Pizza Hut 2002 Annual Report Download - page 71

Long-Lived Assets(e)
2002 2001 2000
United States $ 2,805 $2,195 $ 2,101
International 1,021 955 828
Corporate 60 45 30
$ 3,886 $3,195 $ 2,959
(a) Includes equity income of unconsolidated affiliates of $31 million, $26 million and
$25 million in 2002, 2001 and 2000, respectively.
(b) See Note 7 for a discussion by reportable operating segment of facility actions net
(loss) gain and unusual items income (expense).
(c) Includes investment in unconsolidated affiliates of $225 million, $213 million and $257
million for 2002, 2001 and 2000, respectively.
(d) Primarily includes deferred tax assets, fair value of derivative instruments, and prop-
erty, plant and equipment, net, related to our office facilities.
(e) Includes property, plant and equipment, net; goodwill, net; and intangible assets, net.
See Note 7 for additional operating segment disclosures related
to impairment and the carrying amount of assets held for sale.
GUARANTEES, COMMITMENTS AND
CONTINGENCIES
Lease Guarantees
As a result of (a) assigning our interest in and obligations under
real estate leases as a condition to the refranchising of certain
Company restaurants; (b) contributing certain Company restau-
rants to unconsolidated affiliates; and (c) guaranteeing certain
other leases we are frequently contingently liable on lease agree-
ments. These leases have varying terms, the latest of which
expires in 2030. As of December 28, 2002 and December 29,
2001, the potential amount of undiscounted payments we could
be required to make in the event of non-payment by the primary
lessee was $388 million and $435 million, respectively. The pres-
ent values of these potential payments discounted at our pre-tax
cost of debt at December 28, 2002 and December 29, 2001, were
$278 million and $293 million, respectively. Current franchisees
are the primary lessees under the vast majority of these leases. We
generally have cross-default provisions with these franchisees that
would put them in default of their franchise agreement in the event
of non-payment under the lease. We believe these cross-default
provisions significantly reduce the risk that we will be required to
make payments under these leases. Accordingly, the liability
recorded for our exposure under such leases at December 28,
2002 and December 29, 2001, was not significant.
Guarantees Supporting Financial Arrangements
of Certain Franchisees, Unconsolidated Affiliates
and Other Third Parties
At December 28, 2002 and December 29, 2001, we had guaran-
teed approximately $32 million of financial arrangements of
certain franchisees, including partial guarantees of franchisee loan
NOTE
24
pools related primarily to the Company’s refranchising programs.
The total loans outstanding under these loan pools were approx-
imately $153 million at December 28, 2002. In support of these
guarantees, we have posted $32 million of letters of credit. We also
provide a standby letter of credit under which we could potentially
be required to fund a portion (up to $25 million) of one of the
franchisee loan pools. Any funding under the guarantees or let-
ters of credit would be secured by the franchisee loans and any
related collateral. We believe that we have appropriately provided
for our estimated probable exposures under these contingent lia-
bilities. These provisions were primarily charged to refranchising
(gains) losses.
We have guaranteed certain financial arrangements of uncon-
solidated affiliates and third parties. These financial arrangements
primarily include lines of credit, loans and letters of credit and
totaled $41 million and $28 million at December 28, 2002 and
December 29, 2001, respectively. If all such lines of credit and letters
of credit were fully drawn down, the maximum contingent liability
under these arrangements would be approximately $53 million
and $56 million as of December 28, 2002 and December 29, 2001,
respectively. We have varying levels of recourse provisions and
collateral that mitigate our risk under these guarantees. Accord-
ingly, we have no recorded liability as of December 28, 2002 or
December 29, 2001.
Insurance Programs
We are currently self-insured for a portion of our current and prior
years’ workers’ compensation, employment practices liability, gen-
eral liability and automobile liability losses (collectively, “casualty
losses”) as well as property losses and certain other insurable
risks. To mitigate the cost of our exposures for certain property and
casualty losses, we make annual decisions to either retain the risks
of loss up to certain maximum per occurrence or aggregate loss
limits negotiated with our insurance carriers, or to fully insure those
risks. Since the Spin-off, we have elected to retain the risks subject
to certain insured limitations. Since August 1999, we have bundled
our risks for casualty losses, property losses and various other
insurable risks into one pool with a single self-insured retention
and purchased reinsurance coverage up to a specified limit that
is significantly above our actuarially determined probable losses.
We are self-insured for losses in excess of the reinsurance limit;
however, we believe the likelihood of losses exceeding the rein-
surance limit is remote. We are also self-insured for healthcare
claims for eligible participating employees subject to certain
deductibles and limitations. We have accounted for our retained
liabilities for property and casualty losses and healthcare claims,
including reported and incurred but not reported claims, based
on information provided by independent actuaries.
Due to the inherent volatility of our actuarially determined
property and casualty loss estimates, it is reasonably possible that
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