This excerpt taken from the BA 8-K filed Feb 2, 2005.
The Company significantly strengthened its pension plans during 2004 with large cash contributions and excellent investment returns on plan assets.
The Company measures its pension plans using a September 30 year end for financial accounting purposes. For the plan year ending September 30, 2004, investment returns were 13 percent reflecting strong market and plan performance. However, during 2004 interest rates continued to decline. As a result, the Company lowered its discount rate, which is based on interest rates as of September 30, from 6.00 percent to 5.75 percent. This resulted in higher estimated actuarial pension liabilities. However, the impact of lowering the discount rate was more than offset by strong plan returns and company contributions, which together significantly improved the funded status of the plans and increased the other comprehensive income equity balance by $2.2 billion. This after-tax equity write-up did not impact cash or earnings but had a favorable impact on the Companys debt ratio.
In addition, the Company lowered its expected return on plan assets, which reflects expected performance over the long term, from 8.75 percent in 2004 to 8.50 percent in 2005.
During 2004, the Company recognized pre-tax expense of $335 million from its pension plans compared with pre-tax earnings of $147 million in 2003. In 2005, the Company expects pension expense to reduce earnings from operations by between $625 million and $650 million, as the impact of the poor market returns experienced in 2001 and 2002 continues to flow through earnings. In 2006 and 2007, the pension impact on earnings will depend on market conditions and discretionary funding, but based upon current assumptions the Company estimates its non-cash pension expense will peak at between $700 million and $750 million in 2006 and then decline in 2007.
The Company had no significant required pension funding in 2004 and expects 2005 and 2006 requirements to be minimal. However, the Company did make $4.4 billion in mostly discretionary cash contributions to its plans in 2004 and will continue to evaluate additional discretionary funding in 2005 and 2006. Currently, the Company anticipates making approximately $1 billion in cash contributions to its plans in 2005 and approximately $0.5 billion in 2006. The Companys pension funding forecast is included in its outlook for operating cash flow.