Pizza Hut 2002 Annual Report Download - page 34

32.
The following table summarizes Company store closure
activities:
2002 2001 2000
Number of units closed 224 270 208
Store closure costs $15 $17 $10
Impairment charges for stores
to be closed $9 $5 $6
The impact on ongoing operating profit arising from our refran-
chising and store closure initiatives as well as the contribution of
Company stores to new unconsolidated affiliates is the net of (a)
the estimated reduction in Company sales, restaurant profit and
G&A expenses; (b) the estimated increase in franchise fees from
the stores refranchised; and (c) the estimated change in equity
income (loss). The amounts presented below reflect the estimated
impact from stores that were operated by us for all or some por-
tion of the respective previous year and were no longer operated
by us as of the last day of the respective year.
The following table summarizes the estimated impact on rev-
enue of refranchising, Company store closures and, in 2001, the
contribution of Company stores to unconsolidated affiliates:
2002
Inter-
U.S. national Worldwide
Decreased sales $ (214) $ (90) $ (304)
Increased franchise fees 448
Decrease in total revenues $ (210) $ (86) $ (296)
2001
Inter-
U.S. national Worldwide
Decreased sales $ (483) $ (243) $ (726)
Increased franchise fees 21 13 34
Decrease in total revenues $ (462) $ (230) $ (692)
The following table summarizes the estimated impact on ongoing
operating profit of refranchising, Company store closures and,
in 2001, the contribution of Company stores to unconsolidated
affiliates:
2002
Inter-
U.S. national Worldwide
Decreased restaurant margin $ (23) $ (5) $ (28)
Increased franchise fees 448
Decreased G&A 123
(Decrease) increase in
ongoing operating profit $ (18) $ 1 $ (17)
2001
Inter-
U.S. national Worldwide
Decreased restaurant margin $ (67) $ (25) $ (92)
Increased franchise fees 21 13 34
Decreased G&A 51318
Decreased equity income — (5) (5)
Decrease in ongoing operating profit $ (41) $ (4) $ (45)
Franchisee Financial Condition
Like others in the QSR industry, from time to time, some of our fran-
chise operators experience financial difficulties with respect to their
franchise operations.
Depending upon the facts and circumstances of each situa-
tion, and in the absence of an improvement in the franchisee’s
business trends, there are a number of potential resolutions of
these financial issues. These include a sale of some or all of the
operator’s restaurants to us or a third party, a restructuring of the
operator’s business and/or finances, or, in the more unusual
cases, bankruptcy of the operator. It is our practice to proactively
work with financially troubled franchise operators in an attempt to
positively resolve their issues.
Since 2000, certain of our franchise operators, principally in
the Taco Bell system, have experienced varying degrees of finan-
cial problems. Through December 28, 2002, restructurings have
been completed for approximately 1,778 Taco Bell franchise restau-
rants. In connection with these restructurings, Taco Bell has
acquired 147 restaurants for approximately $76 million. In addition
to these acquisitions, Taco Bell has purchased land, buildings
and/or equipment related to 52 restaurants from franchisees for
approximately $28 million and simultaneously leased it back to
these franchisees under long-term leases. As part of the restruc-
turings, Taco Bell committed to fund approximately $45 million of
future franchise capital expenditures, principally through leasing
arrangements, approximately $26 million of which has been
funded through December 28, 2002. We substantially completed
the Taco Bell franchisee restructurings in 2002 and expect to final-
ize any remaining restructurings in the first quarter of 2003.
In the fourth quarter of 2000, Taco Bell also established a
$15 million loan program to assist certain franchisees. All fundings
had been advanced by the end of the first quarter of 2001. A
remaining net balance of $7 million at December 28, 2002 for
these notes receivable is included primarily in other assets.