Pizza Hut 2003 Annual Report Download - page 67

Yum! Brands Inc. 65.
if they meet age and service requirements and qualify for
retirement benefits.
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the “Act”),
which introduces a Medicare prescription drug benefit as
well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuari-
ally equivalent to the Medicare benefit, was enacted. On
January 12, 2004 the FASB issued Financial Staff Position
No. 106a, “Accounting and Disclosure Requirements
Related to The Medicare Prescription Drug, Improvement
and Modernization Act of 2003” (“FSP 106a”) to discuss
certain accounting and disclosure issues raised by the Act.
We have elected to defer the measurement and disclosure
requirements under the provisions of FSP 106a until specific
authoritative guidance is issued by the FASB later in 2004.
The reported accumulated benefit obligation and net periodic
benefit costs of our postretirement plan do not reflect the
effects of the Act. The authoritative guidance, when issued,
could require revisions to previously reported information.
While we may be eligible for benefits under the Act based on
the prescription drug benefits provided in our postretirement
plan, we do not believe such benefits will have a material
impact on our Consolidated Financial Statements.
We use a measurement date of September 30 for
our pension and post-retirement medical plans described
above.
Obligation and Funded status at September 30:
Postretirement
Pension Benefits Medical Benefits
2003 2002 2003 2002
Change in benefit obligation
Benefit obligation at
beginning of year $ 501 $ 420 $ 68 $ 58
Service cost 26 22 2 2
Interest cost 34 31 5 4
Plan amendments — 14 — —
Curtailment gain (1) (3) — —
Benefits and expenses paid (21) (16) (4) (3)
Actuarial loss 90 33 10 7
Benefit obligation at end of year $ 629 $ 501 $ 81 $ 68
Change in plan assets
Fair value of plan assets at
beginning of year $ 251 $ 291
Actual return on plan assets 52 (24)
Employer contributions 157 1
Benefits paid (21) (16)
Administrative expenses (1) (1)
Fair value of plan assets at
end of year $ 438 $ 251
Funded status $ (191) $ (250) $ (81) $ (68)
Employer contributions — 25.(a) — —
Unrecognized actuarial loss 230 169 28 18
Unrecognized prior service cost 12 16 — —
Net amount recognized at
year-end $ 51 $ (40) $ (53) $ (50)
(a) Reflects a contribution made between the September 30, 2002 measurement
date and December 28, 2002.
Amounts recognized in the
statement of financial position
consist of:
Accrued benefit liability $ (125) $ (172) $ (53) $ (50)
Intangible asset 14 18 — —
Accumulated other
comprehensive loss 162 114 — —
$ 51 $ (40) $ (53) $ (50)
Additional Information
Other comprehensive loss
attributable to change in
additional minimum liability
recognition $ 48 $ 76
Additional year-end information
for pension plans with
accumulated benefit obligations
in excess of plan assets
Projected benefit obligation $ 629 $ 501
Accumulated benefit obligation 563 448
Fair value of plan assets 438 251
While we are not required to make contributions to the Plan
in 2004, we may make discretionary contributions during
the year based on our estimate of the Plan’s expected
September 30, 2004 funded status.
Components of Net Periodic Benefit Cost
Pension Benefits
2003 2002 2001
Service cost $ 26 $ 22 $ 20
Interest cost 34 31 28
Amortization of prior service cost 4 1 1
Expected return on plan assets (30) (28) (29)
Recognized actuarial loss 6 1 1
Net periodic benefit cost $ 40 $ 27 $ 21
Additional loss recognized due to:
Curtailment $ — $ 1 $ —
Special termination benefits — — 2
Postretirement Medical Benefits
2003 2002 2001
Service cost $ 2 $ 2 $ 2
Interest cost 5 4 4
Amortization of prior service cost — — (1)
Recognized actuarial loss 1 1 —
Net periodic benefit cost $ 8 $ 7 $ 5
Prior service costs are amortized on a straight-line basis over
the average remaining service period of employees expected
to receive benefits. Curtailment gains and losses have gener-
ally been recognized in facility actions as they have resulted
primarily from refranchising and closure activities.
Weighted-average assumptions used to determine benefit
obligations at September 30:
Postretirement
Pension Benefits Medical Benefits
2003 2002 2003 2002
Discount rate 6.25% 6.85% 6.25% 6.85%
Rate of compensation increase 3.75% 3.85% 3.75% 3.85%