Kraft 2006 Annual Report Download - page 92

The estimated net loss and prior service cost for the combined U.S. and non-U.S. pension plans that is expected to be amortized from accumulated other
comprehensive income into net periodic benefit cost during 2007 are $203 million and $15 million, respectively.
The following weighted-average assumptions were used to determine the Company's net pension cost for the years ended December 31:
U.S. Plans Non-U.S. Plans
2006 2005 2004 2006 2005 2004
Discount rate 5.60% 5.75% 6.25% 4.44% 5.18% 5.41%
Expected rate of return on plan assets 8.00 8.00 9.00 7.57 7.82 8.31
Rate of compensation increase 4.00 4.00 4.00 3.11 3.11 3.11
The Company's expected rate of return on plan assets is determined by the plan assets' historical long-term investment performance, current asset allocation
and estimates of future long-term returns by asset class.
Kraft and certain of its subsidiaries sponsor employee savings plans, to which the Company contributes. These plans cover certain salaried, non-union and
union employees. The Company's contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged
to expense for defined contribution plans totaled $84 million, $94 million and $92 million in 2006, 2005 and 2004, respectively.
Plan Assets
The percentage of fair value of pension plan assets at December 31, 2006 and 2005, was as follows:
U.S. Plans Non-U.S.Plans
Asset Category
2006 2005 2006 2005
Equity securities 72% 74% 57% 60%
Debt securities 28 25 35 34
Real estate 3 3
Other 1 5 3
Total 100% 100% 100% 100%
The Company's investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the
composition of the Company's U.S. plan assets is broadly characterized as a 70%/30% allocation between equity and debt securities. The strategy utilizes
indexed U.S. equity securities, actively managed international equity securities and actively managed investment grade debt securities (which constitute 80% or
more of debt securities) with lesser allocations to high yield and international debt securities.
For the plans outside the U.S., the investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country.
These specific circumstances result in a level of equity exposure that is typically less than the U.S. plans. In aggregate, the actual asset allocations of the non-U.S.
plans are virtually identical to their respective asset policy targets.
The Company attempts to mitigate investment risk by rebalancing between equity and debt asset classes as the Company's contributions and monthly benefit
payments are made.
The Company presently makes, and plans to make, contributions, to the extent that they are tax deductible or do not generate an excise tax liability, in order
to maintain plan assets in excess of the accumulated benefit obligation of its funded U.S. and non-U.S. plans. Currently, the Company anticipates making
contributions of approximately $16 million in 2007 to its U.S. plans and
87
Source: KRAFT FOODS INC, 10-K, March 01, 2007