Pizza Hut 2012 Annual Report Download - page 123

YUM! BRANDS, INC.-2012 Form10-K 31
Form 10-K
PART II
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results ofOperations
Contractual Obligations
In addition to any discretionary spending we may choose to make, our signifi cant contractual obligations and payments as of December29, 2012 included:
Total
Less than
1 Year 1-3 Years 3-5 Years
More than
5 Years
Long-term debt obligations(a) $ 4,361 $ 144 $ 586 $ 542 $ 3,089
Capital leases(b) 280 18 37 36 189
Operating leases(b) 5,674 678 1,226 1,056 2,714
Purchase obligations(c) 749 649 82 9 9
Other(d) 52 11 15 12 14
TOTAL CONTRACTUAL OBLIGATIONS $ 11,116 $ 1,500 $ 1,946 $ 1,655 $ 6,015
(a) Debt amounts include principal maturities and expected interest payments on a nominal basis.Rates utilized to determine interest payments for variable rate debt are based on the LIBOR
forward yield curve.Debt amounts exclude a fair value adjustment of $22million related to interest rate swaps that hedge the fair value of a portion of our debt.See Note10.
(b) These obligations, which are shown on a nominal basis, relate to nearly 6,700 restaurants.See Note11.
(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 projected payments for deferred compensation.
We have not included in the contractual obligations table approximately
$292million of long-term liabilities for unrecognized tax benefi ts 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 are presented
net of potential payments that would be refunded in a future year and
for which we anticipate that over time there will be no net cash outfl ow.
We sponsor noncontributory defi ned benefi t pension plans covering certain
salaried and hourly employees, the most signifi cant of which are in the U.S.
and UK.The most signifi cant of these plans, the YUM Retirement Plan
(the “Plan”), is funded while benefi ts 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29, 2012 the Plan was in a net underfunded
position of $200million.The UK pension plans are in a net overfunded
position of $33million at our 2012 measurement date.
Based on the current funding status of the Plan and our UK pension
plans, we currently estimate that we will not be required to make any
contributions in 2013.Investment performance and corporate bond rates
have a signifi cant 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 2013 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 benefi t payments
of $5million in 2012 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 property and casualty
losses and employee healthcare and long-term disability claims represents
estimated reserves for incurred claims that have yet to be fi led or settled.
Off-Balance Sheet Arrangements
We have agreed to provide fi nancial 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.We have provided
guarantees of approximately $37million in support of the franchisee loan
program at December29, 2012.The total loans outstanding under the
loan pool were $53million with an additional $27million available for
lending at December29, 2012.
Our unconsolidated affi liates had approximately $60million and $75million
of debt outstanding as of December29, 2012 and December31, 2011,
respectively.
New Accounting Pronouncements Not Yet Adopted
In February2013, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update No.2013-2, Reporting of Amounts
Reclassifi ed Out of Accumulated Other Comprehensive Income (ASU
2013-2), that requires an organization to present the effects on the line
items of net income of signifi cant amounts reclassifi ed out of Accumulated
other comprehensive income, but only if the item reclassifi ed is required
under U.S. GAAP to be reclassifi ed to net income in its entirety in the
same reporting period. ASU 2013-2 is effective for fi scal years beginning
after December15, 2012. The Company currently believes there will be
no signifi cant impact on its consolidated fi nancial statements as a result
of adopting this standard.