Pizza Hut 2011 Annual Report Download - page 146

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(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.
(d) Other consists of 2012 pension plan funding obligations and projected payments for deferred compensation.
We have not included in the contractual obligations table approximately $327 million of long-term liabilities for unrecognized tax
benefits relating to various tax positions we have taken. These liabilities may increase or decrease over time as a result of tax
examinations, and given the status of the examinations, we cannot reliably estimate the period of any cash settlement with the
respective taxing authorities. These liabilities also include potential payments that would be refunded in a future year and for
which we anticipate that over time there will be no net cash outflow.
We sponsor noncontributory defined benefit pension plans covering certain salaried and hourly employees, the most significant
of which are in the U.S. and UK. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded while
benefits from the other U.S. plans are paid by the Company as incurred. Our funding policy for the Plan is to contribute annually
amounts that will at least equal the minimum amounts required to comply with the Pension Protection Act of 2006. However,
additional voluntary contributions are made from time to time to improve the Plan’s funded status. At December 31, 2011 the
Plan was in a net underfunded position of $248 million. The UK pension plans are in a net underfunded position of $4 million at
our 2011 measurement date.
Based on the current funding status of the Plan and our UK pension plans, we currently estimate that we will be required to
contribute approximately $30 million to the Plan in 2012. No required contributions to the UK pension plans are expected in
2012. Investment performance and corporate bond rates have a significant effect on our net funding position as they drive our
asset balances and discount rate assumption. Future changes in investment performance and corporate bond rates could impact
our funded status and the timing and amounts of required contributions in 2012 and beyond.
Our post-retirement plan in the U.S. is not required to be funded in advance, but is pay as you go. We made post-retirement benefit
payments of $5 million in 2011 and no future funding amounts are included in the contractual obligations table. See Note 14 for
further details about our pension and post-retirement plans.
We have excluded from the contractual obligations table payments we may make for exposures for which we are self-insured,
including workers’ compensation, employment practices liability, general liability, automobile liability, product liability and
property losses (collectively “property and casualty losses”) and employee healthcare and long-term disability claims. The majority
of our recorded liability for self-insured employee healthcare, 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 have agreed to provide financial support, if required, to an 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 $14 million and two
letters of credit totaling approximately $23 million in support of the franchisee loan program at December 31, 2011. 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 satisfy our participation in the funding of the franchisee loan program. The total loans outstanding under
the loan pool were $63 million with an additional $17 million available for lending at December 31, 2011.
Our unconsolidated affiliates had approximately $75 million and $70 million of debt outstanding as of December 31, 2011 and
December 25, 2010, respectively.
New Accounting Pronouncements Not Yet Adopted
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting
Standards (Topic 820)-Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that
the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting
Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly
for level 3 fair value measurements. ASU 2011-04 is effective for the Company in its first quarter of fiscal 2012 and will be applied
Form 10-K