Pizza Hut 2003 Annual Report Download - page 36

34.
Wrench Litigation
We recorded expense of $42 million in 2003. See Note 24
for a discussion of the Wrench litigation.
AmeriServe and Other Charges (Credits)
We recorded income of $26 million in 2003, $27 million
in 2002 and $3 million in 2001. See Note 7 for a detailed
discussion of AmeriServe and other charges (credits).
Store Portfolio Strategy
From time to time we sell Company restaurants to existing
and new franchisees where geographic synergies can be
obtained or where their expertise can generally be lever-
aged to improve our overall operating performance, while
retaining Company ownership of key U.S. and International
markets. Such refranchisings reduce our reported Company
sales and restaurant profits while increasing our franchise
fees. Proceeds from refranchising increase the level of cash
available to fund discretionary spending.
The following table summarizes our refranchising
activities:
2003 2002 2001
Number of units refranchised 228 174 233
Refranchising proceeds, pre-tax $ 92 $ 81 $ 111
Refranchising net gains, pre-tax(a) $ 4 $ 19 $ 39
(a) 2003 includes charges of approximately $16 million to write down the carrying
value of our Puerto Rican business to reflect the then current estimates
of its fair value. The charges were recorded as a refranchising loss. 2001
includes $12 million of previously deferred refranchising gains and a charge of
$11 million to mark to market the net assets of our Singapore business, which
was sold during 2002 at a price approximately equal to its carrying value.
In addition to our refranchising program, from time to time
we close restaurants that are poor performing, we relocate
restaurants to a new site within the same trade area or we
consolidate two or more of our existing units into a single
unit (collectively “store closures”).
The following table summarizes Company store closure
activities:
2003 2002 2001
Number of units closed 287 224 270
Store closure costs $ 6 $ 15 $ 17
Impairment charges for stores
to be closed $ 12 $ 9 $ 5
The impact on operating profit arising from our refranchising
and Company store closures is the net of (a) the estimated
reduction in restaurant profit, which reflects the decrease in
Company sales, and general and administrative expenses
and (b) the estimated increase in franchise fees from the
stores refranchised. The amounts presented below reflect
the estimated impact from stores that were operated by
us for all or some portion of the respective previous year
and were no longer operated by us as of the last day of
the respective year. The amounts do not include results
from new restaurants that we open in connection with a
relocation of an existing unit or any incremental impact
upon consolidation of two or more of our existing units
into a single unit.
The following table summarizes the estimated impact
on revenue of refranchising and Company store closures:
2003
Inter-
U.S. national Worldwide
Decreased sales $ (148) $ (120) $ (268)
Increased franchise fees 1 5 6
Decrease in total revenues $ (147) $ (115) $ (262)
2002
Inter-
U.S. national Worldwide
Decreased sales $ (214) $ (90) $ (304)
Increased franchise fees 4 4 8
Decrease in total revenues $ (210) $ (86) $ (296)
The following table summarizes the estimated impact
on operating profit of refranchising and Company store
closures:
2003
Inter-
U.S. national Worldwide
Decreased restaurant profit $ (18) $ (15) $ (33)
Increased franchise fees 1 5 6
Decreased general and
administrative expenses — 6 6
Decrease in operating profit $ (17) $ (4) $ (21)
2002
Inter-
U.S. national Worldwide
Decreased restaurant profit $ (23) $ (5) $ (28)
Increased franchise fees 4 4 8
Decreased general and
administrative expenses 1 2 3
(Decrease) increase in
operating profit $ (18) $ 1 $ (17)
Impact of Recently Adopted Accounting Pronouncement
Effective December 30, 2001, the Company adopted
Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”), in its entirety. In accordance with the requirements
of SFAS 142, we ceased amortization of goodwill and
indefinite-lived intangibles as of December 30, 2001. The
following table summarizes the favorable effect of SFAS
142 on restaurant profit, restaurant margin and operating
profit had SFAS 142 been effective in 2001.
Year Ended December 29, 2001
Inter-
U.S. national Worldwide
Restaurant profit $ 21 $ 11 $ 32
Restaurant margin (%) 0.5 0.6 0.5
Operating profit $ 22 $ 16 $ 38