Pizza Hut 2005 Annual Report Download - page 41

฀ ฀ Less฀฀ ฀ ฀ More฀
฀ ฀ than฀฀ 1–3฀฀ 3–5฀฀ ฀than฀฀
฀ Total฀ 1฀Year฀ Years฀ Years฀ 5฀Years
Long-term฀debt(a)฀$฀1,757฀ $฀202฀ $฀254฀ $฀186฀ $฀1,115
Capital฀leases(b)฀฀ 163฀ ฀ 16฀ ฀ 29฀ ฀ 27฀ ฀ 91
Operating฀leases(b)฀฀2,680฀ ฀362฀ ฀612฀ ฀488฀ ฀1,218
Purchase฀฀
฀ obligations(c)฀฀ ฀ 171฀ ฀123฀ ฀ 34฀ ฀ 8฀ ฀ 6
Other฀long-term฀฀
฀ liabilities฀reflected฀
฀ on฀our฀Consolidated฀฀
฀ Balance฀Sheet฀฀
฀ under฀GAAP฀ ฀ 17฀ ฀ —฀ ฀ 7฀ ฀ 4฀ ฀ 6
Total฀contractual฀฀
฀ obligations฀ $฀4,788฀ $฀703฀ $฀936฀ $฀713฀ $฀2,436
(a)฀Excludes฀a฀fair฀value฀adjustment฀of฀$6฀million฀deducted฀from฀debt฀related฀to฀
interest฀rate฀ swaps฀that฀ hedge฀the฀ fair฀value฀ of฀a฀ portion฀of฀ our฀ debt.฀ See฀
Note฀11.
(b)฀These฀obligations,฀which฀are฀shown฀on฀a฀nominal฀basis,฀relate฀to฀approximately฀
5,500฀restaurants.฀See฀Note฀12.
(c)฀Purchase฀ obligations฀ include฀ agreements฀ to฀ purchase฀ goods฀ or฀ services฀
that฀are฀enforceable฀and฀legally฀binding฀on฀us฀and฀that฀specify฀all฀significant฀
terms,฀including:฀fixed฀or฀minimum฀quantities฀to฀be฀purchased;฀fixed,฀minimum฀
or฀variable฀price฀provisions;฀and฀the฀approximate฀timing฀of฀the฀transaction.฀
We฀have฀excluded฀agreements฀that฀are฀cancelable฀without฀penalty.฀Purchase฀
obligations฀relate฀primarily฀to฀information฀technology,฀marketing,฀commodity฀
agreements,฀purchases฀of฀property,฀plant฀and฀equipment฀as฀well฀as฀consulting,฀
maintenance฀and฀other฀agreements.
We฀ have฀not฀included฀obligations฀ under฀ our฀ pension฀and฀
postretirement฀ medical฀ benefit฀ plans฀ in฀ the฀ contractual฀
obligations฀table.฀Our฀funding฀policy฀regarding฀our฀funded฀
pension฀plan฀is฀to฀contribute฀amounts฀necessary฀to฀satisfy฀
minimum฀pension฀funding฀requirements฀plus฀such฀additional฀
amounts฀from฀time฀to฀time฀as฀are฀determined฀to฀be฀appro-
priate฀to฀improve฀the฀plan’s฀funded฀status.฀The฀pension฀plan’s฀
funded฀status฀is฀affected฀by฀many฀factors฀including฀discount฀
rates฀and฀the฀performance฀of฀plan฀assets.฀Based฀on฀current฀
funding฀rules,฀we฀are฀not฀required฀to฀make฀minimum฀pension฀
funding฀payments฀in฀2006,฀but฀we฀may฀make฀discretionary฀
contributions฀during฀the฀year฀based฀on฀our฀estimate฀of฀the฀
plan’s฀expected฀September฀30,฀2006฀funded฀status.฀During฀
2005,฀we฀made฀a฀$65฀million฀discretionary฀contribution฀to฀
our฀funded฀plan,฀none฀of฀which฀represented฀minimum฀funding฀
requirements.฀Our฀postretirement฀plan฀is฀not฀required฀to฀be฀
funded฀in฀advance,฀but฀is฀pay฀as฀you฀go.฀We฀made฀postretire-
ment฀benefit฀payments฀of฀$4฀million฀in฀2005.
Also฀excluded฀from฀the฀contractual฀obligations฀table฀are฀
payments฀we฀may฀make฀for฀workers’฀compensation,฀employ-
ment฀practices฀liability,฀general฀liability,฀automobile฀liability฀
and฀ property฀ losses฀ (collectively฀ “property฀ and฀ casualty฀
losses”)฀ as฀ well฀ as฀ employee฀ healthcare฀ and฀ long-term฀
disability฀claims฀for฀which฀we฀are฀self-insured.฀The฀majority฀of฀
our฀recorded฀liability฀for฀self-insured฀employee฀health,฀long-
term฀disability฀and฀property฀and฀casualty฀losses฀represents฀
estimated฀reserves฀for฀incurred฀claims฀that฀have฀yet฀to฀be฀
filed฀or฀settled.
