Pension, Retiree Medical and Retiree Savings Plans

Pension Benefits

We sponsor noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded while benefits from the other U.S. plans are paid by the Company as incurred. During 2001, the plans covering our U.S. salaried employees were amended such that any salaried employee hired or rehired by YUM after September 30, 2001 is not eligible to participate in those plans. Benefits are based on years of service and earnings or stated amounts for each year of service. During the fourth quarter of 2012, the Company allowed certain former employees with deferred vested balances in the Plan an opportunity to voluntarily elect an early payout of their pension benefits. We recorded a settlement charge of $84 million as a result of settlement payments from the Plan. We also sponsor various defined benefit pension plans covering certain of our non-U.S. employees, the most significant of which are in the UK. Our plans in the UK have previously been amended such that new employees are not eligible to participate in these plans. Additionally, in 2011 one of our UK plans was frozen such that existing participants can no longer earn future service credits. This resulted in a curtailment of $10 million which was recorded as Other comprehensive income.

Obligation and Funded Status at Measurement Date:

The following chart summarizes the balance sheet impact, as well as benefit obligations, assets, and funded status associated with our U.S. pension plans and significant International pension plans. The actuarial valuations for all plans reflect measurement dates coinciding with our fiscal year ends.



	U.S. Pension Plans						International Pension Plans
	2012			2011			2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	1,381		$	1,108		$	187		$	187
Service cost	26			24			2			5
Interest cost	66			64			8			10
Participant contributions	—			—			1			1
Plan amendments	5			—			—			—
Curtailments	(10		)	(7		)	—			(10		)
PBO reduction in excess of settlement payments	(74		)	—			—			—
Special termination benefits	3			5			—			—
Exchange rate changes	—			—			5			1
Benefits paid	(14		)	(11		)	(4		)	(2		)
Settlement payments^(a)	(278		)	(29		)	—			—
Actuarial (gain) loss	185			227			(6		)	(5		)
Benefit obligation at end of year	$	1,290		$	1,381		$	193		$	187
Change in plan assets
Fair value of plan assets at beginning of year	$	998		$	907		$	183		$	164
Actual return on plan assets	144			83			21			10
Employer contributions	100			53			19			10
Participant contributions	—			—			1			1
Settlement payments^(a)	(278		)	(29		)	—			—
Benefits paid	(14		)	(11		)	(4		)	(2		)
Exchange rate changes	—			—			6			—
Administrative expenses	(5		)	(5		)	—			—
Fair value of plan assets at end of year	$	945		$	998		$	226		$	183
Funded status at end of year	$	(345	)	$	(383	)	$	33		$	(4	)



Amounts recognized in the Consolidated Balance Sheet:
	U.S. Pension Plans						International Pension Plans
	2012			2011			2012		2011
Prepaid benefit asset - non-current	$	—		$	—		$	33	$	8
Accrued benefit liability – current	(19		)	(14		)	—		—
Accrued benefit liability – non-current	(326		)	(369		)	—		(12		)
	$	(345	)	$	(383	)	$	33	$	(4	)



Losses recognized in Accumulated Other Comprehensive Income:
	U.S. Pension Plans				International Pension Plans
	2012		2011		2012		2011
Actuarial net loss	$	421	$	540	$	14	$	30
Prior service cost	7		3		—		—
	$	428	$	543	$	14	$	30


(a)	See Note 4 for discussion of the settlement payments and settlement loss related to the U.S. Plan's deferred vested benefit program.

The accumulated benefit obligation for the U.S. and International pension plans was $1,426 million and $1,496 million at December 29, 2012 and December 31, 2011, respectively.



Information for pension plans with an accumulated benefit obligation in excess of plan assets:
	U.S. Pension Plans				International Pension Plans
	2012		2011		2012		2011
Projected benefit obligation	$	1,290	$	1,381	$	—	$	—
Accumulated benefit obligation	1,239		1,327		—		—
Fair value of plan assets	945		998		—		—



Information for pension plans with a projected benefit obligation in excess of plan assets:
	U.S. Pension Plans				International Pension Plans
	2012		2011		2012		2011
Projected benefit obligation	$	1,290	$	1,381	$	—	$	99
Accumulated benefit obligation	1,239		1,327		—		87
Fair value of plan assets	945		998		—		87

Our funding policy with respect to the U.S. Plan is to contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the Pension Protection Act of 2006, plus such additional amounts from time to time as are determined to be appropriate to improve the U.S. Plan’s funded status. We currently do not plan to make any contributions to the U.S. plan in 2013.

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 any significant contributions to any pension plan outside of the U.S. in 2013.

We do not anticipate any plan assets being returned to the Company during 2013 for any plans.

