Ford 2005 Annual Report Download - page 45

Ford Motor Company Annual Report 2005 42 Ford Motor Company Annual Report 2005 43
Managementʼs Discussion and Analysis of Financial
Condition and Results of Operations
are included in unamortized net gains and losses. Unamortized gains and losses are amortized over future periods and, therefore,
generally affect our recognized expense in future periods.
See Note 23 of the Notes to the Financial Statements for more information regarding costs and assumptions for employee
retirement benefits.
Sensitivity Analysis. The December 31, 2005 funded status of our pension plans is affected by December 31, 2005 assumptions.
Pension expense for 2005 is based on the plan design and assumptions as of December 31, 2004. Note that these sensitivities may be
asymmetric, and are specific to 2005. They also may not be additive, so the impact of changing multiple factors simultaneously
cannot be calculated by combining the individual sensitivities shown. The effect of the indicated increase/(decrease) in selected
factors is shown below (in millions):
Increase/(Decrease) in:
Percentage December 31, 2005
Point U.S. Plans Non-U.S. Plans 2005 Expense
Assumption Change Funded Status Funded Status Equity U.S. Plans Non-U.S. Plans
Discount rate.......................................... +/- 1.0 pt. $4,690/$(5,250) $4,280/$(5,310) $3,450/$(6,560) $(110)/$320 $(330)/$430
Actual return on assets .......................... +/- 1.0 390/(390) 180/(180) 1,400/(200) — —
Expected return on assets ...................... +/- 1.0 — — — (380)/380 (150)/150
The foregoing indicates that changes in the discount rate and return on assets can have a significant effect on the funded status of
our pension plans, stockholders' equity and expense. We cannot predict these changes in discount rates or investment returns and,
therefore, cannot reasonably estimate whether adjustments to our stockholders' equity for minimum pension liability in subsequent
years will be significant.
Other Postretirement Employee Benefits (Retiree Health Care and Life Insurance)
Nature of Estimates Required. The estimation of our obligations, costs and liabilities associated with other postretirement
employee benefits ("OPEB") (i.e., retiree health care and life insurance) requires that we make use of estimates of the present value of
the projected future payments to all participants, taking into consideration the likelihood of potential future events such as health care
cost increases, salary increases and demographic experience, which may have an effect on the amount and timing of future payments.
Assumptions and Approach Used. The assumptions used in developing the required estimates include the following key factors:
�Discount rates
�Salary growth
�Retirement rates
�Expected contributions
�Health care cost trends
�Expected return on plan assets
�Mortality rates
Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, anticipated efficiencies
and other cost-mitigation actions (including eligibility management, employee education and wellness, competitive sourcing and
appropriate employee cost sharing) and an assessment of likely long-term trends. We base the discount rate assumption primarily on
the results of a cash flow matching analysis, which matches the future cash outflows for each plan to a yield curve comprised of high
quality bonds specific to the country of the plan. The salary growth assumptions reflect our long-term actual experience, the near-term
outlook and assumed inflation. The expected return on plan assets assumption reflects historical plan returns and inputs from a range
of internal and external advisors for capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of
our investment strategy. We also consider peer data in setting the expected return on asset assumption. The expected amount and
timing of contributions is based on an assessment of cash availability and other considerations (e.g., funded status and tax efficiency).
Retirement and mortality rates are developed to reflect actual and projected plan experience. Plan obligations and costs are based on
existing retirement plan provisions. No assumption is made regarding any potential future changes to benefit provisions beyond those
to which we are presently committed (e.g., in existing labor contracts). The effects of actual results differing from our assumptions
and the effects of changing assumptions are included in unamortized net gains and losses. Unamortized gains and losses are
amortized over future periods and, therefore, generally affect our recognized expense in future periods.