OFF-BALANCE฀SHEET฀ARRANGEMENTS
We฀had฀provided฀approximately฀$16฀million฀of฀partial฀guarantees฀
of฀two฀franchisee฀loan฀pools฀related฀primarily฀to฀the฀Company’s฀
historical฀refranchising฀programs฀and,฀to฀a฀lesser฀extent,฀fran-
chisee฀ development฀ of฀ new฀ restaurants฀ at฀ December฀31,฀
2005.฀In฀support฀of฀these฀guarantees,฀we฀posted฀letters฀of฀
credit฀of฀$4฀million.฀We฀also฀provided฀a฀standby฀letter฀of฀credit฀
of฀$18฀million,฀under฀which฀we฀could฀potentially฀be฀required฀to฀
fund฀a฀portion฀of฀one฀of฀the฀franchisee฀loan฀pools.฀The฀total฀
loans฀outstanding฀under฀these฀loan฀pools฀were฀approximately฀
$77฀million฀at฀December฀31,฀2005.
Any฀funding฀under฀the฀guarantees฀or฀letters฀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฀
liabilities.฀These฀provisions฀were฀primarily฀charged฀to฀net฀
refranchising฀loss฀(gain).฀New฀loans฀added฀to฀the฀loan฀pools฀
in฀2005฀were฀not฀significant.
CRITICAL฀ACCOUNTING฀POLICIES฀AND฀ESTIMATES
Our฀ reported฀ results฀ are฀ impacted฀ by฀ the฀ application฀ of฀
certain฀accounting฀policies฀that฀require฀us฀to฀make฀subjective฀
or฀complex฀judgments.฀These฀judgments฀involve฀estimations฀
of฀the฀effect฀of฀matters฀that฀are฀inherently฀uncertain฀and฀
may฀significantly฀impact฀our฀quarterly฀or฀annual฀results฀of฀
operations฀or฀financial฀condition.฀Changes฀in฀the฀estimates฀
and฀judgments฀could฀significantly฀affect฀our฀results฀of฀opera-
tions,฀financial฀condition฀and฀cash฀flows฀in฀future฀years.฀A฀
description฀of฀what฀we฀consider฀to฀be฀our฀most฀significant฀
critical฀accounting฀policies฀follows.
Impairment฀or฀Disposal฀of฀Long-Lived฀Assets฀ We฀evaluate฀
our฀long-lived฀assets฀for฀impairment฀at฀the฀individual฀restaurant฀
level฀except฀when฀there฀is฀an฀expectation฀that฀we฀will฀refran-
chise฀restaurants฀as฀a฀group.฀Restaurants฀held฀and฀used฀are฀
evaluated฀for฀impairment฀on฀a฀semi-annual฀basis฀or฀whenever฀
events฀or฀circumstances฀indicate฀that฀the฀carrying฀amount฀of฀
a฀restaurant฀may฀not฀be฀recoverable฀(including฀a฀decision฀to฀
close฀a฀restaurant฀or฀an฀offer฀to฀refranchise฀a฀restaurant฀or฀
group฀of฀restaurants฀for฀less฀than฀the฀carrying฀value).
Our฀ semi-annual฀ impairment฀ test฀ includes฀ those฀
restaurants฀that฀have฀experienced฀two฀consecutive฀years฀
of฀ operating฀ losses.฀ Our฀ semi-annual฀impairment฀ evalua-
tions฀require฀an฀estimation฀of฀cash฀flows฀over฀the฀remaining฀
useful฀life฀of฀the฀primary฀asset฀of฀the฀restaurant,฀which฀can฀
be฀for฀a฀ period฀of฀over฀20฀years,฀and฀any฀terminal฀value.฀
We฀limit฀assumptions฀about฀important฀factors฀such฀as฀sales฀
growth฀and฀margin฀improvement฀to฀those฀that฀are฀support-
able฀based฀upon฀our฀plans฀for฀the฀unit฀and฀actual฀results฀at฀
comparable฀restaurants.
If฀the฀long-lived฀assets฀of฀a฀restaurant฀subject฀to฀our฀
semi-annual฀test฀are฀not฀recoverable฀based฀upon฀forecasted,฀
undiscounted฀cash฀flows,฀we฀write฀the฀assets฀down฀to฀their฀
fair฀value.฀This฀fair฀value฀is฀determined฀by฀discounting฀the฀
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 45.