Pizza Hut 2005 Annual Report Download - page 38

WORLDWIDE฀FACILITY฀ACTIONS
We฀recorded฀a฀net฀loss฀from฀facility฀actions฀of฀$19฀million,฀
$26฀million฀ and฀ $36฀million฀ in฀ 2005,฀ 2004฀ and฀ 2003,฀
respectively.฀See฀ the฀ Store฀ Portfolio฀Strategy฀ section฀ for฀
more฀detail฀of฀our฀refranchising฀and฀closure฀activities฀and฀
Note฀4฀for฀a฀summary฀of฀the฀components฀of฀facility฀actions฀
by฀reportable฀operating฀segment.
OPERATING฀PROFIT
฀ ฀ %฀Increase/฀
฀ ฀ (Decrease)
฀2005฀ 2004฀ 2005฀ 2004
United฀States฀ $฀ 760฀ $฀ 777฀ ฀ (2)฀ ฀ (4)
International฀Division฀ ฀ 372฀ ฀ 337฀ ฀ 11฀ ฀ 21
China฀Division฀ ฀ 211฀ ฀ 205฀ ฀ 3฀ ฀ 27
Unallocated฀and฀corporate฀฀
฀ expenses฀ ฀ (246)฀ ฀ (204)฀ ฀ (21)฀ ฀ (14)
Unallocated฀other฀฀
฀ income฀(expense)฀฀ ฀ 9฀ ฀ (2)฀ ฀ NM฀ ฀ NM
Unallocated฀facility฀actions฀ ฀ 43฀ ฀ 12฀ ฀ NM฀ ฀ NM
Wrench฀litigation฀฀
฀ income฀(expense)฀ ฀ 2฀ ฀ 14฀ ฀ NM฀ ฀ NM
AmeriServe฀and฀other฀฀
฀ (charges)฀credits฀ ฀ 2฀ ฀ 16฀ ฀ NM฀ ฀ NM
Operating฀profit฀ $฀1,153฀ $฀1,155฀ ฀ —฀ ฀ 9
Unallocated฀and฀corporate฀expenses฀comprise฀general฀and฀
administrative฀ expenses฀ and฀ unallocated฀ facility฀ actions฀
comprise฀refranchising฀gains฀(losses),฀neither฀of฀which฀are฀
allocated฀to฀the฀U.S.,฀International฀Division,฀or฀China฀Division฀
segments฀for฀performance฀reporting฀purposes.฀Unallocated฀
other฀ income฀ (expense)฀ in฀ 2005฀ primarily฀ comprises฀
the฀$11฀million฀ gain฀on฀the฀sale฀ of฀our฀investment฀in฀our฀
Poland/Czech฀Republic฀unconsolidated฀ affiliate฀ which฀ we฀
did฀not฀allocate฀to฀the฀International฀Division฀for฀performance฀
reporting฀purposes.
U.S.฀ operating฀ profit฀ decreased฀ $17฀million฀ or฀ 2%฀ in฀
2005.฀The฀decrease฀was฀ driven฀by฀higher฀facility฀ actions฀
expense฀and฀ higher฀ general฀ and฀ administrative฀expense.฀
These฀decreases฀were฀partially฀offset฀by฀the฀impact฀of฀same฀
store฀sales฀growth฀on฀restaurant฀profit฀and฀franchise฀and฀
license฀ fees.฀ The฀ impact฀ of฀ same฀ store฀ sales฀ growth฀ on฀
restaurant฀profit฀was฀partially฀offset฀by฀higher฀occupancy฀and฀
other฀costs.฀A฀3%฀unfavorable฀impact฀from฀the฀adoption฀of฀
SFAS฀123R฀was฀offset฀by฀a฀3%฀favorable฀impact฀from฀the฀
53rd฀week.
In฀2004,฀the฀decrease฀in฀U.S.฀operating฀profit฀was฀driven฀
by฀the฀impact฀on฀restaurant฀profit฀of฀higher฀commodity฀costs฀
(primarily฀cheese฀and฀meat)฀and฀the฀adjustment฀recorded฀
related฀to฀our฀accounting฀for฀leases฀and฀the฀depreciation฀
of฀leasehold฀improvements,฀as฀well฀as฀higher฀general฀and฀
administrative฀expenses.฀The฀decrease฀was฀partially฀offset฀
by฀the฀impact฀of฀same฀store฀sales฀growth฀on฀restaurant฀profit฀
and฀franchise฀and฀license฀fees.
