Pizza Hut 2010 Annual Report Download - page 211

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Franchise Loan Pool and Equipment Guarantees
We have agreed to provide financial support, if required, to a variable interest entity that operates a franchisee lending
program used primarily to assist franchisees in the development of new restaurants and, to a lesser extent, in connection
with the Company’s historical refranchising programs. As part of this agreement, we have provided a partial guarantee of
approximately $15 million and two letters of credit totaling approximately $23 million in support of the franchisee loan
program at December 25, 2010. One such letter of credit could be used if we fail to meet our obligations under our
guarantee. The other letter of credit could be used, in certain circumstances, to fund our participation in the funding of the
franchisee loan program. The total loans outstanding under the loan pool were $70 million at December 25, 2010 with an
additional $30 million available for lending at December 25, 2010. We have determined that we are not required to
consolidate this entity as we share the power to direct this entity’s lending activity with other parties.
In addition to the guarantee described above, YUM has provided guarantees of $23 million on behalf of franchisees for
several equipment financing programs related to specific initiatives, the most significant of which was the purchase of
ovens by KFC franchisees for the launch of Kentucky Grilled Chicken. The total loans outstanding under these
equipment financing programs were approximately $25 million at December 25, 2010.
Unconsolidated Affiliates Guarantees
From time to time we have guaranteed certain lines of credit and loans of unconsolidated affiliates. At December 25,
2010 there are no guarantees outstanding for unconsolidated affiliates. Our unconsolidated affiliates had total revenues of
approximately $820 million for the year ended December 25, 2010 and assets and debt of approximately $430 million and
$70 million, respectively, at December 25, 2010.
Insurance Programs
We are self-insured for a substantial portion of our current and prior years’ coverage including workers’ compensation,
employment practices liability, general liability, automobile liability, product liability and property losses (collectively,
“property and casualty losses”). To mitigate the cost of our exposures for certain property and casualty losses, we make
annual decisions to self-insure the risks of loss up to defined maximum per occurrence retentions on a line by line basis or
to combine certain lines of coverage into one loss pool with a single self-insured aggregate retention. The Company then
purchases insurance coverage, up to a certain limit, for losses that exceed the self-insurance per occurrence or aggregate
retention. The insurers’ maximum aggregate loss limits are significantly above our actuarially determined probable
losses; therefore, we believe the likelihood of losses exceeding the insurers’ maximum aggregate loss limits is remote.
The following table summarizes the 2010 and 2009 activity related to our self-insured property and casualty reserves as of
December 25, 2010.
Beginning
Balance Expense Payments
Ending
Balance
2010 Activit
y
$ 173 46
(
69
)
$ 150
2009 Activity $ 196 44 (67
)
$ 173
In the U.S. and in certain other countries, we are also self-insured for healthcare claims and long-term disability for
eligible participating employees subject to certain deductibles and limitations. We have accounted for our retained
liabilities for property and casualty losses, healthcare and long-term disability claims, including reported and incurred but
not reported claims, based on information provided by independent actuaries.
Form 10-K