Pizza Hut 2004 Annual Report Download - page 53
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Please find page 53 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.DESCRIPTIONOFBUSINESS
NOTE1
YUM!Brands,Inc.andSubsidiaries(collectivelyreferredto
as“YUM”orthe“Company”)comprisestheworldwideopera-
tionsofKFC,PizzaHut,TacoBellandsinceMay7,2002,Long
JohnSilver’s(“LJS”)andA&WAll-AmericanFoodRestaurants
(“A&W”) (collectively the “Concepts”), which were added
whenweacquiredYorkshireGlobalRestaurants,Inc.(“YGR”).
YUMistheworld’slargestquickservicerestaurantcompany
basedonthenumberofsystemunits,withover33,000units
ofwhichapproximately39%arelocatedoutsidetheU.S.in
morethan100countriesandterritories.YUMwascreatedas
anindependent,publicly-ownedcompanyonOctober6,1997
(the“Spin-offDate”)viaatax-freedistributionbyourformer
parent,PepsiCo,Inc.(“PepsiCo”),ofourCommonStock(the
“Distribution”or“Spin-off”)toitsshareholders.Referencesto
YUMthroughouttheseConsolidatedFinancialStatementsare
madeusingthefirstpersonnotationsof“we,”“us“or“our.”
Throughour widely-recognized Concepts,we develop,
operate,franchiseandlicenseasystemofbothtraditional
andnon-traditionalquickservicerestaurants.EachConcept
hasproprietarymenuitemsandemphasizesthepreparation
offoodwithhighqualityingredientsaswellasuniquerecipes
andspecialseasoningstoprovideappealing,tastyandattrac-
tivefoodatcompetitiveprices.Ourtraditionalrestaurants
featuredine-in,carryoutand,insomeinstances,drive-thruor
deliveryservice.Non-traditionalunits,whichareprincipally
licensedoutlets,includeexpressunitsandkioskswhichhave
amorelimitedmenuandoperateinnon-traditionallocations
likeairports,gasolineservicestations,conveniencestores,
stadiums,amusementparksandcolleges,whereafull-scale
traditionaloutletwouldnotbepracticalorefficient.Weare
activelypursuingthestrategyofmultibranding,wheretwo
ormore of ourConceptsareoperated inasingleunit.In
addition,wearepursuingthemultibrandcombinationofPizza
Hutand WingStreet,aflavoredchickenwingsconceptwe
havedeveloped.Wearealsotestingmultibrandingoptions
involvingoneofourConceptsandeitheraconceptindevel-
opment,suchasPasta Bravo,ora conceptnot ownedor
affiliatedwithYUM.
SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
NOTE2
OurpreparationoftheaccompanyingConsolidatedFinancial
Statementsinconformitywithaccountingprinciplesgenerally
acceptedintheUnitedStatesofAmericarequiresustomake
estimatesandassumptionsthataffectreportedamountsof
assetsandliabilities,disclosure ofcontingentassetsand
liabilities at thedateofthe financial statements,andthe
reportedamountsofrevenuesandexpensesduringthereport-
ingperiod.Actualresultscoulddifferfromtheseestimates.
Principles of Consolidation and Basis of Preparation
Intercompanyaccountsandtransactionshave been elimi-
nated.Certaininvestmentsinbusinessesthatoperateour
Conceptsareaccountedforbytheequitymethod.Generally,
wepossess50%ownershipofand50%votingrightsover
theseaffiliates.Ourlackofmajorityvotingrightsprecludes
us from controlling these affiliates, and thus we do not
consolidatetheseaffiliates.Ourshareofthenetincomeor
lossofthoseunconsolidatedaffiliatesisincludedinother
(income)expense.
Weparticipateinvariousadvertisingcooperativeswith
ourfranchiseesandlicensees.Incertainofthesecoopera-
tives we possess majority voting rights, and thus control
thecooperatives.AtDecember27,2003,wereportedthe
relatedassetsandliabilitiesofthoseadvertisingcoopera-
tiveswecontrolinaccountsandnotesreceivable,prepaid
expensesandother currentassetsandaccounts payable
and other current liabilities,asappropriate. Wehave now
summedallassetsandliabilitiesoftheseadvertisingcoop-
erativesandreportedtheamountsasadvertisingcooperative
assets,restrictedandadvertisingcooperativeliabilitiesinthe
ConsolidatedBalanceSheetasofDecember25,2004.We
havereclassifiedthoseamountsintheConsolidatedBalance
SheetasofDecember27,2003forcomparativepurposes.
Asthecontributionstothesecooperativesaredesignated
andsegregatedforadvertising,weactasanagentforthe
franchiseesandlicenseeswithregardtothesecontributions.
Thus,inaccordancewithStatementofFinancialAccounting
Standards(“SFAS”)No.45,“AccountingforFranchise Fee
Revenue,”wedonotreflect,andhavenotreflectedinthe
past,franchiseeandlicenseecontributionstothesecoopera-
tivesinourConsolidatedStatementsofIncome.
In 2004, we adopted Financial Accounting Standards
Board(“FASB”)InterpretationNo.46(revisedDecember2003),
“ConsolidationofVariableInterestEntities,aninterpretation
ofARBNo.51”(“FIN46R”).FIN46Raddressestheconsoli-
dationofanentitywhoseequityholderseither(a)havenot
providedsufficientequityatrisktoallowtheentitytofinance
itsownactivitiesor(b)donotpossesscertaincharacteristics
ofacontrollingfinancialinterest.FIN46Rrequirestheconsol-
idationofsuchanentity,knownasavariableinterestentity
(“VIE”),bytheprimarybeneficiaryoftheentity.Theprimary
beneficiaryistheentity,ifany,thatisobligatedtoabsorba
majorityoftheriskoflossfromtheVIE’sactivities,entitled
toreceiveamajorityoftheVIE’sresidualreturns,orboth.
FIN46Rexcludesfromitsscopebusinesses(asdefinedby
FIN46R)unlesscertainconditionsexist.
The principal entitiesin whichwe possess a variable
interestincludefranchiseentities,includingourunconsoli-
dated affiliates described above. We do not possess any
ownershipinterestsinfranchiseentitiesexceptforourinvest-
ments in various unconsolidated affiliates accounted for
undertheequitymethod.Additionally,wegenerallydonot
providefinancialsupporttofranchiseentitiesinatypicalfran-
chiserelationship.
Wealsopossessvariableinterestsincertainpurchas-
ingcooperativeswehaveformedalongwithrepresentatives
of the franchiseegroupsof each ofourConcepts.These
purchasingcooperativeswereformedforthepurposeofpur-
chasingcertainrestaurantproductsandequipmentinthe
NotestoConsolidatedFinancialStatements
(Tabularamountsinmillions,exceptsharedata)
51
Yum!Brands,Inc.