Pizza Hut 2004 Annual Report Download - page 59

The฀impact฀of฀the฀acquisition,฀including฀interest฀expense฀on฀
debt฀incurred฀to฀finance฀the฀acquisition,฀on฀net฀income฀and฀
diluted฀earnings฀per฀share฀would฀not฀have฀been฀significant฀
in฀2002.฀The฀pro฀forma฀information฀is฀not฀necessarily฀indica-
tive฀of฀the฀results฀of฀operations฀had฀the฀acquisition฀actually฀
occurred฀at฀the฀beginning฀of฀this฀period.
As฀ of฀ the฀ date฀ of฀ acquisition,฀ we฀ recorded฀ approxi-
mately฀$49฀million฀of฀reserves฀(“exit฀liabilities”)฀related฀to฀
our฀plans฀to฀consolidate฀certain฀support฀functions,฀and฀exit฀
certain฀markets฀through฀store฀refranchisings฀and฀closures.฀
The฀consolidation฀of฀certain฀support฀functions฀included฀the฀
termination฀of฀approximately฀100฀employees.฀The฀remaining฀
exit฀liabilities,฀which฀totaled฀approximately฀$17฀million฀and฀
$27฀million฀at฀December฀25,฀2004฀and฀December฀27,฀2003,฀
respectively,฀consist฀of฀reserves฀related฀to฀the฀lease฀of฀the฀
former฀YGR฀headquarters฀and฀certain฀reserves฀associated฀
with฀store฀refranchising฀and฀closures.฀With฀the฀exception฀of฀
these฀remaining฀exit฀liabilities,฀the฀vast฀majority฀of฀the฀other฀
reserves฀established฀at฀the฀date฀of฀acquisition฀have฀been฀
extinguished฀through฀cash฀payments.
ACCUMULATED฀OTHER฀฀
COMPREHENSIVE฀INCOME฀(LOSS)฀
NOTE฀5
฀
Accumulated฀other฀comprehensive฀income฀(loss)฀includes:
฀2004฀ 2003
Foreign฀currency฀translation฀adjustment฀ $฀ (34)฀ $฀(107)
Minimum฀pension฀liability฀adjustment,฀net฀of฀tax฀ ฀ (95)฀ ฀(101)
Unrealized฀losses฀on฀derivative฀instruments,฀฀
฀ net฀of฀tax฀ ฀ (2)฀ ฀ (2)
Total฀accumulated฀other฀comprehensive฀loss฀ $฀(131)฀ $฀(210)
EARNINGS฀PER฀COMMON฀SHARE฀(“EPS”)฀
NOTE฀6
฀2004฀ 2003฀ 2002
Net฀income฀ $฀ 740฀ $฀ 617฀ $฀ 583
Basic฀EPS:
Weighted-average฀common฀shares฀฀
฀ outstanding฀ ฀ 291฀ ฀ 293฀ ฀ 296
Basic฀EPS฀ $฀2.54฀ $฀2.10฀ $฀1.97
Diluted฀EPS:
Weighted-average฀common฀shares฀฀
฀ outstanding฀ ฀ 291฀ ฀ 293฀ ฀ 296
Shares฀assumed฀issued฀on฀exercise฀฀
฀ of฀dilutive฀share฀equivalents฀ ฀ 47฀ ฀ 52฀ ฀ 56
Shares฀assumed฀purchased฀with฀฀
฀ proceeds฀of฀dilutive฀share฀equivalents฀฀ (33)฀ ฀ (39)฀ ฀ (42)
Shares฀applicable฀to฀diluted฀earnings฀ ฀ 305฀ ฀ 306฀ ฀ 310
Diluted฀EPS฀ $฀2.42฀ $฀2.02฀ $฀1.88
Unexercised฀ employee฀ stock฀ options฀ to฀ purchase฀ approxi-
mately฀ 0.4฀million,฀4฀million฀ and฀ 1.4฀million฀ shares฀ of฀our฀
Common฀ Stock฀ for฀ the฀ years฀ ended฀ December฀25,฀ 2004,฀
December฀27,฀2003฀and฀December฀28,฀2002,฀respectively,฀
were฀not฀included฀in฀the฀computation฀of฀diluted฀EPS฀because฀
their฀exercise฀prices฀were฀greater฀than฀the฀average฀market฀
price฀of฀our฀Common฀Stock฀during฀the฀year.
