Ford 2014 Annual Report Download - page 76

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Net Cash. Our Automotive sector net cash calculation as of the dates shown was as follows (in billions):
December 31,
2014
December 31,
2013
December 31,
2012
Gross cash $ 21.7 $24.8 $24.3
Less:
Long-term debt 11.3 14.4 12.9
Debt payable within one year 2.5 1.3 1.4
Total debt 13.8 15.7 14.3
Net cash $ 7.9 $ 9.1 $ 10.0
Total debt at December 31, 2014 was $1.9 billion lower than December 31, 2013, primarily reflecting four quarterly
installment payments on the ATVM loan which totaled about $600 million, the repayment of a $300 million U.S. Export-
Import Bank loan, and the conversion into Ford Common Stock of $882 million of outstanding convertible debt, which
resulted in a debt reduction of about $800 million.
We expect to reduce Automotive debt levels to about $10 billion by 2018. We plan to achieve the debt reduction by
2018 by using cash from operations to make quarterly installment payments on the ATVM loan and repay the EIB loans
and other debt at maturity.
Pension Plan Contributions and Strategy. Worldwide, our defined benefit pension plans were underfunded by
$9 billion at December 31, 2014, unchanged from December 31, 2013, despite significantly lower discount rates, which
were offset by asset returns, contributions, and favorable exchange. The U.S. weighted-average discount rate decreased
80 basis points to 3.94% at year-end 2014 from 4.74% at year-end 2013. The non-U.S. weighted average discount rate
decreased 101 basis points to 3.06% at year-end 2014 from 4.07% at year-end 2013. Of the $9 billion underfunded
status at year-end 2014, $6.5 billion, or about 70%, is associated with our unfunded plans.
Our long-term strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the
volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital
resources to fund the plans. The strategy reduces balance sheet, cash flow, and income exposures and, in turn, reduces
our risk profile. The key elements of this strategy include:
• Limiting liability growth in our defined benefit plans by closing participation to new participants;
• Reducing plan deficits through discretionary cash contributions;
• Progressively re-balancing assets to more fixed income investments, with a target asset allocation to be reached
over the next few years of about 80% fixed income investments and 20% growth assets, which will provide a
better matching of plan assets to the characteristics of the liabilities, thereby reducing our net exposure; and
• Taking other strategic actions to reduce pension liabilities, such as the voluntary lump sum payout program
completed in 2013 for U.S. salaried retirees.
In 2014, we contributed $1.5 billion to our global funded pension plans (most of which were mandatory contributions),
a decrease of $3.5 billion compared with 2013, reflecting our improved funded status. During 2015, we expect to
contribute $1.1 billion from Automotive cash and cash equivalents to our global funded pension plans outside the United
States (most of which will be mandatory contributions). We also expect to make about $400 million of benefit payments to
participants in unfunded plans, for a combined total of $1.5 billion. Based on current assumptions and regulations, we do
not expect to have a legal requirement to fund our major U.S. pension plans in 2015.
Asset returns in 2014 for our U.S. plans were 16.4% and 15.7 % for our non-U.S plans, reflecting fixed income gains
as interest rates fell, as well as strong growth asset returns. We have continued to progressively increase the mix of fixed
income assets in our U.S. plans with the objective of reducing funded status volatility. The fixed income mix in our U.S.
plans at year-end 2014 was 77%, up from 70% at year-end 2013. The U.S. plans were 97% funded at year end 2014. As
shown under “Critical Accounting Estimates—Pension Plans,” this strategy has reduced the funded status sensitivity to
changes in interest rates.
Based on present planning assumptions for asset returns, discount rates, and planned cash contributions, we expect
our global funded pension obligations to be fully funded by year-end 2016, with variability on a plan-by-plan basis.
Contributions to our global funded plans in 2016 are expected to be about $1.5 billion, including both required and
discretionary contributions. After 2016, we expect contributions to these plans to be limited to ongoing service cost of
about $500 million per year.
For a detailed discussion of our pension plans, see Note 12 of the Notes to the Financial Statements.
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