Pizza Hut 2011 Annual Report Download - page 192

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(j) Primarily includes cash, deferred tax assets and property, plant and equipment, net, related to our office facilities.
(k) Includes property, plant and equipment, net, goodwill, and intangible assets, net.
See Note 4 for additional operating segment disclosures related to impairment and store closure (income) costs.
Note 19 – Contingencies
Lease Guarantees
As a result of (a) assigning our interest in obligations under real estate leases as a condition to the refranchising of certain Company
restaurants; (b) contributing certain Company restaurants to unconsolidated affiliates; and (c) guaranteeing certain other leases,
we are frequently contingently liable on lease agreements. These leases have varying terms, the latest of which expires in 2065. As
of December 31, 2011, the potential amount of undiscounted payments we could be required to make in the event of non-payment
by the primary lessee was approximately $625 million. The present value of these potential payments discounted at our pre-tax
cost of debt at December 31, 2011 was approximately $550 million. Our franchisees are the primary lessees under the vast majority
of these leases. We generally have cross-default provisions with these franchisees that would put them in default of their franchise
agreement in the event of non-payment under the lease. We believe these cross-default provisions significantly reduce the risk
that we will be required to make payments under these leases. Accordingly, the liability recorded for our probable exposure under
such leases at December 31, 2011 and December 25, 2010 was not material.
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 in the U.S. and, to a lesser extent, in connection with
the Company’s 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 fund our participation in the funding of the franchisee loan program. The total loans
outstanding under the loan pool were $63 million at December 31, 2011 with an additional $17 million available for lending at
December 31, 2011. 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 $17 million on behalf of franchisees for several
financing programs related to specific initiatives. The total loans outstanding under these financing programs were approximately
$32 million at December 31, 2011.
Unconsolidated Affiliates Guarantees
From time to time we have guaranteed certain lines of credit and loans of unconsolidated affiliates. At December 31, 2011 there
are no guarantees outstanding for unconsolidated affiliates. Our unconsolidated affiliates had total revenues of approximately
$1.1 billion for the year ended December 31, 2011 and assets and debt of approximately $525 million and $75 million, respectively,
at December 31, 2011.
Insurance Programs
We are self-insured for a substantial portion of our current and prior years’ coverage including property and casualty losses. To
mitigate the cost of our exposures for certain property and casualty losses, we self-insure the risks of loss up to defined maximum
per occurrence retentions on a line-by-line basis. The Company then purchases insurance coverage, up to a certain limit, for losses
that exceed the self-insurance per occurrence 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 2011 and 2010 activity related to our self-insured property and casualty reserves as of
December 31, 2011.
Form 10-K