Kraft 2005 Annual Report Download - page 84

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MERRILL CORPORATION FLANGST// 9-MAR-06 02:25 DISK126:[06CHI5.06CHI1135]EA1135A.;8
mrll.fmt Free: 55D*/1340D Foot: 0D/ 0D VJ RSeq: 9 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: EA1135A.;8
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
The following weighted-average assumptions were used to determine the Company’s net
postretirement cost for the years ended December 31:
U.S. Plans Canadian Plans
2005 2004 2003 2005 2004 2003
Discount rate ........................ 5.75% 6.25% 6.50% 5.75% 6.50% 6.75%
Health care cost trend rate .............. 8.00 10.00 8.00 9.50 8.00 7.00
In 2006, the discount rate used to determine the Company’s net postretirement cost will be 5.60%
for its U.S. plans and 5.00% for its Canadian plans, and the health care cost trend rate will be 8.00% for its
U.S. plans and 9.00% for its Canadian plans.
The Company’s postretirement health care plans are not funded. The changes in the accumulated
benefit obligation and net amount accrued at December 31, 2005 and 2004, were as follows:
2005 2004
(in millions)
Accumulated postretirement benefit obligation at January 1 ............... $2,931 $ 2,955
Service cost ................................................ 48 43
Interest cost ................................................ 170 173
Benefits paid ............................................... (220) (239)
Plan amendments ............................................ (4)
Medicare Prescription Drug, Improvement and Modernization Act of 2003 . . . (315)
Currency .................................................. 2 10
Assumption changes ......................................... 203 268
Actuarial losses ............................................. 133 36
Accumulated postretirement benefit obligation at December 31 ............. 3,263 2,931
Unrecognized actuarial losses ................................... (1,280) (1,005)
Unrecognized prior service cost .................................. 156 178
Accrued postretirement health care costs ............................ $2,139 $ 2,104
The current portion of the Company’s accrued postretirement health care costs of $208 million and
$217 million at December 31, 2005 and 2004, respectively, is included in other accrued liabilities on the
consolidated balance sheets.
The following weighted-average assumptions were used to determine the Company’s
postretirement benefit obligations at December 31:
U.S. Plans Canadian Plans
2005 2004 2005 2004
Discount rate .................................... 5.60% 5.75% 5.00% 5.75%
Health care cost trend rate assumed for next year ......... 8.00 8.00 9.00 9.50
Ultimate trend rate ................................ 5.00 5.00 6.00 6.00
Year that the rate reaches the ultimate trend rate .......... 2009 2008 2012 2012
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates would have
the following effects as of December 31, 2005:
One-Percentage-Point One-Percentage-Point
Increase Decrease
Effect on total of service and interest cost ............ 14.7% (11.9)%
Effect on postretirement benefit obligation ............ 10.6 (8.8)
83
6 C Cs: 63780