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DEFINED BENEFIT RETIREMENT PLAN | 12 Months Ended
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Dec. 31, 2011
DEFINED BENEFIT RETIREMENT PLAN |
DEFINED BENEFIT RETIREMENT PLAN |
(16) DEFINED BENEFIT RETIREMENT PLAN Delta provides defined benefit retirement income to eligible employees in the United Kingdom and is the plan sponsor. Pension retirement benefits to qualified employees are 1.67% of final salary per year of service upon reaching the age of 65 years. This Plan has no active employees as members at December 31, 2011. Funded Status The Company recognizes the overfunded or underfunded status of the pension plan as an asset or liability. The funded status represents the difference between the projected benefit obligation (PBO) and the fair value of the plan assets. The PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases (if applicable) and inflation. Plan assets are measured at fair value. At the date of the Delta acquisition (May 12, 2010), the Company determined fair value of the PBO and plan assets. Because the pension plan is denominated in British pounds sterling, the Company used exchange rates of $1.5442/£ and $1.5425/£ to translate the net pension liability into U.S. dollars at December 25, 2010 and December 31, 2011, respectively. Projected Benefit Obligation and Fair Value of Plan Assets—The accumulated benefit obligation (ABO) is the present value of benefits earned to date assuming no future compensation growth. As there are no active employees in the plan, the ABO is equal to the PBO. The underfunded ABO represents the difference between the PBO and the fair value of plan assets. Changes in the PBO and fair value of plan assets for the pension plan for the period from May 12, 2010 to December 25, 2010 were as follows:
|  | Projected Benefit Obligation |  | Plan Assets |  | Funded status |
--- | --- | --- | --- | --- | --- | --- | ---
Fair value at May 12, 2010 |  | $ | 478,993 |  | $ | 351,056 |  | $ | (127,937 | )
Service cost |  |  | 154 |  |  | — |  |  |  |
Employer contributions |  |  | — |  |  | 938 |  |  |  |
Interest cost |  |  | 16,654 |  |  | — |  |  |  |
Actual return on plan assets |  |  | — |  |  | 11,275 |  |  |  |
Benefits paid |  |  | (5,698 | ) |  | (5,698 | ) |  |  |
Actuarial gain |  |  | (28,952 | ) |  | — |  |  |  |
Currency translation |  |  | 2,656 |  |  | 2,065 |  |  |  |
Fair Value at December 25, 2010 |  | $ | 463,807 |  | $ | 359,636 |  | $ | (104,171 | )
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 26, 2010 to December 31, 2011 were as follows:
|  | Projected Benefit Obligation |  | Plan Assets |  | Funded status |
--- | --- | --- | --- | --- | --- | --- | ---
Fair value at December 25, 2010 |  | $ | 463,807 |  | $ | 359,636 |  | $ | (104,171 | )
Service cost |  |  | — |  |  | — |  |  |  |
Employer contributions |  |  | — |  |  | 11,860 |  |  |  |
Interest cost |  |  | 25,643 |  |  | — |  |  |  |
Actual return on plan assets |  |  | — |  |  | 67,474 |  |  |  |
Benefits paid |  |  | (11,539 | ) |  | (11,539 | ) |  |  |
Actuarial loss |  |  | 16,187 |  |  | — |  |  |  |
Currency translation |  |  | (1,579 | ) |  | (2,936 | ) |  |  |
Fair Value at December 31, 2011 |  | $ | 492,519 |  | $ | 424,495 |  | $ | (68,024 | )
Pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 31, 2011 and December 25, 2010 consisted of actuarial gains:
Balance December 26, 2009 |  | $ | — |
Actuarial gain |  |  | 28,952 |
Balance December 25, 2010 |  |  | 28,952 |
Actuarial gain |  |  | 31,093 |
Currency translation loss |  |  | (31 | )
Balance December 31, 2011 |  |  | 60,014 |
Assumptions—The weighted-average actuarial assumptions used to determine the benefit obligation at December 31, 2011 and December 25, 2010 were as follows:
Percentages |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Discount rate |  |  | 4.80 | % |  | 5.50 | %
Salary increase |  |  | N/A |  |  | 4.50 | %
Inflation |  |  | 2.30 | % |  | 2.80 | %
Expense Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in actual experience in relation to assumptions are not recognized in net earnings immediately, but are deferred and, if necessary, amortized as pension expense. The components of the net periodic pension expense were as follows for the period from May 12, 2010 to December 25, 2010 and for the fiscal year ended December 31, 2011 were as follows:
|  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Net Periodic Benefit Cost: |  |  |  |  |  |  |
