Pizza Hut 2004 Annual Report Download - page 65

these฀agreements฀with฀high-quality฀counterparties,฀and฀settle฀
swap฀and฀forward฀rate฀payments฀on฀a฀net฀basis.
Accounts฀receivable฀consists฀primarily฀of฀amounts฀due฀
from฀franchisees฀and฀licensees฀for฀initial฀and฀continuing฀fees.฀
In฀addition,฀we฀have฀notes฀and฀lease฀receivables฀from฀certain฀
of฀our฀franchisees.฀The฀financial฀condition฀of฀these฀franchi-
sees฀and฀licensees฀is฀largely฀dependent฀upon฀the฀underlying฀
business฀trends฀of฀our฀Concepts.฀This฀concentration฀of฀credit฀
risk฀is฀mitigated,฀in฀part,฀by฀the฀large฀number฀of฀franchisees฀
and฀licensees฀of฀each฀Concept฀and฀the฀short-term฀nature฀of฀
the฀franchise฀and฀license฀fee฀receivables.
Fair฀ Value฀ At฀ December฀25,฀ 2004฀ and฀ December฀27,฀
2003,฀the฀fair฀values฀of฀cash฀and฀cash฀equivalents,฀short-
term฀investments,฀accounts฀receivable฀and฀accounts฀payable฀
approximated฀the฀carrying฀values฀because฀of฀the฀short-term฀
nature฀of฀these฀instruments.฀The฀fair฀value฀of฀notes฀receiv-
able฀approximates฀the฀carrying฀value฀after฀consideration฀of฀
recorded฀allowances.
The฀carrying฀amounts฀and฀fair฀values฀of฀our฀other฀financial฀
instruments฀subject฀to฀fair฀value฀disclosures฀are฀as฀follows:
฀2004฀ 2003
฀Carrying฀฀ Fair฀ Carrying฀฀ Fair฀
฀Amount฀ Value฀ Amount฀ Value
Debt
฀Short-term฀borrowings฀and฀
฀ long-term฀debt,฀excluding฀฀
฀ capital฀leases฀and฀the฀฀
฀ derivative฀instrument฀฀
฀ adjustments฀ $฀1,593฀ $฀1,900฀ $฀1,925฀ $฀2,181
Debt-related฀derivative฀฀
฀ instruments:
฀ ฀ Open฀contracts฀in฀a฀net฀฀
฀ ฀ asset฀position฀ ฀ 38฀ ฀ 38฀ ฀ 31฀ ฀ 31
Foreign฀currency-related฀฀
฀ derivative฀instruments:
฀ ฀ Open฀contracts฀in฀a฀net฀฀
฀ ฀ asset฀(liability)฀position฀ ฀ (2)฀ ฀ (2)฀ ฀ —฀ ฀ —
Lease฀guarantees฀ ฀ 10฀ ฀ 27฀ ฀ 8฀ ฀ 28
Guarantees฀supporting฀฀
฀ financial฀arrangements฀
฀ of฀certain฀franchisees,฀฀
฀ unconsolidated฀affiliates฀฀
฀ and฀other฀third฀parties฀ ฀ 7฀ ฀ 8฀ ฀ 8฀ ฀ 10
Letters฀of฀credit฀ ฀ —฀ ฀ 2฀ ฀ —฀ ฀ 3
We฀estimated฀the฀fair฀value฀of฀debt,฀debt-related฀derivative฀
instruments,฀foreign฀currency-related฀derivative฀instruments,฀
guarantees฀and฀ letters฀ of฀ credit฀ using฀market฀quotes฀and฀
calculations฀based฀on฀market฀rates.
PENSION฀AND฀฀
POSTRETIREMENT฀MEDICAL฀BENEFITS฀
NOTE฀17
Pension฀ Benefits฀ We฀ sponsor฀ noncontributory฀ defined฀
benefit฀ pension฀ plans฀ covering฀ substantially฀ all฀ full-time฀
U.S.฀salaried฀employees,฀certain฀U.S.฀hourly฀employees฀and฀
certain฀international฀employees.฀The฀most฀significant฀of฀these฀
plans,฀the฀YUM฀Retirement฀Plan฀(the฀“Plan”),฀is฀funded฀while฀
benefits฀from฀the฀other฀plans฀are฀paid฀by฀the฀Company฀as฀
incurred.฀During฀2001,฀the฀plans฀covering฀our฀U.S.฀salaried฀
employees฀were฀amended฀such฀that฀any฀salaried฀employee฀
hired฀ or฀ rehired฀by฀ YUM฀after฀ September฀30,฀2001฀ is฀ not฀
eligible฀to฀participate฀in฀those฀plans.฀Benefits฀are฀based฀on฀
years฀of฀service฀and฀earnings฀or฀stated฀amounts฀for฀each฀year฀
of฀service.
