Accounting for Pensions and Employee Benefits at Ford and Toyota

1) What is the impact of these firms’ pension/OPEB plans on their bottom-line net earnings for fiscal 2003? What portion(s) of these effects are not likely to be sustained in the future? How much of these expenses are attributable to currently active employees and how much to former employees who are now retired?

2) What is the impact of these firms’ pension/OPEB plans on their balance sheet for 2003?

3) What is the impact of these firms’ pension/OPEB plans on their reported cash flows for 2003? What are these firms’ near-term (one-to three-year) cash flow obligations with respect to these plans?

4) What is the “interest cost” component of Ford’s 2003 pension expense? Can you verify that the amount reported for this component of the expense is reasonable?

5) For 2002 and 2003 indicate whether Ford’s pension plan earned a return that was larger or smaller than the “expected” return. What effect does the actual performance of the pension plan (the actual return on its assets) have on Ford’s current and future earnings?

6) The assumed “discount rate” on Ford’s U.S. plans was reduced from 7.25% in 2002 to 6.75% in 2003. Explain (and quantify if possible) how this change affects Ford’s 2003 reported earnings and balance sheet.

7) How has Ford changed its assumptions with respect to future health-care costs during 2003? What impact will this have on its profitability and financial position, if any?

8) Calculate and compare Ford’s and Toyota’s gross and net economic obligations for pensions/OPEBs. How do these numbers compare to the net effect of these plans as reported on the companies’ balance sheets? Describe how these numbers are reflected on these companies’ balance sheets.