International฀ Division฀ operating฀ profit฀ increased฀
$35฀million฀or฀11%฀in฀2005,฀including฀a฀4%฀favorable฀impact฀
from฀ foreign฀ currency฀ translation,฀ a฀ 2%฀ favorable฀ impact฀
from฀ the฀ 53rd฀ week,฀ and฀ a฀ 4%฀ unfavorable฀ impact฀ from฀
the฀ adoption฀ of฀ SFAS฀ 123R.฀ Excluding฀ the฀ net฀ favorable฀
impact฀from฀these฀factors,฀International฀Division฀operating฀
profit฀increased฀$31฀million฀ or฀9%฀ in฀2005.฀The฀ increase฀
was฀driven฀by฀ the฀ impact฀ of฀ same฀ store฀sales฀ growth฀ on฀
restaurant฀profit฀and฀franchise฀and฀license฀fees,฀the฀impact฀
of฀new฀unit฀development฀on฀franchise฀and฀license฀fees฀and฀
restaurant฀profit,฀and฀lower฀facility฀actions฀expense.฀These฀
increases฀were฀partially฀offset฀by฀higher฀occupancy฀and฀other฀
costs,฀higher฀labor฀costs฀and฀the฀impact฀on฀operating฀profit฀
of฀refranchising฀our฀restaurants฀in฀Puerto฀Rico.
Excluding฀the฀favorable฀impact฀from฀foreign฀ currency฀
translation,฀International฀Division฀operating฀profit฀increased฀
12%฀in฀2004.฀The฀increase฀was฀driven฀by฀the฀impact฀of฀same฀
store฀sales฀growth฀on฀restaurant฀profit฀and฀franchise฀and฀
license฀fees,฀new฀unit฀development฀and฀higher฀income฀from฀
our฀investments฀in฀unconsolidated฀affiliates,฀partially฀offset฀
by฀higher฀general฀and฀administrative฀costs.
China฀Division฀operating฀profit฀increased฀$6฀million฀or฀
3%฀in฀2005.฀The฀increase฀was฀driven฀by฀the฀impact฀on฀restau-
rant฀profit฀of฀new฀unit฀development฀and฀a฀financial฀recovery฀
from฀a฀supplier.฀These฀increases฀were฀partially฀offset฀by฀the฀
impact฀on฀restaurant฀profit฀of฀same฀store฀sales฀declines,฀
a฀decrease฀in฀equity฀income฀from฀unconsolidated฀affiliates,฀
and฀increased฀general฀and฀ administrative฀ expense.฀ A฀ 2%฀
favorable฀impact฀from฀foreign฀currency฀translation฀was฀offset฀
by฀a฀2%฀unfavorable฀impact฀of฀the฀adoption฀of฀SFAS฀123R.
In฀2004,฀the฀increase฀in฀China฀Division฀operating฀profit฀
was฀driven฀by฀new฀unit฀development,฀the฀impact฀of฀same฀
store฀sales฀growth฀on฀restaurant฀profit฀and฀higher฀income฀
from฀our฀investments฀in฀unconsolidated฀affiliates,฀partially฀
offset฀by฀higher฀general฀and฀administrative฀costs.
INTEREST฀EXPENSE,฀NET
฀2005฀ 2004฀ 2003
Interest฀expense฀ $฀147฀ $฀145฀ $฀185
Interest฀income฀ ฀ (20)฀ ฀ (16)฀ ฀ (12)
Interest฀expense,฀net฀ $฀127฀ $฀129฀ $฀173
Interest฀expense฀increased฀$2฀million฀or฀2%฀ in฀2005.฀An฀
increase฀in฀our฀average฀interest฀rates฀was฀largely฀offset฀by฀a฀
decrease฀in฀our฀bank฀fees฀attributable฀to฀the฀upgrade฀in฀our฀
credit฀rating.
Interest฀expense฀decreased฀$40฀million฀or฀22%฀in฀2004.฀
The฀decrease฀was฀primarily฀driven฀by฀a฀decrease฀in฀our฀average฀
interest฀rates฀primarily฀attributable฀to฀pay-variable฀interest฀
rate฀swaps฀entered฀into฀during฀2004.฀Also฀contributing฀to฀the฀
decrease฀was฀a฀reduction฀in฀our฀average฀debt฀outstanding฀
primarily฀ as฀a฀result฀of฀ the฀amended฀ YGR฀ sale฀ leaseback฀
agreement฀and฀lower฀International฀short฀term฀borrowings.
42.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.