Components of net periodic benefit cost:



	U.S. Pension Plans									International Pension Plans
Net periodic benefit cost	2012			2011			2010			2012			2011			2010
Service cost	$	26		$	24		$	25		$	2		$	5		$	6
Interest cost	66			64			62			8			10			9
Amortization of prior service cost^(a)	1			1			1			—			—			—
Expected return on plan assets	(71		)	(71		)	(70		)	(11		)	(12		)	(9		)
Amortization of net loss	63			31			23			1			2			2
Net periodic benefit cost	$	85		$	49		$	41		$	—		$	5		$	8
Additional loss recognized due to: Settlements^(b)	$	89		$	—		$	3		$	—		$	—		$	—
Special termination benefits^(c)	$	3		$	5		$	1		$	—		$	—		$	—


(a)	Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.


(b)	Settlement losses result from benefit payments exceeding the sum of the service cost and interest cost for each plan during the year. See Note 4 for discussion of the settlement payments and settlement loss related to the U.S. Plan's deferred vested benefit project.


(c)	Special termination benefits primarily related to the U.S. business transformation measures taken in 2012, 2011 and 2010.



Pension (gains) losses in Accumulated other comprehensive income (loss):
	U.S. Pension Plans						International Pension Plans
	2012			2011			2012			2011
Beginning of year	$	543		$	363		$	30		$	46
Net actuarial (gain) loss	117			219			(15		)	(5		)
Curtailments	(10		)	(7		)	—			(10		)
Amortization of net loss	(63		)	(31		)	(1		)	(2		)
Amortization of prior service cost	(1		)	(1		)	—			—
Prior service cost	5			—			—			—
PBO reduction in excess of settlement payment	(74		)	—			—			—
Settlement charges	(89		)	—			—			—
Exchange rate changes	—			—			—			1
End of year	$	428		$	543		$	14		$	30

The estimated net loss for the U.S. and International pension plans that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension cost in 2013 is $58 million and less than $1 million, respectively. The estimated prior service cost for the U.S. pension plans that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension cost in 2013 is $2 million.



Weighted-average assumptions used to determine benefit obligations at the measurement dates:
	U.S. Pension Plans				International Pension Plans
	2012		2011		2012		2011
Discount rate	4.40	%	4.90	%	4.70	%	4.75	%
Rate of compensation increase	3.75	%	3.75	%	3.70	%	3.85	%



Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years:
	U.S. Pension Plans						International Pension Plans
	2012		2011		2010		2012		2011		2010
Discount rate	4.90	%	5.90	%	6.30	%	4.75	%	5.40	%	5.50	%
Long-term rate of return on plan assets	7.25	%	7.75	%	7.75	%	5.55	%	6.64	%	6.66	%
Rate of compensation increase	3.75	%	3.75	%	3.75	%	3.85	%	4.41	%	4.42	%

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 primarily on the historical returns for each asset category, adjusted for an assessment of current market conditions.

Plan Assets

The fair values of our pension plan assets at December 29, 2012 by asset category and level within the fair value hierarchy are as follows:



	U.S. Pension Plans		International Pension Plans
Level 1:
Cash^(a)	$	—	$	9
Level 2:
Cash Equivalents^(a)	42		—
Equity Securities – U.S. Large cap^(b)	290		—
Equity Securities – U.S. Mid cap^(b)	49		—
Equity Securities – U.S. Small cap^(b)	49		—
Equity Securities – Non-U.S.^(b)	100		131
Fixed Income Securities – U.S. Corporate^(b)	247		—
Fixed Income Securities – Non-U.S. Corporate^(b)	—		33
Fixed Income Securities – U.S. Government and Government Agencies^(c)	153		—
Fixed Income Securities – Other^(d)	30		16
Other Investments^(b)	—		37
Total fair value of plan assets^(e)	$	960	$	226


(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)	Excludes net payable of $15 million in the U.S. for purchases of assets included in the above that were settled after December 29, 2012

Our primary objectives regarding the investment strategy for the Plan’s assets, which make up 81% of total pension plan assets at the 2012 measurement date, 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 at 55% 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 at 45% 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.

A mutual fund held as an investment by the Plan includes shares of YUM common stock valued at $0.7 million at December 29, 2012 and $0.7 million at December 31, 2011 (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:	U.S. Pension Plans		International Pension Plans
2013	$	87	$	1
2014	54		1
2015	55		1
2016	55		1
2017	55		1
2018 - 2022	306		6

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.

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. During 2001, the plan was 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 2012 and 2011, the accumulated post-retirement benefit obligation was $83 million and $86 million, respectively. The actuarial loss recognized in Accumulated other comprehensive loss was $8 million at the end of 2012 and $12 million at the end of 2011. The net periodic benefit cost recorded in 2012, 2011 and 2010 was $6 million in each year, the majority of which is interest cost on the accumulated post-retirement benefit obligation. 2012, 2011 and 2010 costs each included less than $1 million of special termination benefits primarily related to the U.S. business transformation measures described in Note 4. 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 2012 and 2011 are 7.4% and 7.5%, respectively, with expected ultimate trend rates of 4.5% reached in 2028.

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 is expected to be reached in 2014; once the cap is reached, 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 $6 million and in aggregate for the five years thereafter are $25 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 2012, $14 million in 2011 and $15 million in 2010.