Pizza Hut 2003 Annual Report Download - page 54

52.
DESCRIPTION OF BUSINESS
note
1
YUM! Brands, Inc. and Subsidiaries (collectively referred
to as “YUM” or the “Company”) comprises the worldwide
operations of KFC, Pizza Hut, Taco Bell and since May 7,
2002, Long John Silver’s (“LJS”) and A&W All-American Food
Restaurants (“A&W”) (collectively the “Concepts”), which
were added when we acquired Yorkshire Global Restaurants,
Inc. (“YGR”). YUM is the world’s largest quick service restau-
rant company based on the number of system units, with over
33,000 units in more than 100 countries and territories of
which approximately 37% are located outside the U.S. YUM
was created as an independent, publicly-owned company on
October 6, 1997 (the “Spin-off Date”) via a tax-free distribu-
tion by our former parent, PepsiCo, Inc. (“PepsiCo”), of our
Common Stock (the “Distribution” or “Spin-off”) to its share-
holders. References to YUM throughout these Consolidated
Financial Statements are made using the first person nota-
tions of “we,” “us “ or “our.”
Through our widely-recognized Concepts, we develop,
operate, franchise and license a system of both traditional
and non-traditional quick service restaurants. Each Concept
has proprietary menu items and emphasizes the prepara-
tion of food with high quality ingredients as well as unique
recipes and special seasonings to provide appealing, tasty
and attractive food at competitive prices. Our traditional
restaurants feature dine-in, carryout and, in some instances,
drive-thru or delivery service. Non-traditional units, which
are principally licensed outlets, include express units and
kiosks which have a more limited menu and operate in non-
traditional locations like airports, gasoline service stations,
convenience stores, stadiums, amusement parks and
colleges, where a full-scale traditional outlet would not be
practical or efficient. We are actively pursuing the strategy
of multibranding, where two or more of our Concepts are
operated in a single unit. In addition, we are testing multi-
branding options involving one of our Concepts and either a
concept in development, such as Pasta Bravo, or a concept
not owned or affiliated with YUM.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
note
2
Our preparation of the accompanying Consolidated Financial
Statements in conformity with accounting principles gener-
ally accepted in the United States of America requires us
to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contin-
gent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from the estimates.
Principles of Consolidation and Basis of Preparation
Intercompany accounts and transactions have been elimi-
nated. Certain investments in businesses that operate our
Notes to Consolidated Financial Statements
(Tabular amounts in millions, except share data)
Concepts are accounted for by the equity method. Generally,
we possess 50% ownership of and 50% voting rights over
these affiliates. Our lack of majority voting rights precludes
us from controlling these affiliates, and thus we do not
consolidate these affiliates. Our share of the net income or
loss of those unconsolidated affiliates is included in other
(income) expense.
We participate in various advertising cooperatives with
our franchisees and licensees. In certain of these coopera-
tives we possess majority voting rights, and thus control
the cooperatives. As the contributions to the cooperatives
are designated for advertising expenditures, any cash
held by these cooperatives is considered restricted and
is included in prepaid expenses and other current assets.
Such restricted cash was approximately $34 million and
$44 million at December 27, 2003 and December 28,
2002, respectively. As the contributions to these coopera-
tives are designated and segregated for advertising, we
act as an agent for the franchisees and licensees with
regard to these contributions. Thus, in accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 45, “Accounting for Franchise Fee Revenue,” we do not
reflect franchisee and licensee contributions to these coop-
eratives in our Consolidated Statements of Income.
Fiscal Year
Our fiscal year ends on the last Saturday in December
and, as a result, a fifty-third week is added every five or six
years. Fiscal year 2000 included 53 weeks. The Company’s
next fiscal year with 53 weeks will be 2005. The first three
quarters of each fiscal year consist of 12 weeks and the
fourth quarter consists of 17 weeks in fiscal years with 53
weeks and 16 weeks in fiscal years with 52 weeks. Our
subsidiaries operate on similar fiscal calendars with period
end dates suited to their businesses. The subsidiaries’
period end dates are within one week of YUM’s period end
date with the exception of our international businesses,
which close one period or one month earlier to facilitate
consolidated reporting.
Reclassifications
We have reclassified certain items in the accompanying
Consolidated Financial Statements and Notes thereto for
prior periods to be comparable with the classification for the
fiscal year ended December 27, 2003. These reclassifica-
tions had no effect on previously reported net income.
Franchise and License Operations
We execute franchise or license agreements for each unit
which sets out the terms of our arrangement with the
franchisee or licensee. Our franchise and license agree-
ments typically require the franchisee or licensee to pay
an initial, non-refundable fee and continuing fees based
upon a percentage of sales. Subject to our approval and
payment of a renewal fee, a franchisee may generally renew
the franchise agreement upon its expiration.
We recognize initial fees as revenue when we have
performed substantially all initial services required by the