Pizza Hut 2004 Annual Report Download - page 54
Download and view the complete annual report
Please find page 54 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.U.S.Ourequityownershipineachcooperativeisgenerally
proportionaltoourpercentageownershipoftheU.S.sys-
temunitsfortheConcept.Weaccountforourinvestments
in thesepurchasingcooperatives using the cost method,
underwhichourrecordedbalanceswerenotsignificantat
December25,2004orDecember27,2003.
As a result of the adoption of FIN46R, we have not
consolidatedanyfranchiseentities,purchasingcooperatives
orotherentities.
Fiscal Year Ourfiscal year endson the last Saturdayin
Decemberand,asaresult,afifty-thirdweekisaddedevery
fiveorsixyears.Fiscalyear2000included53weeks.The
Company’s next fiscal year with 53 weeks will be 2005.
The first three quarters of each fiscal year consist of 12
weeksandthefourthquarterconsistsof16weeksinfiscal
yearswith52weeksand17weeksinfiscalyearswith53
weeks.Oursubsidiariesoperateonsimilarfiscalcalendars
withperiodormonthenddatessuitedtotheirbusinesses.
Thesubsidiaries’periodenddatesarewithinoneweekof
YUM’speriodenddatewiththeexceptionofourinternational
businesses,whichcloseoneperiodoronemonthearlierto
facilitateconsolidatedreporting.
Reclassifications Wehavereclassifiedcertainitemsinthe
accompanyingConsolidatedFinancialStatementsandNotes
theretoforpriorperiodstobecomparablewiththeclassifi-
cationforthefiscalyearendedDecember25,2004.These
reclassifications hadnoeffectonpreviouslyreported net
income.
FranchiseandLicenseOperations Weexecutefranchiseor
licenseagreementsforeachunitwhichsetouttheterms
of our arrangement with the franchisee or licensee. Our
franchiseandlicenseagreementstypicallyrequirethefran-
chiseeorlicenseetopayaninitial,non-refundablefeeand
continuingfeesbaseduponapercentageofsales.Subject
toourapprovalandtheirpaymentofarenewalfee,afran-
chiseemaygenerallyrenewthefranchiseagreementupon
itsexpiration.
Weincurexpensesthatbenefitbothourfranchiseand
licensecommunitiesandtheirrepresentativeorganizations
and ourCompany operated restaurants. These expenses,
alongwithothercostsofservicingoffranchiseandlicense
agreementsarechargedtogeneralandadministrative(“G&A”)
expensesasincurred.Certaindirectcostsofourfranchise
andlicenseoperationsarechargedtofranchiseandlicense
expenses. These costs include provisions for estimated
uncollectiblefees,franchiseandlicensemarketingfunding,
amortizationexpenseforfranchiserelatedintangibleassets
andcertainotherdirectincrementalfranchiseandlicense
supportcosts.Franchiseandlicenseexpensesalsoinclude
occupancycostsassociatedwithrestaurantswesubleaseto
franchisees,netofanyrentalincomewereceive.
Wemonitorthefinancialconditionofourfranchisees
andlicenseesand recordprovisionsforestimatedlosses
on receivables when we believe that our franchisees or
licenseesareunabletomaketheirrequiredpayments.While
weusethebestinformationavailableinmakingourdetermi-
nation,theultimaterecoveryofrecordedreceivablesisalso
dependentuponfutureeconomiceventsandotherconditions
that maybebeyond our control. Net provisionsforuncol-
lectiblefranchiseandlicensereceivablesof$1millionand
$15millionwereincludedinfranchiseandlicenseexpense
in2004and2002,respectively.Includedinfranchiseand
licenseexpensein2003wasanetbenefitforuncollectible
franchiseandlicensereceivablesof$3million,aswewere
abletorecoverpreviouslyreservedreceivablesinexcessof
currentprovisions.
RevenueRecognition TheCompany’srevenuesconsistof
salesbyCompanyoperatedrestaurantsandfeesfromour
franchiseesandlicensees.RevenuesfromCompanyoperated
restaurants are recognized when payment is tendered at
thetimeofsale.Werecognizeinitialfeesreceivedfroma
franchiseeorlicenseeasrevenuewhenwehaveperformed
substantiallyallinitialservicesrequiredbythefranchiseor
licenseagreement,whichisgenerallyupontheopeningofa
store.Werecognizecontinuingfeesbaseduponapercentage
offranchiseeandlicenseesalesasearned.Werecognize
renewalfeeswhenarenewalagreementwithafranchiseeor
licenseebecomeseffective.Weincludeinitialfeescollected
uponthesaleofarestauranttoafranchiseeinrefranchising
gains(losses).
DirectMarketingCosts Wereportsubstantiallyallofour
direct marketing costs in occupancy and other operating
expenses. We charge direct marketing costs to expense
ratablyinrelationtorevenuesovertheyearinwhichincurred
and,inthecaseofadvertisingproductioncosts,intheyear
theadvertisementisfirstshown.Deferreddirectmarketing
costs,whichareclassifiedasprepaidexpenses,consistof
mediaandrelatedadvertisingproductioncostswhichwill
generally beusedfor thefirsttimeinthenextfiscalyear
andhavehistoricallynotbeensignificant.Totheextentwe
participate in advertising cooperatives, we expense our
contributionsasincurred.Ouradvertising expenses were
$458million,$419millionand$384millionin2004,2003
and2002,respectively.
ResearchandDevelopmentExpenses Researchanddevel-
opmentexpenses,whichweexpenseasincurred,arereported
inG&Aexpenses.Researchanddevelopmentexpenseswere
$26millioninboth2004and2003and$23millionin2002.
Impairment or Disposal of Long-Lived Assets In accor-
dance with SFASNo.144, “Accounting for the Impairment
orDisposalofLong-LivedAssets”(“SFAS144”),wereview
ourlong-livedassetsrelatedtoeachrestauranttobeheld
andusedinthebusiness,includinganyallocatedintangible
assetssubjecttoamortization,semi-annuallyforimpairment,
orwheneverevents or changes in circumstancesindicate
thatthecarryingamountofarestaurantmaynotberecover-
able.Weevaluaterestaurantsusinga“two-yearhistoryof
operatinglosses”asourprimaryindicatorofpotentialimpair-
ment.Basedonthebestinformationavailable,wewritedown
52