Pepsi 2005 Annual Report Download - page 67

Savings Plans
Our U.S. employees are eligible to partici-
pate in 401(k) savings plans, which are
voluntary defined contribution plans. The
plans are designed to help employees
accumulate additional savings for retire-
ment. We make matching contributions on
a portion of eligible pay based on years of
service. In 2005 and 2004, our matching
contributions were $52 million and $35
million, respectively.
65
Future Benefit Payments
Our estimated future benefit payments are as follows:
2006 2007 2008 2009 2010 2011-15
Pension $235 $255 $275 $300 $330 $2,215
Retiree medical $85 $90 $90 $95 $100 $545
These future benefits to beneficiaries include payments from both funded and unfunded pension plans.
Pension Assets
The expected return on pension plan
assets is based on our historical experi-
ence, our pension plan investment guide-
lines, and our expectations for long-term
rates of return. We use a market-related
value method that recognizes each year’s
asset gain or loss over a five-year period.
Therefore, it takes five years for the gain or
loss from any one year to be fully included
in the value of pension plan assets that is
used to calculate the expected return. Our
pension plan investment guidelines are
established based upon an evaluation of
market conditions, tolerance for risk and
cash requirements for benefit payments.
Our investment objective is to ensure that
funds are available to meet the plans’ ben-
efit obligations when they are due. Our
investment strategy is to prudently invest
plan assets in high-quality and diversified
equity and debt securities to achieve our
long-term return expectation. Our target
allocation and actual pension plan asset
allocations for the plan years 2005 and
2004, are below.
Pension assets include approximately
5.5 million shares of PepsiCo common
stock with a market value of $311 million
in 2005, and 5.5 million shares with a
market value of $267 million in 2004. Our
investment policy limits the investment in
PepsiCo stock at the time of investment to
10% of the fair value of plan assets.
1% Increase 1% Decrease
2005 service and interest cost components $3 $(2)
2005 benefit liability $38 $(33)
Actual Allocation
Asset Category Target Allocation 2005 2004
Equity securities 60% 60% 60%
Debt securities 40% 39% 39%
Other, primarily cash – 1% 1%
Total 100% 100% 100%
Our most significant noncontrolled bottling
affiliates are PBG and PAS. Approximately
10% of our net revenue in 2005, 2004
and 2003 reflects sales to PBG.
The Pepsi Bottling Group
In addition to approximately 41% and
42% of PBG’s outstanding common stock
that we own at year-end 2005 and 2004,
respectively, we own 100% of PBG’s class
B common stock and approximately 7% of
the equity of Bottling Group, LLC, PBG’s
principal operating subsidiary. This gives
us economic ownership of approximately
45% and 46% of PBG’s combined opera-
tions at year-end 2005 and 2004, respec-
tively. In 2005, bottling equity income
includes $126 million of pre-tax gains on
our sales of PBG stock.
Note 8 — Noncontrolled Bottling Affiliates
Retiree Medical Cost Trend Rates
An average increase of 10% in the cost of
covered retiree medical benefits is
assumed for 2006. This average increase
is then projected to decline gradually to
5% in 2010 and thereafter. These
assumed health care cost trend rates have
an impact on the retiree medical plan
expense and liability. However, the cap on
our share of retiree medical costs limits
the impact. A 1 percentage point change
in the assumed health care trend rate
would have the following effects: