Kentucky Fried Chicken 2005 Annual Report Download - page 31

฀ Quarter฀ended฀September฀4,฀2005
฀ ฀ Inter-฀ ฀ Unallo-฀
฀ U.S.฀ national฀ China฀ cated฀ Total
Payroll฀and฀฀
฀ employee฀benefits฀ $฀2฀ $฀—฀ $฀—฀ $฀—฀ $฀ 2
General฀and฀฀
฀ administrative฀ ฀4฀ ฀ 3฀ ฀ 1฀ ฀ 4฀ ฀12
Operating฀profit฀ $฀6฀ $฀ 3฀ $฀ 1฀ $฀ 4฀ ฀14
Income฀tax฀benefit฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ (5)
Net฀income฀impact฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ $฀ 9
฀ Quarter฀ended฀December฀31,฀2005
฀ ฀ Inter-฀ ฀ Unallo-฀
฀ U.S.฀ national฀ China฀ cated฀ Total
Payroll฀and฀฀
฀ employee฀benefits฀ $฀2฀ $฀1฀ $฀—฀ $฀—฀ $฀ 3
General฀and฀฀
฀ administrative฀ ฀4฀ ฀4฀ ฀ 1฀ ฀ 6฀ ฀15
Operating฀profit฀ $฀6฀ $฀5฀ $฀ 1฀ $฀ 6฀ ฀18
Income฀tax฀benefit฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ (6)
Net฀income฀impact฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ $฀12
฀ Year฀ended฀December฀31,฀2005
฀ ฀ Inter-฀ ฀ Unallo-฀
฀ U.S.฀ national฀ China฀ cated฀ Total
Payroll฀and฀฀
฀ employee฀benefits฀ $฀ 8฀ $฀ 2฀ $฀—฀ $฀ —฀ $฀ 10
General฀and฀฀
฀ administrative฀ ฀14฀ ฀11฀ ฀ 4฀ ฀19฀ ฀ 48
Operating฀profit฀ $฀22฀ $฀13฀ $฀ 4฀ $฀19฀ ฀ 58
Income฀tax฀benefit฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀(20)
Net฀income฀impact฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ $฀ 38
Prior฀ to฀ 2005,฀ all฀ stock฀ options฀ granted฀ were฀ accounted฀
for฀ under฀ the฀ recognition฀ and฀ measurement฀principles฀ of฀
APB฀25฀and฀its฀related฀Interpretations.฀Accordingly,฀no฀stock-
based฀employee฀compensation฀expense฀was฀reflected฀in฀the฀
Consolidated฀Statements฀of฀Income฀for฀stock฀options,฀as฀
all฀stock฀options฀granted฀had฀an฀exercise฀price฀equal฀to฀the฀
market฀value฀of฀the฀underlying฀common฀stock฀on฀the฀date฀of฀
grant.฀Had฀the฀Company฀applied฀the฀fair฀value฀provisions฀of฀
SFAS฀123฀to฀stock฀options฀in฀2004฀and฀2003,฀net฀income฀
of฀$740฀million฀and฀$617฀million,฀respectively,฀would฀have฀
been฀reduced฀by฀$37฀million฀and฀$38฀million,฀respectively,฀
to฀$703฀million฀and฀$579฀million,฀respectively.฀Additionally,฀
both฀basic฀and฀diluted฀earnings฀per฀common฀share฀would฀
have฀decreased฀$0.12฀per฀share฀for฀both฀2004฀and฀2003.
Extra฀Week฀in฀2005฀ Our฀fiscal฀calendar฀results฀in฀a฀53rd฀
week฀every฀five฀or฀six฀years.฀Fiscal฀year฀2005฀includes฀a฀53rd฀
week฀in฀the฀fourth฀quarter฀for฀the฀majority฀of฀our฀U.S.฀busi-
nesses฀as฀well฀as฀our฀international฀businesses฀that฀report฀
on฀a฀period,฀as฀opposed฀to฀a฀monthly,฀basis.฀In฀the฀U.S.,฀
we฀permanently฀accelerated฀the฀timing฀of฀the฀KFC฀business฀
closing฀by฀one฀week฀in฀December฀2005,฀and฀thus,฀there฀was฀
no฀53rd฀week฀benefit฀for฀this฀business.฀Additionally,฀all฀China฀
Division฀businesses฀report฀on฀a฀monthly฀basis฀and฀thus฀did฀
not฀have฀a฀53rd฀week.
