Ford 2006 Annual Report Download - page 38
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Please find page 38 of the 2006 Ford annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
xInflation. Our inflation assumption is based on an evaluation of external market indicators.
xExpected contributions. The expected amount and timing of contributions is based on an assessment of
minimum requirements, and additional amounts based on cash availability and other considerations (e.g., funded
status, avoidance of Pension Benefit Guaranty Corporation ("PBGC") penalty premiums, U.K. Pension Protection
Fund levies, and tax efficiency).
xRetirement rates. Retirement rates are developed to reflect actual and projected plan experience.
xMortality 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).
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 11 years for the major U.S. plans). In 2006, the U.S. actual return on
assets was 14%, which exceeded the expected return of 8.5%. The year-end 2006 weighted average discount rates for
the U.S. and non-U.S. plans increased by 25 and 33 basis points, respectively. These differences resulted in an
unamortized gain of about $5 billion. These gains 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
gains do not exceed this threshold and recognition will begin at a future measurement date.
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, 2006 pension funded status and 2007 expense are affected by
December 31, 2006 assumptions. Note that 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 selected factors is shown
below (in millions):
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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 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.