Pizza Hut 2004 Annual Report Download - page 44
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Please find page 44 of the 2004 Pizza Hut annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.areself-insured.Themajorityofourrecordedliabilityforself-
insuredemployeehealthandpropertyandcasualtylosses
representsestimatedreservesforincurredclaimsthathave
yettobefiledorsettled.
OFF-BALANCESHEETARRANGEMENTS
Wehadprovidedapproximately$16millionofpartialguar-
antees of two franchisee loan pools related primarily to
theCompany’shistoricalrefranchisingprograms and,to a
lesserextent,franchiseedevelopmentofnewrestaurants,
atDecember25,2004.Insupportoftheseguarantees,we
posted$4millionoflettersofcreditatDecember25,2004.
Wealsoprovidedastandbyletterofcreditof$18millionat
December25, 2004,under which we could potentially be
requiredtofundaportionofoneofthefranchiseeloanpools.
The total loans outstanding under these loan pools were
approximately$90millionatDecember25,2004.
Any funding under the guarantees or letters of credit
wouldbesecuredbythefranchiseeloansandanyrelated
collateral.Webelievethatwehaveappropriatelyprovidedfor
ourestimatedprobableexposuresunderthesecontingent
liabilities. These provisions were primarily charged to net
refranchisingloss(gain).Newloansarenotcurrentlybeing
addedtoeitherloanpool.
Wehaveguaranteedcertainlinesofcreditandloansof
unconsolidatedaffiliatestotaling$34millionatDecember25,
2004.Ourunconsolidatedaffiliateshadtotal revenuesof
over $1.7billion for the year ended December25, 2004
and assets and debt of approximately $884million and
$49million,respectively,atDecember25,2004.
OTHERSIGNIFICANTKNOWNEVENTS,TRENDS
ORUNCERTAINTIESEXPECTEDTOIMPACT2005
OPERATINGPROFITCOMPARISONSWITH2004
NewAccountingPronouncementsNotYetAdopted Upon
theadoptionofStatementofFinancialAccountingStandards
No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123R”)in2005,wewillberequiredtorecognizecompen-
sationcostinthefinancialstatementsforallshare-based
paymentstoouremployees,includinggrantsofstockoptions,
basedonthefairvalue oftheshare-basedawardsonthe
dateofgrant.Thefairvalueoftheshare-basedawardswillbe
determinedusingoptionpricingmodelsandassumptionsthat
appropriatelyreflectthespecificcircumstancesoftheawards.
Compensationcostwillberecognizedoverthevestingperiod
basedonthefairvalueofawardsthatactuallyvest.
SFAS 123R is effective at the beginning of the first
interimorannualperiodbeginningafterJune15,2005(the
quarterendingDecember31,2005forthe Company)and
earlyadoptionisencouraged.Weareintheprocessofevalu-
atingtheuseofcertainoption-pricingmodelsaswellasthe
assumptionstobeusedinsuchmodels.Whensuchevalua-
tioniscomplete,wewilldeterminethetransitionmethodto
useandthetimingofadoption.Wecurrentlydonotanticipate
thatthe impact on netincomeona full year basisofthe
adoptionofSFAS123Rwillbesignificantlydifferentfromthe
historicalproformaimpactsaspreviouslydisclosed.
SeeNote2.
SaleofPuertoRicoBusiness Asaresultofthesaleofour
PuertoRicobusinessonOctober4,2004,Companysales,
restaurantprofitandgeneralandadministrativeexpenses
willdecrease by$159million,$29millionand$8million,
respectively,andweestimatefranchisefeeswillincreaseby
$10millionfortheyearendedDecember31,2005compared
totheyearendedDecember25,2004.
ExtraWeekin2005 Ourfiscalcalendarresultsinafifty-
thirdweekeveryfiveorsixyears.Fiscalyear2005willinclude
afifty-thirdweekinthefourthquarterforthemajorityofour
U.S.businessesaswellasourinternationalbusinessesthat
reportonaperiod,asopposedtoamonthly,basis.IntheU.S.,
weanticipatepermanentlyacceleratingthetimingoftheKFC
businessclosingbyoneweekinDecember2005,andthus,
therewillbenofifty-thirdweekbenefitforthisbusinessin
2005.Weestimatethefifty-thirdweekwillincreaserevenues
andoperatingprofitin2005byapproximately$80millionand
$15million,respectively.Whiletheimpactofthefifty-third
weekaddsapotentialincrementalbenefitof$0.04todiluted
earningspershare,webelievethisbenefitwillbeoffsetby
expenseassociatedwithstrategicassetactionsandrefran-
chisingKFCrestaurantsintheU.S.
International Reporting Changes In the first quarter of
2005wewillbeginreportinginformationforourinternational
businessesintwoseparateoperatingsegmentsasaresult
of changes to our management reporting structure. The
ChinaDivisionwillincludeMainlandChina(“China”),Thailand
andKFCTaiwan,andtheInternationalDivisionwillinclude
theremainderofourinternationaloperations.Thisreporting
changewillnotimpactourconsolidatedresults.
In the first quarter of 2005 we will also change the
Chinabusinessreportingcalendartomorecloselyalignthe
timingofthereportingofitsresultsofoperationswithour
U.S.business.PreviouslyourChinabusiness,liketherest
ofourinternationalbusinesses,closedonemonth(orone
periodforcertainofourinternationalbusinesses)earlierthan
YUM’speriodenddatetofacilitateconsolidatedreporting.
Asaresult,theoperationsoftheChinabusinessfortheone
monthperiodendingDecember31,2004willberecognized
asanadjustmenttoconsolidatedretainedearningsinthe
firstquarterof2005,asopposedtobeingrecordedinour
ConsolidatedStatementofIncome,tomaintaincomparability
ofourconsolidatedresultsofoperations.Ourconsolidated
resultsofoperationsforthefirstquarterof2005willthus
includetheresultsofoperationsoftheChinabusinessfor
themonthsofJanuaryandFebruaryandthemonthsincluded
ineachquarterlyreportingperiodthereafterwillbeginone
monthlaterin2005thaninpreviousyears.
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