Pizza Hut 2014 Annual Report Download - page 125

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Subsequent to December 27, 2014, we contributed $75 million to the liability, automobile liability, product liability and property losses
Plan. We do not anticipate making any additional significant (collectively ‘‘property and casualty losses’’) and employee healthcare
contributions to the Plan in 2015. Investment performance and and long-term disability claims. The majority of our recorded liability
corporate bond rates have a significant effect on our net funding for self-insured property and casualty losses and employee
position as they drive our asset balances and discount rate healthcare and long-term disability claims represents estimated
assumptions. Future changes in investment performance and reserves for incurred claims that have yet to be filed or settled.
corporate bond rates could impact our funded status and the timing We have not included in the contractual obligations table
and amounts of required contributions in 2015 and beyond. approximately $25 million of long-term liabilities for unrecognized tax
Our post-retirement plan in the U.S. is not required to be funded in benefits relating to various tax positions we have taken. These
advance, but is pay as you go. We made post-retirement benefit liabilities may increase or decrease over time as a result of tax
payments of $6 million in 2014 and no future funding amounts are examinations, and given the status of the examinations, we cannot
included in the contractual obligations table. See Note 13. reliably estimate the period of any cash settlement with the respective
taxing authorities. These liabilities exclude amounts that are
We have excluded from the contractual obligations table payments we temporary in nature and for which we anticipate that over time there
may make for exposures for which we are self-insured, including will be no net cash outflow.
workers’ compensation, employment practices liability, general
Off-Balance Sheet Arrangements
See the Franchise Loan Pool and Equipment Guarantees and Unconsolidated Affiliates Guarantees sections of Note 18 for discussion of our
off-balance sheet arrangements.
New Accounting Pronouncements Not Yet Adopted
In April 2014, the Financial Accounting Standards Board (‘‘FASB’’) In May 2014, the FASB issued ASU No. 2014-09, Revenue from
issued ASU No. 2014-08, Presentation of Financial Statements (Topic Contracts with Customers (Topic 606) (ASU 2014-09), to provide
205) and Property, Plant, and Equipment (Topic 360): Reporting principles within a single framework for revenue recognition of
Discontinued Operations and Disclosures of Disposals of transactions involving contracts with customers across all industries.
Components of an Entity (ASU 2014-08), which limits dispositions that ASU 2014-09 is effective for the Company in our first quarter of fiscal
qualify for discontinued operations presentation to those that 2017 with no early adoption permitted. The standard allows for either
represent strategic shifts that have or will have a major effect on an a full retrospective or modified retrospective transition method. The
entity’s operations and financial results. Strategic shifts could include Standard will not impact our recognition of revenue from company-
a disposal of a major geographical area, a major line of business, a owned restaurants or our recognition of continuing fees from
major equity method investment or other major parts of the business. franchisees or licensees, which are based on a percentage of
ASU 2014-08 is effective prospectively for the Company in our first franchise and license sales. We are continuing to evaluate the impact
quarter of fiscal 2015. We do not believe the adoption of this standard the adoption of this standard will have on the recognition of other less
will have a significant impact on our consolidated financial statements. significant revenue transactions such as initial fees from franchisees
and refranchising of company-owned restaurants.
Critical Accounting Policies and Estimates
Our reported results are impacted by the application of certain actual results at comparable restaurants. For restaurant assets that
accounting policies that require us to make subjective or complex are deemed to not be recoverable, we write down the impaired
judgments. These judgments involve estimations of the effect of restaurant to its estimated fair value. Key assumptions in the
matters that are inherently uncertain and may significantly impact our determination of fair value are the future after-tax cash flows of the
quarterly or annual results of operations or financial condition. restaurant, which are reduced by future royalties a franchisee would
Changes in the estimates and judgments could significantly affect our pay, and a discount rate. The after-tax cash flows incorporate
results of operations, financial condition and cash flows in future reasonable sales growth and margin improvement assumptions that
years. A description of what we consider to be our most significant would be used by a franchisee in the determination of a purchase
critical accounting policies follows. price for the restaurant. Estimates of future cash flows are highly
subjective judgments and can be significantly impacted by changes in
the business or economic conditions.
Impairment or Disposal of Long-Lived We perform an impairment evaluation at a restaurant group level if it is
Assets more likely than not that we will refranchise restaurants as a group.
Expected net sales proceeds are generally based on actual bids from
We review long-lived assets of restaurants (primarily PP&E and
the buyer, if available, or anticipated bids given the discounted
allocated intangible assets subject to amortization) semi-annually for
projected after-tax cash flows for the group of restaurants. Historically,
impairment, or whenever events or changes in circumstances indicate
these anticipated bids have been reasonably accurate estimations of
that the carrying amount of a restaurant may not be recoverable. We
the proceeds ultimately received. The after-tax cash flows used in
evaluate recoverability based on the restaurant’s forecasted
determining the anticipated bids incorporate reasonable assumptions
undiscounted cash flows, which incorporate our best estimate of sales
we believe a franchisee would make such as sales growth and margin
growth and margin improvement based upon our plans for the unit and
YUM! BRANDS, INC. - 2014 Form 10-K 31
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Form 10-K