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HSY » Topics » Average Discount Rate Assumption-Net Periodic Benefit Costs

This excerpt taken from the HSY 10-K filed Feb 23, 2007.

Average Discount Rate Assumption—Net Periodic Benefit Costs

The discount rate represents the estimated rate at which we could effectively settle our pension benefit obligations. In order to estimate this rate for 2006, a single effective rate of discount was determined by our actuaries after discounting the pension obligation’s cash flows using the spot rate of matching duration from the Citigroup Pension Discount Curve. In 2005 and 2004, we considered the yields of high quality securities in determining the average discount rate assumptions. High quality securities are generally considered to be those receiving a rating no lower than the second highest given by a recognized rating agency. The duration of such securities is reasonably comparable to the duration of our pension plan liabilities.

The use of a different discount rate assumption can significantly affect net periodic benefit cost:

 

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A one-percentage point decrease in the discount rate assumption would have increased 2006 net periodic pension benefit cost by $14.2 million.

 

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A one-percentage point increase in the discount rate assumption would have decreased 2006 net periodic pension benefit cost by $12.1 million.

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