Target 2006 Annual Report Download - page 64

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Weighted average assumptions used to determine net periodic benefit expense for years ended
October 31:
Pension Benefits Postretirement Health Care Benefits
2006 2005 2004 2006 2005 2004
Discount rate 5.75% 5.75% 6.25% 5.75% 5.75% 6.25%
Expected long-term rate of return on
plan assets 8.00% 8.00% 8.00% n/a n/a n/a
Average assumed rate of
compensation increase 3.50% 2.75% 3.25% n/a n/a n/a
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning
of the year (i.e., the prior measurement date). With an essentially stable asset allocation over the following
time periods, our annualized rate of return on qualified plans’ assets has averaged 10.6 percent,
10.1 percent and 10.9 percent for the 5-year, 10-year and 15-year periods, respectively, ending
October 31, 2006.
An increase in the cost of covered health care benefits of 9 percent was assumed for 2006. In 2007,
the rate is assumed to be 8 percent for non-Medicare eligible individuals and 9 percent for Medicare
eligible individuals. Both rates will be reduced to 5 percent in 2012 and thereafter.
A one percent change in assumed health care cost trend rates would have the following effects:
(millions) 1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic postretirement
health care benefit expense $ — $—
Effect on the health care component of the postretirement benefit obligation $ 9 $(8)
Additional Information
Our pension plan weighted average asset allocations at October 31, 2006 and 2005 by asset
category were as follows:
Asset Category
2006 2005
Domestic equity securities 35% 36%
International equity securities 20 20
Debt securities 26 26
Other 19 18
Total 100% 100%
Our asset allocation strategy targets 35 percent in domestic equity securities, 20 percent in
international equity securities, 25 percent in debt securities and 20 percent in other assets. Equity securities
include our common stock in amounts substantially less than 1 percent of total plan assets at October 31,
2006 and 2005. Other assets include private equity, mezzanine and distressed debt, timber-related assets
and less than a 5 percent allocation to real estate. Our expected long-term rate of return assumptions as of
October 31, 2006 were 8.5 percent, 8.5 percent, 5 percent and 10 percent for domestic equity securities,
international equity securities, debt securities and other assets, respectively.
Contributions
Given the qualified pension plan’s funded position, we are not required to make any contributions in
2007, although we may choose to make discretionary contributions of up to $100 million. We expect to
make contributions in the range of $5 million to $15 million to our postretirement health care benefit plan in
2007.
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