Pizza Hut 2005 Annual Report Download - page 67

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Components฀of฀Net฀Periodic฀Benefit฀Cost฀ The฀components฀
of฀net฀periodic฀benefit฀cost฀are฀as฀follows:
฀ Pension฀Benefits
฀2005฀ 2004฀ 2003
Service฀cost฀ $฀ 33฀ $฀ 32฀ $฀ 26
Interest฀cost฀ ฀ 43฀ ฀ 39฀ ฀ 34
Amortization฀of฀prior฀service฀cost(a)฀฀ ฀ 3฀ ฀ 3฀ ฀ 4
Expected฀return฀on฀plan฀assets฀ ฀(45)฀ ฀(40)฀ ฀(30)
Recognized฀actuarial฀loss฀ ฀ 22฀ ฀ 19฀ ฀ 6
Net฀periodic฀benefit฀cost฀ $฀ 56฀ $฀ 53฀ $฀ 40
Additional฀loss฀recognized฀due฀to:฀฀
฀ Curtailment฀(b)฀$฀ 1฀ ฀ —฀ ฀ —
฀ Settlement(c)฀$฀ 3฀ ฀ —฀ ฀ —
฀ Postretirement฀Medical฀Benefits
฀2005฀ 2004฀ 2003
Service฀cost฀ $฀ 2฀ $฀ 2฀ $฀ 2
Interest฀cost฀ ฀ 5฀ ฀ 5฀ ฀ 5
Amortization฀of฀prior฀service฀cost(a)฀฀ ฀ —฀ ฀ —฀ ฀ —
Expected฀return฀on฀plan฀assets฀ ฀ —฀ ฀ —฀ ฀ —
Recognized฀actuarial฀loss฀ ฀ 1฀ ฀ 1฀ ฀ 1
Net฀periodic฀benefit฀cost฀ $฀ 8฀ $฀ 8฀ $฀ 8
Additional฀loss฀recognized฀due฀to:฀฀
฀ Curtailment฀(b)฀ ฀ N/A฀ ฀ N/A฀ ฀ N/A
฀ Settlement(c)฀ ฀ N/A฀ ฀ N/A฀ ฀ N/A
(a)฀Prior฀ service฀ costs฀are฀ amortized฀ on฀ a฀straight-line฀ basis฀ over฀ the฀ average฀
remaining฀service฀period฀of฀employees฀expected฀to฀receive฀benefits.
(b)฀Cur tailment฀ losses฀ have฀ been฀ recognized฀ in฀ facility฀ actions฀ as฀ they฀ have฀
resulted฀primarily฀from฀refranchising฀activities.
(c)฀Settlement฀loss฀results฀from฀benefit฀payments฀from฀a฀non-funded฀plan฀exceeding฀
the฀sum฀of฀the฀service฀cost฀and฀interest฀cost฀for฀that฀plan฀during฀the฀year.
Weighted-average฀assumptions฀used฀to฀determine฀benefit฀
obligations฀at฀September฀30:
฀ ฀ Postretirement฀฀
฀ Pension฀Benefits฀ Medical฀Benefits
฀2005฀ 2004฀ 2005฀ 2004
Discount฀rate฀ ฀5.75%฀ ฀6.15%฀ ฀5.75%฀ ฀6.15%
Rate฀of฀compensation฀฀
฀ increase฀ ฀3.75%฀ ฀3.75%฀ ฀3.75%฀ ฀3.75%
Weighted-average฀assumptions฀used฀to฀determine฀the฀net฀
periodic฀benefit฀cost฀for฀fiscal฀years:
฀ ฀ Postretirement฀
฀ Pension฀Benefits฀ ฀Medical฀Benefits
฀฀฀฀ 2005฀ 2004฀ 2003฀ 2005฀ 2004฀ 2003
Discount฀rate฀ 6.15%฀ 6.25%฀ 6.85%฀ 6.15%฀ 6.25%฀ 6.85%
Long-term฀rate฀฀
฀ of฀return฀on฀฀
฀ plan฀assets฀ 8.50%฀ 8.50%฀ 8.50%฀ —฀ —฀ —
Rate฀of฀฀
฀ compensation฀฀
฀ increase฀ 3.75%฀ 3.75%฀ 3.85%฀ 3.75%฀ 3.75%฀ 3.85%
Our฀estimated฀long-term฀rate฀of฀return฀on฀plan฀assets฀repre-
sents฀the฀weighted-average฀of฀expected฀future฀returns฀on฀
the฀asset฀categories฀included฀in฀our฀target฀investment฀allo-
cation฀ based฀primarily฀ on฀the฀historical฀ returns฀ for฀each฀
asset฀ category,฀ adjusted฀ for฀ an฀ assessment฀ of฀ current฀
market฀conditions.
