Pizza Hut 2015 Annual Report Download - page 163

YUM! BRANDS, INC.-2015 Form10-K 55
Form 10-K
PART II
ITEM 8Financial Statements and Supplementary Data
Plan Assets
The fair values of our pension plan assets at December 26, 2015 and
December 27, 2014 by asset category and level within the fair value
hierarchy are as follows:
2015 2014
Level 1:
Cash $ 3 $ —
Level 2:
Cash Equivalents(a) 9 5
Equity Securities – U.S. Large cap(b) 310 298
Equity Securities – U.S. Mid cap(b) 50 50
Equity Securities – U.S. Small cap(b) 51 50
Equity Securities – Non-U.S.(b) 100 91
Fixed Income Securities – U.S.
Corporate(d) 289 305
Fixed Income Securities – U.S.
Government and Government Agencies(c) 195 178
Fixed Income Securities – Other(d) 17 11
Total fair value of plan assets(e) $ 1,024 $ 988
(a) Short-term investments in money market funds
(b) Securities held in common trusts
(c) Investments held directly by the Plan
(d) Includes securities held in common trusts and investments held directly by the Plan
(e) 2015 and 2014 exclude net unsettled trades (payable) receivable of $(20) million and
$3 million, respectively.
Our primary objectives regarding the investment strategy for the Plan’s assets
are to reduce interest rate and market risk and to provide adequate liquidity to
meet immediate and future payment requirements. To achieve these objectives,
we are using a combination of active and passive investment strategies. Our
equity securities, currently targeted to be 50% of our investment mix, consist
primarily of low-cost index funds focused on achieving long-term capital
appreciation. We diversify our equity risk by investing in several different
U.S. and foreign market index funds. Investing in these index funds provides
us with the adequate liquidity required to fund benefit payments and plan
expenses. The fixed income asset allocation, currently targeted to be 50%
of our mix, is actively managed and consists of long-duration fixed income
securities that help to reduce exposure to interest rate variation and to better
correlate asset maturities with obligations. The fair values of all pension plan
assets are determined based on closing market prices or net asset values.
A mutual fund held as an investment by the Plan includes shares of YUM
Common Stock valued at $0.5 million at both December 26, 2015 and
December 27, 2014 (less than 1% of total plan assets in each instance).
Benefit Payments
The benefits expected to be paid in each of the next five years and in the
aggregate for the five years thereafter are set forth below:
Year ended:
2016 $ 61
2017 50
2018 55
2019 56
2020 56
2021 – 2025 331
Expected benefits are estimated based on the same assumptions used
to measure our benefit obligation on the measurement date and include
benefits attributable to estimated future employee service.
International Pension Plans
We also sponsor various defined benefit plans covering certain of our
non-U.S. employees, the most significant of which are in the UK. During
2013, one of our UK plans was frozen such that existing participants can
no longer earn future service credits. Our other UK plan was previously
frozen to future service credits in 2011.
At the end of 2015 and 2014, the projected benefit obligations of these
UK plans totaled $233 million and $231 million, respectively and plan
assets totaled $291 million and $288 million, respectively. These plans
were both in a net overfunded position at the end of 2015 and 2014 and
related expense amounts recorded in each of 2015, 2014 and 2013 were
not significant.
The funding rules for our pension plans outside of the U.S. vary from
country to country and depend on many factors including discount rates,
performance of plan assets, local laws and regulations. We do not plan to
make significant contributions to either of our UK plans in 2016.
Retiree Medical Benefits
Our post-retirement plan provides health care benefits, principally to U.S.
salaried retirees and their dependents, and includes retiree cost-sharing
provisions. This plan was previously amended such that any salaried
employee hired or rehired by YUM after September 30, 2001 is not
eligible to participate in this plan. Employees hired prior to September 30,
2001 are eligible for benefits if they meet age and service requirements
and qualify for retirement benefits. We fund our post-retirement plan as
benefits are paid.
At the end of 2015 and 2014, the accumulated post-retirement benefit
obligation was $59 million and $69 million, respectively. Actuarial gains
of $8million and $2 million were recognized in Accumulated other
comprehensive (income) loss at the end of 2015 and 2014, respectively.
The net periodic benefit cost recorded was $3 million in 2015 and $5million
in both 2014 and 2013, the majority of which is interest cost on the
accumulated post-retirement benefit obligation. The weighted-average
assumptions used to determine benefit obligations and net periodic benefit
cost for the post-retirement medical plan are identical to those as shown
for the U.S. pension plans. Our assumed heath care cost trend rates for
the following year as of 2015 and 2014 are 6.8% and 7.1%, respectively,
with expected ultimate trend rates of 4.5% reached in 2038.
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 was reached in 2014; with the cap, 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. The benefits expected to be paid in each of the next
five years are approximately $5 million and in aggregate for the five years
thereafter are $22 million.
Retiree Savings Plan
We sponsor a contributory plan to provide retirement benefits under
the provisions of Section 401(k) of the Internal Revenue Code (the
“401(k)Plan”) for eligible U.S. salaried and hourly employees. Participants
are able to elect to contribute up to 75% of eligible compensation on a
pre-tax basis. Participants may allocate their contributions to one or any
combination of multiple investment options or a self-managed account
within the 401(k)Plan. We match 100% of the participant’s contribution
to the 401(k) Plan up to 6% of eligible compensation. We recognized as
compensation expense our total matching contribution of $13 million in
2015 and $12million in both 2014 and 2013.