Postretirement฀Medical฀Benefits฀ Our฀postretirement฀plan฀
provides฀health฀care฀benefits,฀ principally฀ to฀ U.S.฀ salaried฀
retirees฀and฀ their฀ dependents.฀ This฀plan฀ includes฀ retiree฀
cost฀sharing฀provisions.฀During฀2001,฀the฀plan฀was฀amended฀
such฀that฀any฀salaried฀employee฀hired฀or฀rehired฀by฀YUM฀after฀
September฀30,฀2001฀is฀not฀eligible฀to฀participate฀in฀this฀plan.฀
Employees฀hired฀prior฀to฀ September฀30,฀2001฀are฀eligible฀
for฀benefits฀if฀they฀meet฀age฀and฀service฀requirements฀and฀
qualify฀for฀retirement฀benefits.
We฀use฀a฀measurement฀date฀of฀September฀30฀for฀our฀
pension฀and฀postretirement฀medical฀plans฀described฀above.
Obligation฀and฀Funded฀Status฀at฀September฀30:
฀ ฀ Postretirement฀
฀ Pension฀Benefits฀ Medical฀Benefits
฀2004฀ 2003฀ 2004฀ 2003
Change฀in฀benefit฀obligation
Benefit฀obligation฀at฀฀
฀ beginning฀of฀year฀ $฀ 629฀ $฀ 501฀ $฀ 81฀ $฀ 68
฀ ฀ Service฀cost฀ ฀ 32฀ ฀ 26฀ ฀ 2฀ ฀ 2
฀ ฀ Interest฀cost฀ ฀ 39฀ ฀ 34฀ ฀ 5฀ ฀ 5
฀ ฀ Plan฀amendments฀ ฀ 1฀ ฀ —฀ ฀ —฀ ฀ —
฀ ฀ Curtailment฀gain฀ ฀ (2)฀ ฀ (1)฀ ฀ —฀ ฀ —
฀ ฀ Benefits฀and฀expenses฀paid฀ ฀ (26)฀ ฀ (21)฀ ฀ (4)฀ ฀ (4)
฀ ฀ Actuarial฀(gain)฀loss฀ ฀ 27฀ ฀ 90฀ ฀ (3)฀ ฀ 10
Benefit฀obligation฀at฀end฀of฀year฀ $฀ 700฀ $฀ 629฀ $฀ 81฀ $฀ 81
Change฀in฀plan฀assets
Fair฀value฀of฀plan฀assets฀at฀฀
฀ beginning฀of฀year฀ $฀ 438฀ $฀ 251
฀ ฀ Actual฀return฀on฀plan฀assets฀ ฀ 53฀ ฀ 52
฀ ฀ Employer฀contributions฀ ฀ 54฀ ฀ 157
฀ ฀ Benefits฀paid฀ ฀ (26)฀ ฀ (21)
฀ ฀ Administrative฀expenses฀ ฀ (1)฀ ฀ (1)
Fair฀value฀of฀plan฀assets฀at฀฀
฀ end฀of฀year฀ $฀ 518฀ $฀ 438
Funded฀status฀ $฀(182)฀ $฀(191)฀ $฀(81)฀ $฀(81)
Employer฀contributions(a)฀฀ 1฀ ฀ —฀ ฀ —฀ ฀ —
Unrecognized฀actuarial฀loss฀ ฀ 225฀ ฀ 230฀ ฀ 23฀ ฀ 28
Unrecognized฀prior฀service฀cost฀ ฀ 9฀ ฀ 12฀ ฀ —฀ ฀ —
Net฀amount฀recognized฀at฀฀
฀ year-end฀ $฀ 53฀ $฀ 51฀ $฀(58)฀ $฀(53)
(a)฀Reflects฀contributions฀made฀between฀the฀September฀30,฀2004฀measurement฀date฀
and฀December฀25,฀2004.
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Yum!฀Brands,฀Inc.