In 1998, we adopted the revised disclosure requirements of Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 standardized the disclosures of pensions and other postretirement benefits into a combined format but did not change the accounting for these benefits. Prior years' information has been reclassified to conform to the 1998 disclosure format.
Pension Benefits
Our pension plans cover substantially all full-time U.S. employees and certain international employees. Benefits depend on years of service and earnings or are based on stated amounts for each
year of service.
Postretirement Benefits
Our postretirement plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits.
Components of net periodic benefit cost:
|
|
Pension
|
|
|
|
1998
|
.
|
1997
|
1996
|
|
|
|
|
|
Service cost
|
$
|
95
|
.
|
$
|
82
|
|
$
|
74
|
|
|
Interest cost
|
136
|
.
|
123
|
111
|
|
|
Expected return on plan assets
|
(169
|
)
|
(148
|
)
|
(136
|
)
|
|
Amortization of transition asset
|
(9
|
)
|
(14
|
)
|
(14
|
)
|
|
Amortization of prior service
|
.
|
|
|
amendments
|
12
|
.
|
11
|
10
|
|
|
Amortization of net loss
|
5
|
.
|
4
|
2
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
70
|
.
|
$
|
58
|
|
$
|
47
|
|
|
Settlement loss/(gain)
|
9
|
.
|
(4
|
)
|
-
|
|
|
Special termination benefits
|
4
|
.
|
8
|
-
|
|
|
|
|
|
Net periodic benefit cost including
|
.
|
|
|
settlements and special termination benefits
|
$
|
83
|
.
|
$
|
62
|
|
$
|
47
|
|
|
Components of net periodic benefit cost:
|
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
1996
|
|
|
|
|
|
Service cost
|
$
|
16
|
.
|
$
|
12
|
|
$
|
12
|
|
|
Interest cost
|
39
|
.
|
40
|
43
|
|
|
Amortization of prior service
|
.
|
|
|
amendments
|
(18
|
)
|
(18
|
)
|
(18
|
)
|
|
Amortization of net (gain)/loss
|
(2
|
)
|
-
|
2
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
35
|
.
|
$
|
34
|
|
$
|
39
|
|
|
Special termination benefits
|
1
|
.
|
-
|
-
|
|
|
|
|
|
Net periodic benefit cost including
|
.
|
|
|
special termination benefits
|
$
|
36
|
.
|
$
|
34
|
|
$
|
39
|
|
|
Prior service costs are amortized on a straight-line basis over the
average remaining service period of employees expected to
receive benefits.
Change in the benefit obligation:
|
|
Pension
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
$
|
1,928
|
.
|
$
|
1,672
|
|
$
|
528
|
.
|
$
|
525
|
|
|
Service cost
|
95
|
.
|
82
|
|
16
|
.
|
12
|
|
|
Interest cost
|
136
|
.
|
123
|
|
39
|
.
|
40
|
|
|
Plan amendments
|
5
|
.
|
11
|
|
-
|
.
|
-
|
|
|
Participant contributions
|
4
|
.
|
3
|
|
-
|
.
|
-
|
|
|
Actuarial loss/(gain)
|
229
|
.
|
153
|
|
56
|
.
|
(13
|
)
|
|
Acquisitions/(divestitures)
|
236
|
.
|
(16
|
)
|
42
|
.
|
(5
|
)
|
|
Benefit payments
|
(149
|
)
|
(99
|
)
|
(38
|
)
|
(31
|
)
|
|
Curtailment gain
|
(1
|
)
|
(1
|
)
|
-
|
.
|
-
|
|
|
Special termination benefits
|
4
|
.
|
8
|
|
1
|
.
|
-
|
|
|
Foreign currency adjustment
|
(8
|
)
|
(8
|
)
|
-
|
.
|
-
|
|
|
|
|
|
|
|
Obligation at end of year
|
$
|
2,479
|
.
|
$
|
1,928
|
|
$
|
644
|
.
|
$
|
528
|
|
|
Change in the fair value of plan assets:
|
|
Pension
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
$
|
1,997
|
.
|
$
|
1,638
|
|
$
|
-
|
.
|
$
|
-
|
|
|
Actual return on plan assets
|
(71
|
)
|
439
|
|
-
|
.
|
-
|
|
|
Acquisitions/(divestitures)
|
240
|
.
|
(5
|
)
|
-
|
.
|
-
|
|
|
Employer contributions
|
31
|
.
|
29
|
|
38
|
.
|
31
|
|
|
Participant contributions
|
4
|
.
|
3
|
|
-
|
.
