Pizza Hut 2004 Annual Report Download - page 73

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฀actuarially฀determined฀
property฀ and฀ casualty฀ loss฀ estimates,฀ it฀ is฀ reasonably฀
possible฀ that฀ we฀ could฀ experience฀ changes฀ in฀ estimated฀
losses฀ which฀ could฀ be฀ material฀ to฀our฀ growth฀ in฀ quarterly฀
and฀annual฀net฀income.฀We฀believe฀that฀we฀have฀recorded฀
reserves฀for฀property฀and฀casualty฀losses฀at฀a฀level฀which฀
has฀substantially฀mitigated฀the฀potential฀negative฀impact฀of฀
adverse฀developments฀and/or฀volatility.
Change฀of฀Control฀Severance฀Agreements฀ The฀Company฀
has฀severance฀agreements฀with฀certain฀key฀executives฀(the฀
“Agreements”)฀that฀are฀renewable฀on฀an฀annual฀basis.฀These฀
Agreements฀ are฀ triggered฀ by฀ a฀ termination,฀ under฀ certain฀
conditions,฀of฀the฀executive’s฀employment฀following฀a฀change฀
in฀control฀of฀the฀Company,฀as฀defined฀in฀the฀Agreements.฀If฀
triggered,฀ the฀ affected฀ executives฀ would฀ generally฀ receive฀
twice฀the฀amount฀of฀both฀their฀annual฀base฀salary฀and฀their฀
annual฀ incentive,฀ at฀ the฀ higher฀ of฀ target฀ or฀ actual฀ for฀ the฀
preceding฀year,฀a฀proportionate฀bonus฀at฀the฀higher฀of฀target฀
or฀actual฀performance฀earned฀through฀the฀date฀of฀termina-
tion,฀outplacement฀services฀and฀a฀tax฀gross-up฀for฀any฀excise฀
taxes.฀These฀Agreements฀have฀a฀three-year฀term฀and฀auto-
matically฀renew฀each฀January฀1฀for฀another฀three-year฀term฀
unless฀the฀Company฀elects฀not฀to฀renew฀the฀Agreements.฀If฀
these฀Agreements฀had฀been฀triggered฀as฀of฀December฀25,฀
2004,฀payments฀of฀ approximately฀ $34฀million฀would฀ have฀
been฀made.฀In฀the฀event฀of฀a฀change฀of฀control,฀rabbi฀trusts฀
would฀ be฀ established฀ and฀ used฀ to฀ provide฀ payouts฀ under฀
existing฀deferred฀and฀incentive฀compensation฀plans.
Litigation฀ We฀ are฀ subject฀ to฀ various฀ claims฀ and฀ contin-
gencies฀related฀to฀lawsuits,฀taxes,฀environmental฀and฀other฀
matters฀arising฀out฀of฀the฀normal฀course฀of฀business.
On฀August฀13,฀2003,฀a฀class฀action฀lawsuit฀against฀Pizza฀
Hut,฀Inc.,฀entitled฀Coldiron฀v.฀Pizza฀Hut,฀Inc.,฀was฀filed฀in฀the฀
United฀States฀District฀Court,฀Central฀District฀of฀California.฀
Plaintiff฀alleges฀that฀she฀and฀other฀current฀and฀former฀Pizza฀
Hut฀Restaurant฀General฀Managers฀(“RGM’s”)฀were฀improperly฀
classified฀as฀exempt฀employees฀under฀the฀U.S.฀Fair฀Labor฀
Standards฀Act฀(“FLSA”).฀There฀is฀also฀a฀pendent฀state฀law฀
claim,฀alleging฀that฀current฀and฀former฀RGM’s฀in฀California฀
were฀ misclassified฀ under฀ that฀ state’s฀ law.฀ Plaintiff฀ seeks฀
unpaid฀overtime฀wages฀and฀penalties.฀On฀May฀5,฀2004,฀the฀
District฀Court฀ granted฀ conditional฀certification฀of฀a฀nation-
wide฀class฀of฀RGM’s฀under฀the฀FLSA฀claim,฀providing฀notice฀
to฀prospective฀class฀members฀and฀an฀opportunity฀to฀join฀the฀
class.฀Approximately฀10฀percent฀of฀the฀eligible฀class฀members฀
have฀joined฀the฀litigation.฀Once฀class฀certification฀discovery฀
is฀completed,฀Pizza฀Hut฀intends฀to฀challenge฀the฀propriety฀of฀
conditional฀class฀certification.฀On฀July฀20,฀2004,฀the฀District฀
Court฀ granted฀ summary฀ judgment฀ on฀ Ms.฀ Coldiron’s฀ indi-
vidual฀FLSA฀claim.฀Pizza฀Hut฀believes฀that฀the฀District฀Court’s฀
summary฀judgment฀ruling฀in฀favor฀of฀Ms.฀Coldiron฀is฀clearly฀
erroneous฀ under฀ well-established฀ legal฀ precedent.฀ As฀ of฀
February฀23,฀2005,฀Ms.฀Coldiron฀has฀also฀filed฀a฀motion฀to฀
certify฀an฀additional฀class฀of฀current฀and฀former฀California฀
RGM’s฀ under฀ California฀ state฀ law,฀ a฀ motion฀ for฀ summary฀
judgment฀on฀her฀individual฀state฀law฀claims฀and฀a฀motion฀
requesting฀that฀the฀District฀Court฀enter฀summary฀judgment฀on฀
the฀damages฀that฀FLSA฀class฀members฀would฀be฀due฀upon฀
successful฀prosecution฀of฀the฀class-wide฀litigation.฀Pizza฀Hut฀
is฀opposing฀all฀three฀motions.
