Pizza Hut 2003 Annual Report Download - page 73

Yum! Brands Inc. 71.
Operating Profit;
Interest Expense, Net; and
Income Before Income Taxes 2003 2002 2001
United States $ 812 $ 802 $ 695
International(a) 441 361 305
Unallocated and corporate expenses (179) (178) (148)
Unallocated other income (expense) (3) (1) (3)
Unallocated facility actions(b) 4 19 39
Wrench litigation(c) (42) — —
AmeriServe and other
(charges) credits(c) 26 27 3
Total operating profit 1,059 1,030 891
Interest expense, net (173) (172) (158)
Income before income taxes and
cumulative effect of
accounting change $ 886 $ 858 $ 733
Depreciation and Amortization 2003 2002 2001
United States $ 240 $ 228 $ 224
International 146 122 117
Corporate 15 20 13
$ 401 $ 370 $ 354
Capital Spending 2003 2002 2001
United States $ 395 $ 453 $ 392
International 246 295 232
Corporate 22 12 12
$ 663 $ 760 $ 636
Identifiable Assets 2003 2002 2001
United States $ 3,279 $ 3,285 $ 2,521
International(d) 1,880 1,732 1,598
Corporate(e) 461 383 306
$ 5,620 $ 5,400 $ 4,425
Long-Lived Assets(f) 2003 2002 2001
United States $ 2,880 $ 2,805 $ 2,195
International 1,206 1,021 955
Corporate 72 60 45
$ 4,158 $ 3,886 $ 3,195
(a) Includes equity income of unconsolidated affiliates of $44 million, $31 million
and $26 million in 2003, 2002 and 2001, respectively.
(b) Unallocated facility actions comprises refranchising gains (losses) which are
not allocated to the U.S. or International segments for performance reporting
purposes.
(c) See Note 7 for a discussion of AmeriServe and other (charges) credits and
Note 24 for a discussion of Wrench litigation.
(d) Includes investment in unconsolidated affiliates of $182 million, $225 million
and $213 million for 2003, 2002 and 2001, respectively. On November 10,
2003 we dissolved our unconsolidated affiliate in Canada. See Note 8 for further
discussion.
(e) Primarily includes deferred tax assets, cash and cash equivalents, property, plant
and equipment, net, related to our office facilities and fair value of derivative
instruments.
(f) Includes property, plant and equipment, net; goodwill; and intangible assets, net.
See Note 7 for additional operating segment disclosures
related to impairment, store closure costs and the carrying
amount of assets held for sale.
GUARANTEES, COMMITMENTS AND CONTINGENCIES
note
24
Lease Guarantees and Contingencies
As a result of (a) assigning our interest in obligations under
real estate leases as a condition to the refranchising of
certain Company restaurants; (b) contributing certain
Company restaurants to unconsolidated affiliates; and
(c) guaranteeing certain other leases, we are frequently
contingently liable on lease agreements. These leases have
varying terms, the latest of which expires in 2030. As of
December 27, 2003 and December 28, 2002, the potential
amount of undiscounted payments we could be required to
make in the event of non-payment by the primary lessee was
$411 million and $426 million, respectively. The present
values of these potential payments discounted at our pre-
tax cost of debt at December 27, 2003 and December 28,
2002, were $326 million and $310 million, respectively. Our
franchisees are the primary lessees under the vast majority
of these leases. We generally have cross-default provisions
with these franchisees that would put them in default of their
franchise agreement in the event of non-payment under the
lease. We believe these cross-default provisions significantly
reduce the risk that we will be required to make payments
under these leases. Accordingly, the liability recorded for
our exposure under such leases at December 27, 2003 and
December 28, 2002, was not material.
Guarantees Supporting Financial Arrangements of
Certain Franchisees, Unconsolidated Affiliates and Other
Third Parties
At December 27, 2003 and December 28, 2002, we had
provided approximately $32 million of partial guarantees of
two loan pools related primarily to the Company’s historical
refranchising programs and, to a lesser extent, franchisee
development of new restaurants. In support of one of these
guarantees, we have posted $32 million of letters of credit.
We also provide a standby letter of credit of $23 million under
which we could potentially be required to fund a portion of
one of the franchisee loan pools. The total loans outstanding
under these loan pools were approximately $123 million at
December 27, 2003. Any funding under the guarantees or
letters of credit would be secured by the franchisee loans and
any related collateral. We believe that we have appropriately
provided for our estimated probable exposures under these
contingent liabilities. These provisions were primarily charged
to refranchising (gains) losses. New loans are not currently
being added to either loan pool.
We have guaranteed certain lines of credit and loans
of unconsolidated affiliates totaling $28 million and
$26 million at December 27, 2003 and December 28,
2002, respectively. Our unconsolidated affiliates had
total revenues of over $1.5 billion for the year ended
December 27, 2003 and assets and debt of approxi-
mately $858 million and $41 million, respectively, at
December 27, 2003.