Pepsi 2012 Annual Report Download - page 90

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prior employee service (prior service cost/(credit)) is included
in earnings on a straight-line basis over the average remaining
service period of active plan participants.
In connection with our acquisitions of PBG and PAS, we
assumed sponsorship of pension and retiree medical plans
that provide benefits to certain U.S. and international employ-
ees. Subsequently, during 2010, we merged the pension plan
assets of the legacy PBG and PAS U.S. pension plans with
those of PepsiCo into one master trust.
During 2010, the Compensation Committee of PepsiCo’s
Board of Directors approved certain changes to the U.S. pen-
sion and retiree medical plans, effective January 1, 2011.
Pension plan design changes included implementing a new
employer contribution to the 401(k) savings plan for all future
salaried new hires of the Company, as salaried new hires are
no longer eligible to participate in the defined benefit pension
plan, as well as implementing a new defined benefit pen-
sion formula for certain hourly new hires of the Company.
Pension plan design changes also included implementing a
new employer contribution to the 401(k) savings plan for
certain legacy PBG and PAS salaried employees (as such
employees are also not eligible to participate in the defined
benefit pension plan), as well as implementing a new defined
benefit pension formula for certain legacy PBG and PAS hourly
employees. The retiree medical plan design change included
phasing out Company subsidies of retiree medical benefits.
As a result of these changes, we remeasured our pension and
retiree medical expenses and liabilities in 2010, which resulted
in a one-time pre-tax curtailment gain of $62million included
in retiree medical expenses.
In the fourth quarter of 2012, the Company offered certain
former employees who have vested benefits in our defined
benefit pension plans the option of receiving a one-time lump
sum payment equal to the present value of the participant’s
pension benefit (payable in cash or rolled over into a quali-
fied retirement plan or IRA). In December 2012, we made a
discretionary contribution of $405million to fund substan-
tially all of these payments. The Company recorded a pre-tax
non-cash settlement charge of $195million ($131million
after-tax or $0.08 per share) as a result of this transaction. See
“Items Affecting Comparability” in Management’s Discussion
and Analysis.
The provisions of both the PPACA and the Health Care
and Education Reconciliation Act are reflected in our retiree
medical expenses and liabilities and were not material to our
financial statements.
Selected financial information for our pension and retiree medical plans is as follows:
Pension Retiree Medical
U.S. International
2012 2011 2012 2011 2012 2011
Change in projected benefit liability
Liability at beginning of year $ 11,901 $ 9,851 $ 2,381 $ 2,142 $ 1,563 $ 1,770
Acquisitions/(divestitures) – 11 – (63) – –
Service cost 407 350 100 95 50 51
Interest cost 534 547 115 117 65 88
Plan amendments 15 21 – (16) – 3
Participant contributions – – 3 3 – –
Experience loss/(gain) 932 1,484 200 224 (63) (239)
Benefit payments (278) (414) (76) (69) (111) (110)
Settlement/curtailment (633) (20) (40) (15) – –
Special termination benefits 8 71 1 1 5 1
Foreign currency adjustment – – 102 (41) 2 (1)
Other – – 2 3 – –
Liability at end of year $ 12,886 $ 11,901 $ 2,788 $ 2,381 $ 1,511 $ 1,563
Change in fair value of plan assets
Fair value at beginning of year $ 9,072 $ 8,870 $ 2,031 $ 1,896 $ 190 $ 190
Acquisitions/(divestitures) – 11 – (1) – –
Actual return on plan assets 1,282 542 206 79 35 –
Employer contributions/funding 1,368 63 246 176 251 110
Participant contributions – – 3 3 – –
Benefit payments (278) (414) (76) (69) (111) (110)
Settlement (627) – (33) (30) – –
Foreign currency adjustment – – 86 (23) – –
Fair value at end of year $ 10,817 $ 9,072 $ 2,463 $ 2,031 $ 365 $ 190
Funded status $ (2,069) $ (2,829) $ (325) $ (350) $ (1,146) $ (1,373)
2012 PEPSICO ANNUAL REPORT88
Notes to Consolidated Financial Statements