Pizza Hut 2006 Annual Report Download - page 66

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Unrecognized actuarial losses of $216 million and $31 million
for the U.S. and International pension plans, respectively, are
recognized in Accumulated other comprehensive loss at Decem-
ber 30, 2006.
The estimated net loss for the U.S. and International pension
plans that will be amortized from accumulated other comprehen-
sive loss into net periodic pension cost in 2007 is $24 million
and $2 million, respectively.
INFORMATION FOR PENSION PLANS WITH AN ACCUMULATED
BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS:
U.S. International
Pension Plans Pension Plans
2006 2005 2006 2005
Projected benefit obligation $ 864 $ 815 $ 152 $57
Accumulated benefit obligation 786 736 130 45
Fair value of plan assets 673 610 117 39
Based on current funding rules, we are not required to make
contributions to the Plan in 2007, but we may make discretion-
ary contributions during the year based on our estimate of the
Plan’s expected September 30, 2007 funded status. The funding
rules for our pension plans outside the U.S. vary from country
to country and depend on many factors including discount rates,
performance of plan assets, local laws and tax regulations. Dur-
ing 2006, we made a discretionary contribution of approximately
$18 million to our KFC U.K. pension plan in anticipation of certain
future funding requirements. Since our plan assets approximate
our projected benefit obligation at year-end for this plan, we do
not anticipate any significant near term funding. The projected
benefit obligation of our Pizza Hut U.K. pension plan exceeds plan
assets by approximately $35 million. We anticipate taking steps
to reduce this deficit in the near term, which could include a deci-
sion to partially or completely fund the deficit in 2007.
We do not anticipate any plan assets being returned to the
Company during 2007 for any plans.
COMPONENTS OF NET PERIODIC BENEFIT COST:
U.S. International
Pension Plans Pension Plans(d)
2006 2005 2004 2006 2005 2004
Service cost $34$33 $32 $5 $3 $3
Interest cost 46 43 39 4 2 2
Amortization of prior
service cost(a) 3 3 3 — — —
Expected return on plan
assets (47) (45) (40) (4) (2) (2)
Amortization of net loss 30 22 19 1 — —
Net periodic benefit cost $66$56 $53 $6 $3 $3
Additional loss recognized
due to:
Curtailment(b) $— 1 — — — —
Settlement(c) $— 3 — — — —
(a) Prior service costs are amortized on a straight-line basis over the average remaining
service period of employees expected to receive benefits.
(b) Curtailment losses have been recognized as refranchising losses 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.
(d) Excludes pension expense for the Pizza Hut U.K. pension plan of $4 million, $4 million
and $3 million in 2006, 2005 and 2004, respectively, related to periods prior to our
acquisition of the remaining fifty percent interest in the unconsolidated affiliate.
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE
BENEFIT OBLIGATIONS AT THE MEASUREMENT DATES:
U.S. International
Pension Plans Pension Plans
2006 2005 2006 2005
Discount rate 5.95% 5.75% 5.00% 5.00%
Rate of compensation increase 3.75% 3.75% 3.77% 4.00%
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE
THE NET PERIODIC BENEFIT COST FOR FISCAL YEARS:
U.S. International
Pension Plans Pension Plans(d)
2006 2005 2004 2006 2005 2004
Discount rate 5.75% 6.15% 6.25% 5.00% 5.50% 5.30%
Long-term rate of
return on plan
assets 8.00% 8.50% 8.50% 6.70% 7.00% 7.00%
Rate of
compensation
increase 3.75% 3.75% 3.75% 3.85% 4.00% 4.00%
Our estimated long-term rate of return on plan assets represents
the weighted-average of expected future returns on the asset
categories included in our target investment allocation based pri-
marily on the historical returns for each asset category, adjusted
for an assessment of current market conditions.
PLAN ASSETS Our pension plan weighted-average asset allo-
cations at the measurement dates, by asset category are set
forth below:
U.S. International
Pension Plans Pension Plans
Asset Category 2006 2005 2006 2005
Equity securities 70% 71% 80% 77%
Debt securities 30 29 20 23
Total 100% 100% 100% 100%
Our primary objectives regarding the Plan’s assets, which make
up 85% of pension plan assets at the 2006 measurement dates,
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-categories 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 at September 30, 2006
and 2005 (less than 1% of total plan assets in each instance).