Pizza Hut 2004 Annual Report Download - page 58

to฀a฀Business฀Combination”฀(“EITF฀04-1”).฀EITF฀04-1฀requires฀
that฀a฀business฀combination฀between฀two฀parties฀that฀have฀
a฀ preexisting฀ relationship฀ be฀ evaluated฀ to฀ determine฀ if฀ a฀
settlement฀of฀a฀preexisting฀relationship฀exists.฀EITF฀04-1฀also฀
requires฀that฀certain฀reacquired฀rights฀(including฀the฀rights฀to฀
the฀acquirer’s฀trade฀name฀under฀a฀franchise฀agreement)฀be฀
recognized฀as฀intangible฀assets฀apart฀from฀goodwill.฀However,฀
if฀a฀contract฀giving฀rise฀to฀the฀reacquired฀rights฀includes฀terms฀
that฀are฀favorable฀or฀unfavorable฀when฀compared฀to฀pricing฀
for฀current฀market฀transactions฀for฀the฀same฀or฀similar฀items,฀
EITF฀ 04-1฀ requires฀ that฀ a฀ settlement฀ gain฀ or฀ loss฀ should฀
be฀measured฀as฀the฀lesser฀of฀a)฀the฀amount฀by฀which฀the฀
contract฀is฀favorable฀or฀unfavorable฀to฀market฀terms฀from฀the฀
perspective฀of฀the฀acquirer฀or฀b)฀the฀stated฀settlement฀provi-
sions฀of฀the฀contract฀available฀to฀the฀counterparty฀to฀which฀
the฀contract฀is฀unfavorable.
EITF฀04-1฀is฀effective฀prospectively฀for฀business฀combi-
nations฀ consummated฀in฀reporting฀periods฀ beginning฀after฀
October฀13,฀2004฀(the฀fiscal฀year฀beginning฀December฀26,฀
2004฀ for฀ the฀ Company).฀ When฀ effective,฀ EITF฀ 04-01฀ will฀
apply฀to฀acquisitions฀of฀restaurants฀we฀may฀make฀from฀our฀
franchisees฀or฀licensees.฀We฀currently฀attempt฀to฀have฀our฀
franchisees฀ or฀ licensees฀ enter฀ into฀ standard฀ franchise฀ or฀
license฀agreements฀for฀the฀applicable฀Concept฀and/or฀market฀
when฀renewing฀or฀entering฀into฀a฀new฀agreement.฀However,฀
in฀certain฀instances฀franchisees฀or฀licensees฀have฀existing฀
agreements฀that฀possess฀terms,฀including฀royalty฀rates,฀that฀
differ฀from฀our฀current฀standard฀agreements฀for฀the฀applicable฀
Concept฀and/or฀market.฀If฀in฀the฀future฀we฀were฀to฀acquire฀a฀
franchisee฀or฀licensee฀with฀such฀an฀existing฀agreement,฀we฀
would฀be฀required฀to฀record฀a฀settlement฀gain฀or฀loss฀at฀the฀
date฀of฀acquisition.฀The฀amount฀and฀timing฀of฀any฀such฀gains฀or฀
losses฀we฀might฀record฀is฀dependent฀upon฀which฀franchisees฀
or฀licensees฀we฀might฀acquire฀and฀when฀they฀are฀acquired.฀
Accordingly,฀any฀impact฀cannot฀be฀currently฀determined.
In฀ December฀2004,฀ the฀ FASB฀ issued฀ SFAS฀No.฀123฀
(Revised฀ 2004),฀ “Share-Based฀ Payment”฀ (“SFAS฀123R”),฀
which฀replaces฀SFAS฀123,฀supersedes฀APB฀25฀and฀related฀
interpretations฀ and฀ amends฀ SFAS฀No.฀95,฀ “Statement฀ of฀
Cash฀ Flows.”฀ The฀ provisions฀ of฀ SFAS฀123R฀ are฀ similar฀ to฀
those฀of฀SFAS฀123,฀however,฀SFAS฀123R฀requires฀all฀share-
based฀payments฀to฀employees,฀including฀grants฀of฀employee฀
stock฀options,฀to฀be฀recognized฀in฀the฀financial฀statements฀
as฀compensation฀cost฀based฀on฀their฀fair฀value฀on฀the฀date฀
of฀grant.฀Fair฀value฀of฀share-based฀awards฀will฀be฀determined฀
using฀option-pricing฀models฀(e.g.฀Black-Scholes฀or฀binomial฀
models)฀ and฀ assumptions฀ that฀ appropriately฀ reflect฀ the฀
specific฀circumstances฀of฀the฀awards.฀Compensation฀cost฀will฀
be฀recognized฀over฀the฀vesting฀period฀based฀on฀the฀fair฀value฀
of฀awards฀that฀actually฀vest.
