Pizza Hut 2005 Annual Report Download - page 76

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plaintiffs฀and฀received฀the฀insurance฀recovery฀during฀the฀first฀
quarter฀of฀2005.฀During฀the฀third฀quarter฀of฀2005,฀we฀entered฀
into฀a฀settlement฀agreement฀with฀another฀insurance฀carrier฀and฀
as฀a฀result฀income฀of฀$2฀million฀was฀recorded฀in฀the฀quarter.
We฀intend฀to฀seek฀additional฀recoveries฀from฀our฀other฀
insurance฀carriers฀during฀the฀periods฀in฀question.฀We฀have฀also฀
filed฀suit฀against฀Taco฀Bell’s฀former฀advertising฀agency฀in฀the฀
United฀States฀District฀Court฀for฀the฀Central฀District฀of฀California฀
seeking฀reimbursement฀for฀the฀settlement฀amount฀as฀well฀as฀
any฀costs฀that฀we฀have฀incurred฀in฀defending฀this฀matter.฀The฀
District฀Court฀has฀issued฀a฀minute฀order฀granting฀defendant’s฀
motion฀for฀summary฀judgment฀but฀has฀requested฀submissions฀
from฀the฀defendant฀for฀its฀review฀before฀issuing฀a฀final฀order.฀
We฀believe฀that฀a฀grant฀by฀the฀District฀Court฀of฀this฀summary฀
judgment฀motion฀would฀be฀erroneous฀under฀the฀law.฀We฀will฀
evaluate฀our฀options฀once฀a฀final฀order฀has฀been฀issued.฀Any฀
additional฀recoveries฀will฀be฀recorded฀as฀they฀are฀realized.
Obligations฀ to฀ PepsiCo,฀ Inc.฀ After฀ Spin-off฀ In฀ connec-
tion฀with฀the฀Spin-off,฀we฀entered฀into฀separation฀and฀other฀
related฀agreements฀(the฀“Separation฀Agreements”)฀governing฀
the฀Spin-off฀and฀our฀subsequent฀relationship฀with฀PepsiCo.฀
These฀agreements฀provide฀certain฀indemnities฀to฀PepsiCo.
Under฀ terms฀ of฀ the฀ agreement,฀ we฀ have฀ indemnified฀
PepsiCo฀for฀any฀costs฀or฀losses฀it฀incurs฀with฀respect฀to฀all฀
letters฀of฀credit,฀guarantees฀and฀contingent฀liabilities฀relating฀
to฀our฀businesses฀under฀which฀PepsiCo฀remains฀liable.฀As฀
of฀December฀31,฀2005,฀PepsiCo฀remains฀liable฀for฀approxi-
mately฀ $28฀million฀ on฀ a฀ nominal฀ basis฀ related฀ to฀ these฀
contingencies.฀ This฀ obligation฀ ends฀ at฀ the฀ time฀ PepsiCo฀
is฀released,฀terminated฀or฀replaced฀by฀a฀qualified฀letter฀of฀
credit.฀We฀have฀not฀been฀required฀to฀make฀any฀payments฀
under฀this฀indemnity.
Under฀ the฀ Separation฀ Agreements,฀ PepsiCo฀ main-
tains฀full฀control฀and฀absolute฀discretion฀with฀regard฀to฀any฀
combined฀ or฀ consolidated฀ tax฀ filings฀ for฀ periods฀ through฀
October฀6,฀1997.฀PepsiCo฀also฀ maintains฀full฀control฀and฀
absolute฀discretion฀regarding฀any฀common฀tax฀audit฀issues.฀
Although฀PepsiCo฀has฀contractually฀agreed฀to,฀in฀good฀faith,฀
use฀its฀best฀efforts฀to฀settle฀all฀joint฀interests฀in฀any฀common฀
audit฀issue฀on฀a฀basis฀consistent฀with฀prior฀practice,฀there฀
can฀be฀no฀assurance฀that฀determinations฀made฀by฀PepsiCo฀
would฀be฀the฀same฀as฀we฀would฀reach,฀acting฀on฀our฀own฀
behalf.฀Through฀December฀31,฀2005,฀there฀have฀not฀been฀
any฀determinations฀made฀by฀PepsiCo฀where฀we฀would฀have฀
reached฀a฀different฀determination.