Assumed฀health฀care฀cost฀trend฀rates฀at฀September฀30:
฀ ฀ Postretirement฀฀
฀ ฀ Medical฀Benefits
฀ ฀ 2005฀ 2004
Health฀care฀cost฀trend฀rate฀assumed฀฀
฀ for฀next฀year฀ ฀ ฀ ฀ 10%฀ ฀ 11%
Rate฀to฀which฀the฀cost฀trend฀rate฀is฀฀
฀ assumed฀to฀decline฀(the฀ultimate฀trend฀rate)฀ ฀ 5.5%฀ ฀ 5.5%
Year฀that฀the฀rate฀reaches฀the฀ultimate฀฀
฀ trend฀rate฀ ฀ ฀ ฀ 2012฀ ฀ 2012
There฀is฀a฀cap฀on฀our฀medical฀liability฀for฀certain฀retirees.฀The฀
cap฀for฀Medicare฀eligible฀retirees฀was฀reached฀in฀2000฀and฀
the฀cap฀for฀non-Medicare฀eligible฀retirees฀is฀expected฀to฀be฀
reached฀in฀2009;฀once฀the฀cap฀is฀reached,฀our฀annual฀cost฀
per฀retiree฀will฀not฀increase.฀A฀one-percentage-point฀increase฀
or฀decrease฀in฀assumed฀health฀care฀cost฀trend฀rates฀would฀
have฀ less฀ than฀ a฀ $1฀million฀ impact฀ on฀ total฀ service฀ and฀
interest฀cost฀and฀on฀the฀post฀retirement฀benefit฀obligation.
Plan฀Assets฀ Our฀pension฀plan฀weighted-average฀asset฀alloca-
tions฀at฀September฀30,฀by฀asset฀category฀are฀set฀forth฀below:
Asset฀Category฀ ฀ 2005฀ 2004
Equity฀securities฀ ฀ ฀ ฀ 71%฀ ฀ 70%
Debt฀securities฀ ฀ ฀ ฀ 29%฀ ฀ 28%
Cash฀฀ ฀ ฀ ฀ —฀ ฀ 2%
฀ Total฀ ฀ ฀ ฀ 100%฀ ฀ 100%
Our฀primary฀objectives฀regarding฀the฀pension฀assets฀are฀to฀
optimize฀return฀on฀assets฀subject฀to฀ acceptable฀risk฀ and฀
to฀maintain฀liquidity,฀meet฀minimum฀funding฀requirements฀
and฀minimize฀plan฀expenses.฀To฀achieve฀these฀objectives,฀
we฀have฀ adopted฀a฀ passive฀ investment฀strategy฀ in฀which฀
the฀asset฀performance฀is฀driven฀primarily฀by฀the฀investment฀
allocation.฀Our฀target฀investment฀allocation฀is฀70%฀equity฀
securities฀and฀30%฀debt฀securities,฀consisting฀primarily฀of฀
low฀cost฀index฀mutual฀funds฀that฀track฀several฀sub-catego-
ries฀of฀equity฀and฀debt฀security฀performance.฀The฀investment฀
strategy฀is฀primarily฀driven฀by฀our฀Plan’s฀participants’฀ages฀
and฀reflects฀a฀long-term฀investment฀horizon฀favoring฀a฀higher฀
equity฀component฀in฀the฀investment฀allocation.
A฀mutual฀fund฀held฀as฀an฀investment฀by฀the฀Plan฀includes฀
YUM฀stock฀in฀the฀amount฀of฀$0.3฀million฀and฀$0.2฀million฀at฀
September฀30,฀2005฀and฀2004,฀respectively฀(less฀than฀1%฀
of฀total฀plan฀assets฀in฀each฀instance).
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 71.