Pizza Hut 2004 Annual Report Download - page 74
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Please find page 74 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.Pursuanttotheparties’agreement,onoraboutAugust31,
2004,theDistrictCourtorderedthatthetrialofthisaction
bebifurcatedsothatstageonewillresolvePlaintiffs’claims
forequitablereliefandstagetwowillresolvePlaintiffs’claims
fordamages.Thepartiesarecurrentlyproceedingwiththe
equitablereliefstageofthisaction.Duringthisstage,Taco
Bellfiledamotiontopartiallydecertifytheclasstoexclude
fromtheRule23(b)(2)classclaimsformonetarydamages.
TheDistrictCourtdeniedthemotion.Plaintiffsfiledtheirown
motionforpartialsummaryjudgmentastoliabilityrelating
toasubsetoftheCaliforniaRestaurants.TheDistrictCourt
deniedthatmotionaswell.
TacoBellhasdeniedliabilityandintendstovigorously
defendagainstallclaimsinthislawsuit.Althoughthislawsuit
isatanearlystageintheproceedings,itislikelythatcertain
oftheCaliforniarestaurantswillbedeterminedtobenotfully
compliantwithaccessibilitylawsandthatTacoBellwillbe
requiredtotakecertainstepstomaketheserestaurantsfully
compliant.However,atthistime,itisnotpossibletoestimate
with reasonablecertaintythe potentialcoststo bring any
non-compliantCaliforniaRestaurantsintocompliancewith
applicablestateandfederaldisabilityaccesslaws.Norisit
possibleatthistimetoestimatewithreasonablecertainty
theprobabilityoramountofliabilityformonetarydamageson
aclass-widebasistoTacoBell.
OnJanuary16,1998,alawsuitagainstTacoBellCorp.,
entitledWrenchLLC,JosephShieldsandThomasRinksv.Taco
BellCorp.(“Wrench”)wasfiledintheUnitedStatesDistrict
Court for the Western District of Michigan. The lawsuit
allegedthatTacoBellCorp.misappropriatedcertainideas
andconceptsusedinitsadvertisingfeaturingaChihuahua.
The plaintiffs soughtto recovermonetarydamages under
severaltheories,includingbreachofimplied-in-factcontract,
ideamisappropriation,conversionandunfaircompetition.On
June10,1999,theDistrictCourtgrantedsummaryjudgment
infavorofTacoBellCorp.Plaintiffsfiledanappealwiththe
U.S.Court ofAppeals for the Sixth Circuit,and oral argu-
mentswereheldonSeptember20,2000.OnJuly6,2001,
theSixthCircuitCourtofAppealsreversedtheDistrictCourt’s
judgmentinfavorofTacoBellCorp.andremandedthecase
totheDistrictCourt.TacoBellCorp.unsuccessfullypetitioned
theSixthCircuitCourtofAppealsforrehearingenbanc,and
itspetitionforwritofcertioraritotheUnitedStatesSupreme
CourtwasdeniedonJanuary21,2002.Thecasewasreturned
toDistrictCourtfortrialwhichbeganonMay14,2003andon
June4,2003thejuryawarded$30milliontotheplaintiffs.
Subsequently,theplaintiffsmovedtoamendthejudgmentto
includepre-judgmentinterestandpost-judgmentinterestand
TacoBellfileditspost-trialmotionforjudgmentasamatterof
laworanewtrial.OnSeptember9,2003,theDistrictCourt
deniedTacoBell’smotionandgrantedtheplaintiff’smotion
toamendthejudgment.
InviewofthejuryverdictandsubsequentDistrictCourt
ruling, we recorded a charge of $42million in 2003. We
appealedtheverdicttotheSixthCircuitCourtofAppealsand
interestcontinuedtoaccrueduringtheappealprocess.Prior
toarulingfromtheSixthCircuitCourtofAppeals,wesettled
thismatterwiththeWrenchplaintiffsonJanuary15,2005.
Concurrentwiththesettlementwiththeplaintiffs,wealso
settledthematterwithcertainofourinsurancecarriers.Asa
resultofthesesettlements,reversalsofpreviouslyrecorded
expense of $14million were recorded in the year ended
December25,2004. Theamount to be paid to theplain-
tiffsperthesettlementagreementisincludedinaccounts
payable and other current liabilities in our Consolidated
BalanceSheet.
Weintendtoseekadditionalrecoveriesfromourother
insurancecarriersduringtheperiodsinquestion.Wehavealso
filedsuitagainstTacoBell’sformeradvertisingagencyinthe
UnitedStatesDistrictCourtfortheCentralDistrictofCalifornia
seekingreimbursementforthesettlementamountaswellas
anycoststhatwehaveincurredindefendingthismatter.Any
additionalrecoverieswillberecordedastheyarerealized.
ObligationstoPepsiCo,Inc.AfterSpin-off Inconnection
withtheSpin-off,weenteredintoseparationandotherrelated
agreements (the “Separation Agreements”) governing the
Spin-offandoursubsequentrelationshipwithPepsiCo.These
agreementsprovidecertainindemnitiestoPepsiCo.
Under terms of the agreement, we have indemnified
PepsiCoforanycostsorlossesitincurswithrespecttoall
lettersofcredit,guaranteesandcontingentliabilitiesrelating
toourbusinessesunderwhichPepsiCoremainsliable.As
ofDecember25,2004,PepsiCoremainsliableforapproxi-
mately $39million on a nominal basis related to these
contingencies. This obligation ends at the time PepsiCo
isreleased,terminatedorreplacedbyaqualifiedletterof
credit.Wehavenotbeenrequired tomake anypayments
underthisindemnity.
Under the Separation Agreements, PepsiCo main-
tainsfullcontrolandabsolutediscretionwithregardtoany
combined or consolidated tax filings for periods through
October6,1997. PepsiCoalso maintainsfull controland
absolutediscretionregardinganycommontaxauditissues.
AlthoughPepsiCohascontractuallyagreedto,ingoodfaith,
useitsbesteffortstosettlealljointinterestsinanycommon
auditissueonabasisconsistentwithpriorpractice,there
canbenoassurancethatdeterminationsmadebyPepsiCo
wouldbethesameaswewouldreach,actingonourown
behalf.ThroughDecember25,2004,therehavenotbeen
anydeterminationsmadebyPepsiCowherewewouldhave
reachedadifferentdetermination.
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