Tyson Foods 2006 Annual Report Download - page 50

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To determine the rate-of-return on assets assumption, the Company
first examined historical rates of return for the various asset classes.
The Company then determined a long-term projected rate-of-return
based on expected returns over the next five to 10 years. Prior to
fiscal 2004, the Company only had defined benefit plans that pro-
vided a retirement benefit based on the number of years of service
multiplied by a benefit rate. During 2004, a plan was added with a 4%
compensation increase inherent in its benefit obligation calculation.
The Company has four postretirement health plans. Two of these
consist of fixed, annual payments by the Company and account for
$38 million of the Company’s postretirement medical obligation at
September 30, 2006. A healthcare cost trend is not required to
determine this obligation. The remaining two plans, Pre-Medicare
and Post-Medicare, account for $23 million of the Company’s
postretirement medical obligation at year end. The Pre-Medicare
plan covers retirees who do not yet qualify for Medicare and uses
a healthcare cost trend of 11% in the current year, grading down to
6% in fiscal 2012. The Post-Medicare plan provides secondary cover-
age to retirees covered under Medicare and has a healthcare cost
trend of 8%, grading down to 5% in fiscal 2010. Claims in excess of
the Company’s negotiated annual maximum payment are paid by
the plan participants. Assumed healthcare cost trend rates would
have the following effects:
One-Percentage- One-Percentage-
in millions Point Increase Point Decrease
Effect on total of service and interest cost $ 1 $ (1)
Effect on postretirement benefit obligation 26 (21)
48 Ty s on Foods, Inc. 2006 Annual Report
Notes to Consolidated Financial Statements continued
NET PERIODIC BENEFIT CO S T
Components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the Consolidated
Statements of Operations are as follows:
Pension Benefits Other Postretirement Benefits
in millions 2006 2005 2004 2006 2005 2004
Service cost $ 6 $ 6 $ 3 $ 1 $ – $ 1
Interest cost 66 5 44 4
Expected return on plan assets (6) (5) (5) –– –
Amortization of prior service cost 11 1 (2) (2) (1)
Recognized actuarial loss, net –– – 14 9 5
Curtailment gain –– – (2) – –
Net periodic benefit cost $ 7 $ 8 $ 4 $15 $11 $ 9
ASSUMPTIONS
Weighted average assumptions are as follows:
Pension Benefits Other Postretirement Benefits
2006 2005 2004 2006 2005 2004
Discount rate to determine net periodic benefit cost 5.94% 6.62% 6.75% 6.00% 6.00% 6.75%
Discount rate to determine benefit obligations 5.80% 5.91% 6.75% 6.10% 6.00% 6.75%
Rate of compensation increase 4.00% 4.00% 4.00% N/A N/A N/A
Expected return on plan assets 8.03% 8.13% 8.50% N/A N/A N/A