Service cost |  | $ | — |  | $ | 154 |
Interest cost |  |  | 25,643 |  |  | 16,654 |
Expected return on plan assets |  |  | (20,194 | ) |  | (10,934 | )
Net periodic benefit expense |  | $ | 5,449 |  | $ | 5,874 |
Assumptions—The weighted-average actuarial assumptions used to determine expense are as follows for fiscal 2011 and 2010:
Percentages |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Discount rate |  |  | 5.50 | % |  | 5.60 | %
Expected return on plan assets |  |  | 5.40 | % |  | 5.51 | %
Salary increase |  |  | N/A |  |  | 4.70 | %
Inflation |  |  | 3.50 | % |  | 3.70 | %
The discount rate is based on the annualized yield on the iBoxx over the 15-year AA-rated corporate bonds index with cash flows generally matching the Plan's expected benefit payments. The expected return on plan assets is based on our asset allocation mix and our historical return, taking into account current and expected market conditions. Cash Contributions Employer contributions to the pension plan have been set at $9,718 (£6,300) per annum in accordance with the Plan's 10-year recovery plan, along with a contribution to cover the administrative costs of the Plan of approximately $1,543 (£1,000) per annum. Benefit Payments The following table details expected pension benefit payments for the years 2012 through 2021:
2012 |  | $ | 11,414 |
2013 |  |  | 11,723 |
2014 |  |  | 12,186 |
2015 |  |  | 12,494 |
2016 |  |  | 12,803 |
Years 2017 - 2021 |  |  | 70,029 |
Asset Allocation Strategy The investment strategy for pension plan assets is to maintain a diversified portfolio mainly in long-term fixed-income securities that are investment grade or government-backed in nature. The plan, as required by U.K. law, has an independent trustee that sets investment policy and consults with representatives of the plan sponsor and independent advisors regularly on such matters. The pension plan investments are held in a trust. Most of the pension plan assets are invested in fixed income securities. The debt portfolio is also broadly diversified and invested primarily in U.K. Treasury and corporate securities. The weighted-average maturity of the debt portfolio was 12 years at December 31, 2011. Fair Value Measurements The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. Index-linked gilts—Index-linked gilts are U.K. government-backed securities consisting of bills, notes, bonds, and other fixed income securities issued directly by the U.K. Treasury or by government-sponsored enterprises. Corporate Bonds—Corporate bonds and debentures consist of fixed income securities issued by U.K. corporations. Corporate Stock—This investment category consists of common and preferred stock issued by U.K. and non-U.K. corporations. These assets are pooled investment funds whereby the underlying investments can be valued using quoted market prices. As the fair values of the pooled investment funds themselves are not publicly quoted, they are classified as Level 2 investments. At December 31, 2011 and December 25, 2010, the pension plan assets measured at fair value on a recurring basis were as follows:
December 31, 2011 |  | Quoted Prices in Active Markets for Identical Inputs (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Plan net assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Temporary cash investments |  | $ | — |  | $ | 1,556 |  | $ | — |  | $ | 1,556 |
Index-linked gilts |  |  | — |  |  | 97,422 |  |  | — |  |  | 97,422 |
Corporate bonds |  |  | — |  |  | 309,206 |  |  | — |  |  | 309,206 |
Corporate stock |  |  | — |  |  | 16,276 |  |  | — |  |  | 16,276 |
Other investments |  |  | — |  |  | 35 |  |  | — |  |  | 35 |
Total plan net assets at fair value |  | $ | — |  | $ | 424,495 |  | $ | — |  | $ | 424,495 |
December 25, 2010 |  | Quoted Prices in Active Markets for Identical Inputs (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Plan net assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Temporary cash investments |  | $ | — |  | $ | 1,397 |  | $ | — |  | $ | 1,397 |
Index-linked gilts |  |  | — |  |  | 50,803 |  |  | — |  |  | 50,803 |
Corporate bonds |  |  | — |  |  | 290,303 |  |  | — |  |  | 290,303 |
Corporate stock |  |  | — |  |  | 16,986 |  |  | — |  |  | 16,986 |
Other investments |  |  | — |  |  | 147 |  |  | — |  |  | 147 |
Total plan net assets at fair value |  | $ | — |  | $ | 359,636 |  | $ | — |  | $ | 359,636 |

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