We฀continue฀to฀believe฀that฀Pizza฀Hut฀has฀properly฀clas-
sified฀its฀RGM’s฀as฀exempt฀under฀the฀FLSA฀and฀California฀law฀
and฀accordingly฀intend฀to฀vigorously฀defend฀against฀all฀claims฀
in฀this฀lawsuit.฀However,฀in฀view฀of฀the฀inherent฀uncertainties฀
of฀litigation,฀the฀outcome฀of฀this฀case฀cannot฀be฀predicted฀at฀
this฀time.฀Likewise,฀the฀amount฀of฀any฀potential฀loss฀cannot฀
be฀reasonably฀estimated.
On฀December฀17,฀2002,฀Taco฀Bell฀was฀named฀as฀the฀
defendant฀in฀a฀class฀action฀lawsuit฀filed฀in฀the฀United฀States฀
District฀Court฀for฀the฀Northern฀District฀of฀California฀entitled฀
Moeller,฀ et฀al.฀v.฀Taco฀Bell฀Corp.฀On฀August฀4,฀2003,฀plain-
tiffs฀filed฀an฀amended฀complaint฀that฀alleges,฀among฀other฀
things,฀that฀Taco฀Bell฀has฀discriminated฀against฀the฀class฀
of฀people฀who฀use฀wheelchairs฀or฀scooters฀for฀mobility฀by฀
failing฀to฀make฀its฀approximately฀220฀company-owned฀restau-
rants฀in฀California฀(the฀“California฀Restaurants”)฀accessible฀
to฀the฀class.฀Plaintiffs฀contend฀that฀queue฀rails฀and฀other฀
architectural฀and฀structural฀elements฀of฀the฀Taco฀Bell฀restau-
rants฀relating฀to฀the฀path฀of฀travel฀and฀use฀of฀the฀facilities฀by฀
persons฀with฀mobility-related฀disabilities฀(including฀parking฀
spaces,฀ramps,฀counters,฀restroom฀facilities฀and฀seating)฀do฀
not฀comply฀with฀the฀U.S.฀Americans฀with฀Disabilities฀Act฀(the฀
“ADA”),฀the฀Unruh฀Civil฀Rights฀Act฀(the฀“Unruh฀Act”),฀and฀the฀
California฀Disabled฀Persons฀Act฀(the฀“CDPA”).฀Plaintiffs฀have฀
requested:฀(a)฀an฀injunction฀from฀the฀District฀Court฀ordering฀
Taco฀Bell฀to฀comply฀with฀the฀ADA฀and฀its฀implementing฀regula-
tions;฀(b)฀that฀the฀District฀Court฀declare฀Taco฀Bell฀in฀violation฀
of฀the฀ADA,฀the฀Unruh฀Act,฀and฀the฀CDPA;฀and฀(c)฀monetary฀
relief฀under฀the฀Unruh฀Act฀or฀CDPA.฀Plaintiffs,฀on฀behalf฀of฀
the฀class,฀are฀seeking฀the฀minimum฀statutory฀damages฀per฀
offense฀of฀either฀$4,000฀under฀the฀Unruh฀Act฀or฀$1,000฀under฀
the฀CDPA฀for฀each฀aggrieved฀member฀of฀the฀class.฀Plaintiffs฀
contend฀that฀there฀may฀be฀in฀excess฀of฀100,000฀individuals฀
in฀the฀class.฀For฀themselves,฀the฀four฀named฀plaintiffs฀have฀
claimed฀aggregate฀minimum฀statutory฀damages฀of฀no฀less฀
than฀$16,000,฀but฀are฀expected฀to฀claim฀greater฀amounts฀
based฀on฀the฀number฀of฀Taco฀Bell฀outlets฀they฀visited฀at฀
which฀they฀claim฀to฀have฀suffered฀discrimination.
On฀ February฀ 23,฀ 2004,฀ the฀ District฀ Court฀ granted฀
Plaintiffs’฀motion฀for฀class฀certification.฀The฀District฀Court฀
certified฀a฀Rule฀23(b)(2)฀mandatory฀injunctive฀relief฀class฀of฀
all฀individuals฀with฀disabilities฀who฀use฀wheelchairs฀or฀electric฀
scooters฀for฀mobility฀who,฀at฀any฀time฀on฀or฀after฀December฀17,฀
2001,฀were฀denied,฀or฀are฀currently฀being฀denied,฀on฀the฀basis฀
of฀disability,฀the฀full฀and฀equal฀enjoyment฀of฀the฀California฀
Restaurants.฀The฀class฀includes฀claims฀for฀injunctive฀relief฀
and฀minimum฀statutory฀damages.
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Yum!฀Brands,฀Inc.