Pizza Hut 2005 Annual Report Download - page 37

were฀ higher฀ occupancy฀ and฀ other฀ costs฀ and฀ higher฀ labor฀
costs.฀The฀decrease฀was฀partially฀offset฀by฀the฀impact฀of฀
same฀store฀sales฀growth฀on฀restaurant฀margin.฀The฀unfavor-
able฀impact฀of฀the฀adoption฀of฀SFAS฀123R฀(10฀basis฀points)฀
was฀largely฀offset฀by฀the฀favorable฀impact฀of฀the฀53rd฀week฀
(8฀basis฀points).
In฀2004,฀International฀Division฀restaurant฀margins฀as฀a฀
percentage฀of฀sales฀were฀flat฀compared฀to฀2003.฀The฀favor-
able฀impact฀of฀same฀store฀sales฀growth฀on฀restaurant฀margin฀
was฀offset฀by฀a฀68฀basis฀point฀unfavorable฀impact฀of฀oper-
ating฀certain฀restaurants฀in฀Canada,฀which฀is฀a฀market฀with฀
below฀average฀margins,฀that฀were฀previously฀operated฀by฀our฀
unconsolidated฀affiliate.
In฀ 2005,฀ China฀ Division฀ restaurant฀ margins฀ as฀ a฀
percentage฀of฀sales฀decreased.฀The฀decrease฀was฀driven฀
by฀ the฀ impact฀ on฀ restaurant฀ margin฀ of฀same฀ store฀ sales฀
declines฀related฀to฀the฀mainland฀China฀supplier฀ingredient฀
issue฀and฀consumer฀concerns฀related฀to฀Avian฀Flu฀and฀lower฀
margins฀associated฀with฀new฀units฀during฀the฀initial฀periods฀
of฀operation.฀Also฀contributing฀to฀the฀decrease฀was฀higher฀
labor฀costs.฀The฀decrease฀was฀partially฀offset฀by฀the฀impact฀
on฀restaurant฀margin฀of฀lower฀food฀and฀paper฀costs฀(princi-
pally฀due฀to฀supply฀chain฀savings฀initiatives).
In฀ 2004,฀ the฀ increase฀ in฀ China฀ Division฀ restaurant฀
margins฀as฀a฀percentage฀of฀sales฀was฀driven฀by฀the฀impact฀
of฀lower฀food฀and฀paper฀costs฀(principally฀due฀to฀supply฀chain฀
savings฀initiatives)฀and฀same฀store฀sales฀growth฀on฀restau-
rant฀margin.฀The฀increase฀was฀partially฀offset฀by฀higher฀labor฀
costs฀and฀lower฀margins฀associated฀with฀new฀units฀during฀
the฀initial฀periods฀of฀operation.
WORLDWIDE฀GENERAL฀฀
AND฀ADMINISTRATIVE฀EXPENSES
General฀and฀administrative฀expenses฀increased฀$102฀million฀
or฀10%฀in฀2005,฀including฀a฀4%฀unfavorable฀impact฀of฀the฀
adoption฀of฀SFAS฀123R,฀a฀1%฀unfavorable฀impact฀from฀the฀
53rd฀week฀and฀a฀1%฀unfavorable฀impact฀from฀foreign฀currency฀
translation.฀Excluding฀the฀unfavorable฀impact฀of฀these฀factors,฀
general฀and฀administrative฀expenses฀increased฀$38฀million฀
or฀ 4% .฀ The฀ increase฀ was฀ driven฀ by฀ higher฀ compensation฀
related฀ costs,฀ including฀ amounts฀ associated฀ with฀ invest-
ments฀in฀strategic฀initiatives฀in฀China฀and฀other฀international฀
growth฀markets฀and฀higher฀litigation฀related฀costs฀including฀
charges฀of฀$16฀million฀for฀the฀potential฀resolution฀of฀certain฀
legal฀matters.฀Higher฀charitable฀contributions฀and฀expense฀
associated฀ with฀ discontinuing฀ certain฀corporate฀software฀
development฀ projects฀ also฀ contributed฀ to฀ the฀ increase.฀
Such฀increases฀were฀partially฀offset฀by฀reductions฀associ-
ated฀with฀operating฀restaurants฀which฀were฀refranchised฀in฀
2004฀(primarily฀the฀Puerto฀Rico฀business)฀and฀the฀effect฀of฀
lapping฀certain฀prior฀year฀reserve฀increases฀related฀to฀poten-
tial฀development฀sites฀and฀surplus฀facilities.
