Ford 2010 Annual Report Download - page 63

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2010 Annual Report 61
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. Amounts are recognized as a component of net expense over
the expected future years of service (approximately 12 years for the major U.S. plans). In 2010, the U.S. actual return on
assets was 14%, which was higher than the expected return of 8.25%. The year-end 2010 weighted average discount
rates for the U.S. and non-U.S. plans decreased by 62 and 37 basis points, respectively. These differences resulted in
unamortized losses of about $2 billion. These losses are only amortized to the extent they exceed 10% of the higher of
the market-related value of assets or the projected benefit obligation of the respective plan. For the major U.S. plans, the
losses exceed this threshold and recognition will begin in 2011.
See Note 18 of the Notes to the Financial Statements for more information regarding costs and assumptions for
employee retirement benefits.
Sensitivity Analysis. The December 31, 2010 pension funded status and 2011 expense are affected by year-
end 2010 assumptions. These sensitivities may be asymmetric and are specific to the time periods noted. 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 factors which generally have the largest
impact on pension expense and obligation is shown below (in millions):
Percentage PercentagePercentage
Percentage
Increase IncreaseIncrease
Increase/
///(Decrease) (Decrease)(Decrease)
(Decrease) in:
in: in:
in:
Point PointPoint
Point
20 2020
2011
1111
11 Expense
Expense Expense
Expense
December 31, 20 December 31, 20December 31, 20
December 31, 2010
1010
10 Obligation
Obligation Obligation
Obligation
Assumption
AssumptionAssumption
Assumption
Change ChangeChange
Change
U.S. Plans U.S. PlansU.S. Plans
U.S. Plans
Non NonNon
Non-
---U.S. Plans U.S. PlansU.S. Plans
U.S. Plans
U.S. U.S.U.S.
U.S. Plans
Plans Plans
Plans
Non NonNon
Non-
---U.S. Plans U.S. PlansU.S. Plans
U.S. Plans
Discount rate
................................
+/- 1.0 pt. $(90)/$320 $(160)/$210 $(4,600)/$5,590 $(2,840)/$3,290
Expected return on assets
................................
+/- 1.0 (380)/380 (190)/190
Other Postretirement Employee Benefits
Nature of Estimates Required. The estimation of our obligations, costs, and liabilities associated with OPEB,
primarily 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 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. 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. Benefit payments are discounted at the rates on the curve and a single discount rate specific to
the plan is determined.
• Health care cost trends. Our health care cost trend assumptions are developed based on historical cost data, the
near-term outlook, and an assessment of likely long-term trends.
• Salary growth. The salary growth assumptions reflect our long-term actual experience, outlook and assumed inflation.
• Retirement rates. Retirement rates are developed to reflect actual and projected plan experience.
• Mortality rates. 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).