Pizza Hut 2008 Annual Report Download - page 183

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We participate in various advertising cooperatives with our franchisees and licensees established to collect and administer
funds contributed for use in advertising and promotional programs designed to increase sales and enhance the reputation
of the Company and its franchise owners. Contributions to the advertising cooperatives are required for both company
operated and franchise restaurants and are generally based on a percent of restaurant sales. In certain of these
cooperatives we possess majority voting rights, and thus control and consolidate the cooperatives. We report all assets
and liabilities of these advertising cooperatives that we consolidate as advertising cooperative assets, restricted and
advertising cooperative liabilities in the Consolidated Balance Sheet. The advertising cooperatives assets, consisting
primarily of cash received from the Company and franchisees and accounts receivable from franchisees, can only be used
for selected purposes and are considered restricted. The advertising cooperative liabilities represent the corresponding
obligation arising from the receipt of the contributions to purchase advertising and promotional programs. As the
contributions to these cooperatives are designated and segregated for advertising, we act as an agent for the franchisees
and licensees with regard to these contributions. Thus, in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 45, “Accounting for Franchise Fee Revenue,” we do not reflect franchisee and licensee contributions to
these cooperatives in our Consolidated Statements of Income or Consolidated Statements of Cash Flows.
Fiscal Year. Our fiscal year ends on the last Saturday in December and, as a result, a 53rd week is added every five or
six years. Fiscal year 2005 included 53 weeks. The Company’s next fiscal year with 53 weeks will be 2011. The first
three quarters of each fiscal year consist of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52
weeks and 17 weeks in fiscal years with 53 weeks. Our subsidiaries operate on similar fiscal calendars with period or
month end dates suited to their businesses. Our U.S. and China subsidiaries’ period end dates are within one week of
YUM’s period end date. All of our international businesses except China close one period or one month earlier to
facilitate consolidated reporting.
Reclassifications. We have reclassified certain items in the accompanying Consolidated Financial Statements and Notes
thereto for prior periods to be comparable with the classification for the fiscal year ended December 27, 2008. These
reclassifications had no effect on previously reported Net income.
Specifically, we reclassified $21 million from Other assets to Intangible assets in our December 29, 2007 Consolidated
Balance Sheet representing our transferable right to tenancy under commercial property leases in certain International
locations. Additionally, we reclassified $54 million from long-term Deferred income tax assets to Other liabilities and
deferred credits to present deferred tax assets associated with foreign tax credit carryforwards and unrecognized tax
benefits on a net basis where appropriate.
We have reduced Capital spending on our Consolidated Statements of Cash Flows by $16 million and $42 million in 2007
and 2006, respectively, for the net impact of capital spending that had been accrued for but not yet paid. The offsetting
impact was to Changes in Accounts payable and other current liabilities.
Franchise and License Operations. We execute franchise or license agreements for each unit which set out the terms of
our arrangement with the franchisee or licensee. Our franchise and license agreements typically require the franchisee or
licensee to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to our
approval and their payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its
expiration.
The internal costs we incur to provide support services to our franchisees and licensees are charged to general and
administrative (“G&A”) expenses as incurred. Certain direct costs of our franchise and license operations are charged to
franchise and license expenses. These costs include provisions for estimated uncollectible fees, franchise and license
marketing funding, amortization expense for franchise related intangible assets and certain other direct incremental
franchise and license support costs.
Form 10-K