We฀ will฀ be฀ required฀ to฀ choose฀ between฀ the฀ modified-
prospective฀and฀modified-retrospective฀transition฀alternatives฀in฀
adopting฀SFAS฀123R.฀Under฀the฀modified-prospective-transition฀
method,฀compensation฀cost฀ will฀ be฀ recognized฀ in฀ financial฀
statements฀issued฀subsequent฀to฀the฀date฀of฀adoption฀for฀all฀
shared-based฀payments฀granted,฀modified฀or฀settled฀after฀the฀
date฀of฀adoption,฀as฀well฀as฀for฀any฀unvested฀awards฀that฀were฀
granted฀prior฀to฀the฀date฀of฀adoption.฀As฀we฀previously฀adopted฀
only฀the฀pro฀forma฀disclosure฀provisions฀of฀SFAS฀123,฀we฀will฀
recognize฀compensation฀cost฀relating฀to฀the฀unvested฀portion฀
of฀awards฀granted฀prior฀to฀the฀date฀of฀adoption฀using฀the฀same฀
estimate฀of฀the฀grant-date฀fair฀value฀and฀the฀same฀attribution฀
method฀used฀to฀determine฀the฀pro฀forma฀disclosures฀under฀
SFAS฀123.฀Under฀the฀modified-retrospective-transition฀method฀
compensation฀cost฀will฀be฀recognized฀in฀a฀manner฀consistent฀
with฀the฀modified-prospective-transition฀method,฀however,฀prior฀
period฀financial฀statements฀will฀also฀be฀restated฀by฀recognizing฀
compensation฀cost฀as฀previously฀reported฀in฀the฀pro฀forma฀
disclosures฀under฀SFAS฀123.฀The฀restatement฀provisions฀can฀
be฀applied฀to฀either฀a)฀all฀periods฀presented฀or฀b)฀to฀the฀begin-
ning฀of฀the฀fiscal฀year฀in฀which฀SFAS฀123R฀is฀adopted.
SFAS฀123R฀ is฀ effective฀ at฀ the฀ beginning฀ of฀ the฀ first฀
interim฀or฀annual฀period฀beginning฀after฀June฀15,฀2005฀(the฀
quarter฀ending฀December฀31,฀2005฀for฀the฀ Company)฀and฀
early฀adoption฀is฀encouraged.฀The฀Company฀is฀in฀the฀process฀
of฀ evaluating฀ the฀ use฀ of฀ certain฀ option-pricing฀ models฀ as฀
well฀as฀the฀assumptions฀to฀be฀used฀in฀such฀models.฀When฀
such฀evaluation฀is฀complete,฀we฀will฀determine฀the฀transition฀
method฀to฀use฀and฀the฀timing฀of฀adoption.฀We฀do฀not฀currently฀
anticipate฀that฀the฀impact฀on฀net฀income฀on฀a฀full฀year฀basis฀
of฀the฀adoption฀of฀SFAS฀123R฀will฀be฀significantly฀different฀
from฀the฀historical฀pro฀forma฀impacts฀as฀disclosed฀in฀accor-
dance฀with฀SFAS฀123.
TWO-FOR-ONE฀COMMON฀STOCK฀SPLIT฀
NOTE฀3
On฀ May฀ 7,฀ 2002,฀ the฀ Company฀ announced฀ that฀ its฀ Board฀
of฀Directors฀approved฀a฀two-for-one฀split฀of฀the฀Company’s฀
outstanding฀shares฀of฀Common฀Stock.฀The฀stock฀split฀was฀
effected฀in฀the฀form฀of฀a฀stock฀dividend฀and฀entitled฀each฀
shareholder฀of฀record฀at฀the฀close฀of฀business฀on฀June฀6,฀
2002฀to฀receive฀one฀additional฀share฀for฀every฀outstanding฀
share฀of฀Common฀Stock฀held฀on฀the฀record฀date.฀The฀stock฀
dividend฀was฀distributed฀on฀June฀17,฀2002,฀with฀approximately฀
149฀million฀ shares฀ of฀ common฀ stock฀ distributed.฀ All฀ per฀
share฀and฀share฀amounts฀in฀the฀accompanying฀Consolidated฀
Financial฀Statements฀and฀Notes฀to฀the฀Financial฀Statements฀
have฀been฀adjusted฀to฀reflect฀the฀stock฀split.
YGR฀ACQUISITION฀
NOTE฀4
On฀May฀ 7,฀2002,฀YUM฀ completed฀the฀acquisition฀ of฀ YGR.฀
The฀results฀of฀operations฀for฀YGR฀have฀been฀included฀in฀our฀
Consolidated฀ Financial฀ Statements฀since฀ that฀date.฀If฀the฀
acquisition฀had฀been฀completed฀as฀of฀the฀beginning฀of฀the฀
year฀ended฀December฀28,฀2002,฀pro฀forma฀Company฀sales฀
and฀franchise฀and฀license฀fees฀would฀have฀been฀as฀follows:
฀ ฀ ฀ 2002
Company฀sales฀ $฀7,139
Franchise฀and฀license฀fees฀ ฀ 877
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