General฀ and฀ administrative฀ expenses฀ increased฀
$111฀million฀or฀12%฀in฀2004,฀including฀a฀2%฀unfavorable฀
impact฀from฀foreign฀currency฀translation.฀The฀increase฀was฀
driven฀by฀higher฀compensation฀related฀costs,฀including฀incen-
tive฀compensation,฀amounts฀associated฀with฀investments฀in฀
strategic฀initiatives฀in฀China฀and฀other฀international฀growth฀
markets฀and฀pension฀costs.฀Also฀contributing฀to฀the฀increase฀
were฀ higher฀ professional฀ fees฀ and฀ increased฀ reserves฀
related฀to฀potential฀development฀sites฀and฀surplus฀facilities.฀
The฀increase฀was฀also฀partially฀attributable฀to฀expenses฀of฀
$11฀million฀associated฀with฀ operating฀the฀restaurants฀we฀
now฀own฀in฀ Canada฀that฀were฀previously฀operated฀ by฀our฀
unconsolidated฀ affiliate.฀ These฀ increases฀ were฀ partially฀
offset฀by฀decreases฀in฀expenses฀due฀to฀the฀favorable฀impact฀
of฀refranchising฀certain฀restaurants.
WORLDWIDE฀FRANCHISE฀AND฀LICENSE฀EXPENSES
Franchise฀ and฀ license฀ expenses฀ increased฀ $7฀million฀ or฀
24%฀in฀2005.฀The฀increase฀was฀driven฀by฀higher฀franchisee฀
support฀costs฀and฀higher฀provisions฀for฀doubtful฀franchise฀
and฀license฀fee฀receivables.
Franchise฀and฀license฀expenses฀decreased฀$2฀million฀or฀
8%฀in฀2004.฀The฀decrease฀was฀primarily฀driven฀by฀the฀favor-
able฀impact฀of฀lapping฀the฀biennial฀International฀franchise฀
convention฀held฀in฀2003.
WORLDWIDE฀OTHER฀(INCOME)฀EXPENSE
฀2005฀ 2004฀ 2003
Equity฀income฀from฀investments฀฀
฀ in฀unconsolidated฀affiliates฀ $฀(51)฀ $฀(54)฀ $฀(39)
Gain฀upon฀sale฀of฀investment฀in฀฀
฀ unconsolidated฀affiliate฀ ฀(11)฀ ฀ —฀ ฀ —
Recovery฀from฀supplier฀ ฀(20)฀ ฀ —฀ ฀ —
Foreign฀exchange฀net฀(gain)฀loss฀ ฀ 2฀ ฀ (1)฀ ฀ (2)
Other฀(income)฀expense฀ $฀(80)฀ $฀(55)฀ $฀(41)
Other฀income฀increased฀$25฀million฀or฀44%฀in฀2005,฀including฀
a฀1%฀favorable฀impact฀from฀foreign฀currency฀translation.฀The฀
increase฀was฀driven฀by฀a฀$24฀million฀partial฀financial฀recovery฀
($4฀million฀of฀which฀was฀recognized฀through฀equity฀income฀
from฀investments฀in฀unconsolidated฀affiliates)฀from฀a฀supplier฀
related฀to฀an฀ingredient฀issue฀in฀mainland฀China฀(see฀Note฀7).฀
Other฀ income฀ was฀ also฀ positively฀ impacted฀ in฀ 2005฀ by฀ a฀
$11฀million฀gain฀associated฀with฀the฀sale฀of฀our฀investment฀
in฀our฀Poland/Czech฀Republic฀unconsolidated฀affiliate.
Other฀income฀ increased฀ $14฀million฀or฀34%฀ in฀2004,฀
including฀a฀7%฀favorable฀impact฀from฀foreign฀currency฀transla-
tion.฀The฀increase฀was฀driven฀by฀an฀increase฀in฀equity฀income฀
from฀our฀unconsolidated฀affiliates,฀principally฀in฀China,฀and฀
the฀dissolution฀of฀our฀unconsolidated฀affiliate฀in฀Canada฀which฀
recorded฀a฀loss฀for฀the฀year฀ended฀December฀27,฀2003.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 41.