22.฀SELECTED฀QUARTERLY฀FINANCIAL฀DATA฀(UNAUDITED)
2005฀ First฀Quarter฀ Second฀Quarter฀ Third฀Quarter฀ Fourth฀Quarter฀ Total
Revenues:
฀ Company฀sales฀ $฀1,810฀ $฀1,902฀ $฀1,975฀ $฀2,538฀ $฀8,225
฀ Franchise฀and฀license฀fees฀ ฀ 244฀ ฀ 251฀ ฀ 268฀ ฀ 361฀ ฀1,124
฀ Total฀revenues฀ ฀2,054฀ ฀2,153฀ ฀2,243฀ ฀2,899฀ ฀9,349
Wrench฀litigation฀(income)฀expense฀ ฀ —฀ ฀ —฀ ฀ (2)฀ ฀ —฀ ฀ (2)
AmeriServe฀and฀other฀charges฀(credits)฀ ฀ —฀ ฀ —฀ ฀ —฀ ฀ (2)฀ ฀ (2)
Total฀costs฀and฀expenses,฀net฀ ฀1,803฀ ฀1,892฀ ฀1,935฀ ฀2,566฀ ฀8,196
Operating฀profit฀ ฀ 251฀ ฀ 261฀ ฀ 308฀ ฀ 333฀ ฀1,153
Net฀income฀ ฀ 153฀ ฀ 178฀ ฀ 205฀ ฀ 226฀ ฀ 762
Diluted฀earnings฀per฀common฀share฀ ฀ 0.50฀ ฀ 0.59฀ ฀ 0.69฀ ฀ 0.77฀ ฀ 2.55
Dividends฀declared฀per฀common฀share฀ ฀ 0.10฀ ฀0.115฀ ฀ —฀ ฀ 0.23฀ ฀0.445
2004฀ First฀Quarter฀ Second฀Quarter฀ Third฀Quarter฀ Fourth฀Quarter฀ Total
Revenues:
฀ Company฀sales฀ $฀1,747฀ $฀1,846฀ $฀1,935฀ $฀2,464฀ $฀7,992
฀ Franchise฀and฀license฀fees฀ ฀ 223฀ ฀ 231฀ ฀ 244฀ ฀ 321฀ ฀1,019
฀ Total฀revenues฀ ฀1,970฀ ฀2,077฀ ฀2,179฀ ฀2,785฀ ฀9,011
Wrench฀litigation฀(income)฀expense฀ ฀ —฀ ฀ —฀ ฀ —฀ ฀ (14)฀ ฀ (14)
AmeriServe฀and฀other฀charges฀(credits)฀ ฀ —฀ ฀ (14)฀ ฀ —฀ ฀ (2)฀ ฀ (16)
Total฀costs฀and฀expenses,฀net฀ ฀1,727฀ ฀1,802฀ ฀1,888฀ ฀2,439฀ ฀7,856
Operating฀profit฀ ฀ 243฀ ฀ 275฀ ฀ 291฀ ฀ 346฀ ฀1,155
Net฀income฀ ฀ 142฀ ฀ 178฀ ฀ 185฀ ฀ 235฀ ฀ 740
Diluted฀earnings฀per฀common฀share฀ ฀ 0.47฀ ฀ 0.58฀ ฀ 0.61฀ ฀ 0.77฀ ฀ 2.42
Dividends฀declared฀per฀common฀share฀ ฀ —฀ ฀ 0.10฀ ฀ —฀ ฀ 0.20฀ ฀ 0.30
The฀first฀three฀quarters฀of฀2005฀have฀been฀restated฀pursuant฀to฀the฀adoption฀of฀SFAS฀123R.฀See฀Note฀2.
In฀the฀fourth฀quarter฀of฀2005,฀we฀recorded฀a฀$6฀million฀reduction฀to฀correct฀our฀previously฀recorded฀gain฀associated฀with฀
the฀sale฀of฀our฀Poland/Czech฀Republic฀business.฀See฀Note฀7.
In฀the฀fourth฀quarter฀of฀2004,฀we฀recorded฀an฀$11.5฀million฀($7฀million฀after฀tax)฀adjustment฀primarily฀through฀increased฀
U.S.฀depreciation฀expense฀to฀correct฀instances฀where฀our฀leasehold฀improvements฀were฀not฀being฀depreciated฀over฀the฀shorter฀
of฀their฀useful฀lives฀or฀the฀underlying฀term฀of฀the฀lease.฀See฀Note฀2.
See฀Note฀4฀and฀Note฀21฀for฀details฀of฀Wrench฀litigation฀and฀Note฀4฀for฀details฀of฀AmeriServe฀other฀charges฀(credits).
80.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.