Ford 2014 Annual Report Download - page 89

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Discount rates and interest rates have the largest impact on our net funded status. The table below estimates the
impact as of December 31, 2014 on our funded status of an increase/decrease in discount rates and interest rates (in
millions):
Basis Increase/(Decrease) in
Point December 31, 2014 Funded Status
Factor Change U.S. Plans Non-U.S. Plans
Discount rate - obligation +/- 100 bps. $5,000/(6,200) $4,700/(5,800)
Interest rate - fixed income assets +/- 100 (4,500)/5,600 (1,900)/2,400
Net impact on funded status $500/(600) $2,800/(3,400)
The fixed income asset sensitivity shown excludes other fixed income return components (e.g., bond coupon and
active management excess returns), growth asset returns and changes in value of related insurance contracts. Other
factors that impact net funded status (e.g., contributions) are not reflected.
Discount rates and the expected long-term rate of return on assets have the largest impact on pension expense.
These assumptions are generally set at each year end for expense recorded throughout the following year. The table
below estimates the impact on 2015 pension expense of a higher/lower assumption for these factors (in millions):
Basis Increase/(Decrease) in
Point 2015 Expense
Factor Change U.S. Plans Non-U.S. Plans
Discount rate +/- 10 bps. $(35)/40 $(40)/40
Expected long-term rate of return on assets +/- 10 (40)/40 (20)/20
The impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities.
The sensitivity of pension expense to an increase in discount rates assumptions may not be linear.
Other Postretirement Employee Benefits
Effect of Actual Results. The weighted average discount rate used to determine the benefit obligation for U.S. OPEB
plans at December 31, 2014 was 3.86%, compared with 4.65% at December 31, 2013, resulting in an unamortized loss of
about $400 million. This amount is expected to be recognized as a component of net expense over the expected future
years of service (approximately 12 years).
Sensitivity Analysis. The effect on U.S. and Canadian plans of a 100 basis point increase/(decrease) in the assumed
discount rate would have resulted in a (lower)/higher postretirement benefit expense for 2015 of approximately
$(40) million/$40 million, and in the year-end 2014 obligation of approximately $(720) million/$850 million.
Income Taxes
Nature of Estimates Required. We must make estimates and apply judgment in determining the provision for income
taxes for financial reporting purposes. We make these estimates and judgments primarily in the following areas: (i) the
calculation of tax credits, (ii) the calculation of differences in the timing of recognition of revenue and expense for tax and
financial statement purposes that will ultimately be reported in tax returns, as well as (iii) the calculation of interest and
penalties related to uncertain tax positions. Changes in these estimates and judgments may result in a material increase
or decrease to our tax provision, which would be recorded in the period in which the change occurs.
Assumptions and Approach Used. We are subject to the income tax laws and regulations of the many jurisdictions in
which we operate. These tax laws and regulations are complex and involve uncertainties in the application to our facts
and circumstances that may be open to interpretation. We recognize benefits for these uncertain tax positions based
upon a process that requires judgment regarding the technical application of the laws, regulations, and various related
judicial opinions. If, in our judgment, it is more likely than not that the uncertain tax position will be settled favorably to us,
we estimate an amount that ultimately will be realized. This process is inherently subjective, since it requires our
assessment of the probability of future outcomes. We evaluate these uncertain tax positions on a quarterly basis,
including consideration of changes in facts and circumstances, such as new regulations or recent judicial opinions, as well
as the status of audit activities by taxing authorities. Changes to our estimate of the amount to be realized are recorded in
our provision for income taxes during the period in which the change occurred.
• Expected contributions.
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Effect of Actual Results
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