FY2021 10-K Document - FINAL 11 15 21 - Flipbook - Page 25
Table of Contents
Reviews for Impairment of Long-Lived Assets
Long-lived assets held for use, which primarily includes finite-lived intangible assets, property, plant and equipment
and right-of-use assets, are evaluated for impairment whenever events or circumstances indicate that the
undiscounted net cash flows to be generated by their use over their expected useful lives and eventual disposition are
less than their carrying value. The long-term nature of these assets requires the estimation of their cash inflows and
outflows several years into the future and only takes into consideration technological advances known at the time of
the impairment test. For further information, refer to Note 6, Property, Plant and Equipment and Note 8, Goodwill and
Intangible Assets, of Item 8, Financial Statements and Supplementary Data, of this report.
Pension Assumptions
We maintain various defined benefit pension plans covering employees at certain locations. In 2021, pension expense
for all defined benefit plans was $26 million. For further information, refer to Note 14, Employee Benefit Plans, of Item
8, Financial Statements and Supplementary Data, of this report. Pension obligations and the related costs are
determined using actuarial valuations that involve several assumptions. The most critical assumptions are the
discount rate, the long-term expected return on assets and mortality rates. Other assumptions include salary
increases and retirement age.
We use the spot rate approach to estimate the service and interest cost components of the net periodic benefit cost
for most of our plans. Under this approach the service cost is determined by applying the discount rates along the
yield curve to the specific service cost cash flows to determine the present value. The interest cost component is
computed by using each assumed discount rate along the curve. The discount rates used in determining expense for
the U.S. Employees’ Retirement Plan, our largest plan, in 2021 were 3.1% for service cost and 2.6% for interest cost,
compared to 3.5% and 2.9%, respectively, in 2020. A 50 basis point decrease in the discount rates would decrease
our annual pension expense by $1 million. The discount rates are used to state expected future cash flows at present
value. Using a higher discount rate typically decreases the present value of pension obligations and decreases
pension expense. We use the Aon Hewitt AA Above Median yield curve to determine the discount rate for our U.S.
defined benefit plans at year end. We believe that the Aon Hewitt AA Above Median yield curve best mirrors the yields
of bonds that would be selected by management if actions were taken to settle our obligation.
Mortality rates are used to estimate the life expectancy of plan participants during which they are expected to receive
benefit payments. We use a modified version of the mortality table and projection scale published by the Society of
Actuaries, which reflects improvements consistent with the Social Security Administration, as a basis for our mortality
assumptions for our U.S. plans. We believe the use of this modified table and projection scale best reflects our
demographics and anticipated plan outcomes.
The long-term expected return on assets assumption reflects the average rate of return expected on funds invested or
to be invested to provide for the benefits included in the projected benefit obligation. In determining the long-term
expected return on assets assumption, we consider our current and target asset allocations. We consider the relative
weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic
and other indicators of future performance. Asset management objectives include maintaining an adequate level of
diversification to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future
benefit payment requirements. In determining the 2021 expense for our largest plan, we used a 5.0% return on assets
assumption, compared to 4.5% for 2020. A 25 basis point decrease in the long-term expected return on assets
assumption would increase our annual pension expense by $2 million.
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