|
-
|
|
|
Benefit payments
|
(149
|
)
|
(99
|
)
|
(38
|
)
|
(31
|
)
|
|
Foreign currency adjustment
|
(7
|
)
|
(8
|
)
|
-
|
.
|
-
|
|
|
|
|
|
|
|
Fair value at end of year
|
$
|
2,045
|
.
|
$
|
1,997
|
|
$
|
-
|
.
|
$
|
-
|
|
|
Selected information for plans with accumulated benefit obligation in excess of plan assets:
|
|
Pension
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
(1,960
|
)
|
$
|
(161
|
)
|
$
|
(644
|
)
|
$
|
(528
|
)
|
|
Accumulated benefit obligation
|
$
|
(1,661
|
)
|
$
|
(83
|
)
|
$
|
(644
|
)
|
$
|
(528
|
)
|
|
Fair value of plan assets
|
$
|
1,498
|
.
|
$
|
14
|
|
-
|
.
|
-
|
|
|
Funded status as recognized on the Consolidated Balance Sheet:
|
|
Pension
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Funded status at end of year
|
$
|
(434
|
)
|
$
|
69
|
|
$
|
(644
|
)
|
$
|
(528
|
)
|
|
Unrecognized prior service cost
|
76
|
.
|
83
|
|
(69
|
)
|
(87
|
)
|
|
Unrecognized loss/(gain)
|
338
|
.
|
(122
|
)
|
29
|
.
|
(29
|
)
|
|
Unrecognized transition asset
|
(7
|
)
|
(16
|
)
|
-
|
.
|
-
|
|
|
|
|
|
|
|
Net amounts recognized
|
$
|
(27
|
)
|
$
|
14
|
|
$
|
(684
|
)
|
$
|
(644
|
)
|
|
Net amounts as recognized in the Consolidated Balance Sheet:
|
|
Pension
|
Postretirement
|
|
|
|
1998
|
.
|
1997
|
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
$
|
116
|
.
|
$
|
137
|
|
$
|
-
|
.
|
$
|
-
|
|
|
Accrued benefit liability
|
(210
|
)
|
(123
|
)
|
(684
|
)
|
(644
|
)
|
|
Intangible assets
|
36
|
.
|
-
|
|
-
|
.
|
-
|
|
|
Accumulated other
|
.
|
|
.
|
|
|
comprehensive income
|
31
|
.
|
-
|
|
-
|
.
|
-
|
|
|
|
|
|
|
|
Net amounts recognized
|
$
|
(27
|
)
|
$
|
14
|
|
$
|
(684
|
)
|
$
|
(644
|
)
|
|
Weighted-average assumptions at end of year:
|
|
Pension
|
|
|
|
1998
|
.
|
1997
|
1996
|
|
|
|
|
|
Discount rate for benefit obligation
|
6.8
|
%
|
7.3
|
%
|
7.8
|
%
|
|
Expected return on plan assets
|
10.2
|
%
|
10.3
|
%
|
10.3
|
%
|
|
Rate of compensation increase
|
4.7
|
%
|
4.8
|
%
|
4.8
|
%
|
|
The discount rate assumptions used to compute the postretirement benefit obligation at year-end were 6.9% in 1998 and 7.4% in 1997.
Components of Pension Assets
The pension plan assets are principally stocks and bonds. The U.S. plan held approximately 10.1 million shares of PepsiCo capital stock with a fair value of $298 million in 1998 and 11.7 million shares with a fair value of $436 million in 1997. The plan received dividends on PepsiCo capital stock of $6 million in both 1998 and 1997. To maintain diversification, 1.6 million shares of PepsiCo capital stock were sold in 1998 and .5 million shares were sold in 1997.
Health Care Cost Trend Rates
An average increase of 6.7% in the cost of covered postretirement medical benefits is assumed for 1999 for employees who retired before cost sharing was introduced. This average increase is then projected to decline gradually to 5.5% in 2005 and thereafter.
An average increase of 6.5% in the cost of covered postretirement medical benefits is assumed for 1999 for employees who retired after cost sharing was introduced. This average increase is then projected to decline gradually to zero in 2005 and thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A one percentage point change in assumed health care costs would have the following effects:
|
|
1% Increase
|
1% Decrease
|
|
|
|
Effect on total of 1998 service
|
|
|
and interest cost components
|
$
|
2
|
$
|
(2
|
)
|
|
Effect on the 1998 accumulated
|
|
|
postretirement benefit obligation
|
$
|
30
|
$
|
(28
|
)
|
|
[
