follows:
•Significant under-performance (i.e., declines in sales, earnings or cash flows) of a business or
product line in relation to expectations;
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