The฀following฀table฀summarizes฀the฀estimated฀increase฀
(decrease)฀of฀the฀53rd฀week฀on฀revenues฀and฀operating฀profit:
฀ ฀ Inter-฀
฀ ฀ national฀฀ Unallo-฀
฀ U.S.฀ Division฀ cated฀ Total
Revenues
฀ Company฀sales฀ $฀58฀ $฀27฀ $฀—฀ $฀85
฀ Franchise฀and฀license฀fees฀ ฀ 8฀ ฀ 3฀ ฀—฀ ฀11
Total฀Revenues฀ $฀66฀ $฀30฀ $฀—฀ $฀96
Operating฀profit
฀ Franchise฀and฀license฀fees฀ $฀ 8฀ $฀ 3฀ $฀—฀ $฀11
฀ Restaurant฀profit฀ ฀14฀ ฀ 5฀ ฀—฀ ฀19
฀ General฀and฀฀
฀ ฀ administrative฀expenses฀ ฀(2)฀ ฀(3)฀ ฀(3)฀ ฀(8)
฀ Equity฀income฀from฀฀
฀ ฀ investments฀in฀฀
฀ ฀ unconsolidated฀affiliates฀ ฀—฀ ฀ 1฀ ฀—฀ ฀ 1
Operating฀profit฀ $฀20฀ $฀ 6฀ $฀(3)฀ $฀23
Mainland฀ China฀ Issues฀ Our฀ KFC฀ business฀ in฀ mainland฀
China฀was฀negatively฀impacted฀by฀the฀interruption฀of฀product฀
offerings฀and฀negative฀publicity฀associated฀with฀a฀supplier฀
ingredient฀issue฀experienced฀in฀late฀March,฀2005฀as฀well฀as฀
consumer฀concerns฀related฀to฀Avian฀Flu฀in฀the฀fourth฀quarter฀
of฀2005.฀As฀a฀result฀of฀the฀aforementioned฀issues,฀the฀China฀
Division฀experienced฀system฀sales฀growth฀in฀2005฀of฀11%฀
excluding฀foreign฀currency฀ translation฀ which฀is฀below฀ our฀
ongoing฀target฀of฀at฀least฀22%.฀During฀the฀year฀to฀date฀ended฀
December฀31,฀ 2005,฀we฀ entered฀into฀ an฀agreement฀ for฀a฀
partial฀recovery฀of฀our฀losses฀related฀to฀the฀supplier฀ingre-
dient฀issue฀with฀the฀supplier.฀As฀a฀result฀of฀the฀agreement,฀
we฀recognized฀approximately฀$24฀million฀in฀Other฀ income฀
(expense)฀in฀our฀Consolidated฀Statement฀of฀Income฀for฀the฀
year฀ended฀December฀31,฀2005.
Sale฀of฀an฀Investment฀in฀Unconsolidated฀Affiliate฀ During฀
the฀second฀quarter฀of฀2005,฀we฀sold฀our฀fifty฀percent฀interest฀
in฀the฀entity฀that฀operated฀almost฀all฀KFCs฀and฀Pizza฀Huts฀in฀
Poland฀and฀the฀Czech฀Republic฀to฀our฀then฀partner฀in฀the฀
entity,฀ principally฀for฀ cash.฀Concurrent฀ with฀ the฀ sale,฀our฀
former฀partner฀completed฀an฀initial฀public฀offering฀(“IPO”)฀of฀
the฀majority฀of฀the฀stock฀it฀then฀owned฀in฀the฀entity.฀Prior฀to฀
the฀sale,฀we฀accounted฀for฀our฀investment฀in฀this฀entity฀using฀
the฀equity฀method.฀Subsequent฀to฀the฀IPO,฀the฀new฀publicly฀
held฀entity,฀in฀which฀YUM฀has฀no฀ownership฀interest,฀is฀a฀
franchisee฀as฀was฀the฀entity฀in฀which฀we฀previously฀held฀a฀
fifty฀percent฀interest.
This฀transaction฀generated฀a฀one-time฀gain฀of฀approxi-
mately฀ $11฀million฀ for฀ YUM฀ as฀ cash฀ proceeds฀ (net฀ of฀
expenses)฀of฀approximately฀$25฀million฀from฀the฀sale฀of฀our฀
interest฀in฀the฀entity฀exceeded฀our฀recorded฀investment฀in฀
this฀unconsolidated฀affiliate.฀As฀with฀our฀equity฀income฀from฀
investments฀in฀unconsolidated฀affiliates,฀the฀approximate฀
$11฀million฀gain฀was฀recorded฀in฀Other฀income฀(expense)฀in฀
our฀Consolidated฀Statements฀of฀Income.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 35.