ITEMS฀AFFECTING฀COMPARABILITY฀OF฀NET฀INCOME฀
NOTE฀7
Facility฀ Actions฀ Facility฀ actions฀ consists฀of฀the฀following฀
components:
฀ Refranchising฀net฀(gains)฀losses;
฀ Store฀closure฀costs;
฀ Impairment฀of฀long-lived฀assets฀for฀stores฀we฀intend฀to฀
close฀and฀stores฀we฀intend฀to฀continue฀to฀use฀in฀the฀busi-
ness;
฀ Impairment฀ of฀ goodwill฀ and฀ indefinite-lived฀ intangible฀
assets.
฀2004฀ 2003฀ 2002
U.S.
Refranchising฀net฀(gains)฀losses(a)฀(b)฀$฀(14)฀ $฀(20)฀ $฀ (4)
Store฀closure฀costs(c)฀฀ (3)฀ ฀ 1฀ ฀ 8
Store฀impairment฀charges฀ ฀ 17฀ ฀ 10฀ ฀ 15
SFAS฀142฀impairment฀charges(d)฀฀ —฀ ฀ 5฀ ฀ —
Facility฀actions฀ ฀ —฀ ฀ (4)฀ ฀ 19
International
Refranchising฀net฀(gains)฀losses(a)฀(d)฀฀ 2฀ ฀ 16฀ ฀(15)
Store฀closure฀costs฀ ฀ —฀ ฀ 5฀ ฀ 7
Store฀impairment฀charges฀ ฀ 24฀ ฀ 19฀ ฀ 16
SFAS฀142฀impairment฀charges(e)฀฀ —฀ ฀ —฀ ฀ 5
Facility฀actions฀ ฀ 26฀ ฀ 40฀ ฀ 13
Worldwide
Refranchising฀net฀(gains)฀losses(a)฀(b)฀(d)฀ ฀(12)฀ ฀ (4)฀ ฀(19)
Store฀closure฀costs(c)฀฀ (3)฀ ฀ 6฀ ฀ 15
Store฀impairment฀charges฀ ฀ 41฀ ฀ 29฀ ฀ 31
SFAS฀142฀impairment฀charges(e)฀฀ —฀ ฀ 5฀ ฀ 5
Facility฀actions฀ $฀ 26฀ $฀ 36฀ $฀ 32
(a)฀Includes฀initial฀franchise฀fees฀in฀the฀U.S.฀of฀$2฀million฀in฀2004,฀$3฀million฀in฀2003฀
and฀$1฀million฀in฀2002฀and฀in฀International฀of฀$8฀million฀in฀2004,฀$2฀million฀in฀
2003฀and฀$5฀million฀in฀2002.฀See฀Note฀9.
(b)฀U.S.฀includes฀a฀$7฀million฀write฀down฀in฀2004฀on฀restaurants฀we฀currently฀own฀but฀
have฀offered฀to฀sell฀at฀amounts฀lower฀than฀their฀carrying฀amounts.
(c)฀Income฀in฀store฀closure฀costs฀results฀primarily฀from฀gains฀from฀the฀sale฀of฀proper-
ties฀on฀which฀we฀formerly฀operated฀restaurants.
(d)฀International฀includes฀write฀downs฀of฀$6฀million฀and฀$16฀million฀for฀the฀years฀
ended฀December฀25,฀2004฀and฀December฀27,฀2003,฀respectively,฀related฀to฀our฀
Puerto฀Rico฀business,฀which฀was฀sold฀on฀October฀4,฀2004.
(e)฀In฀2003,฀we฀recorded฀a฀$5฀million฀charge฀in฀the฀U.S.฀related฀to฀the฀impairment฀
of฀the฀A&W฀trademark/brand฀(see฀further฀discussion฀at฀Note฀12).฀In฀2002,฀we฀
recorded฀a฀$5฀million฀charge฀in฀ International฀related฀to฀the฀impairment฀of฀the฀
goodwill฀of฀the฀Pizza฀Hut฀France฀reporting฀unit.
57
Yum!฀Brands,฀Inc.