Pizza Hut 2005 Annual Report Download - page 60

Common฀ Stock฀ Share฀ Repurchases฀ From฀ time฀ to฀ time,฀
we฀repurchase฀shares฀of฀our฀Common฀Stock฀under฀share฀
repurchase฀programs฀authorized฀by฀our฀Board฀of฀Directors.฀
Shares฀ repurchased฀ constitute฀ authorized,฀ but฀ unissued฀
shares฀under฀the฀North฀Carolina฀laws฀under฀which฀we฀are฀
incorporated.฀Additionally,฀our฀Common฀Stock฀has฀no฀par฀or฀
stated฀value.฀Accordingly,฀we฀record฀the฀full฀value฀of฀share฀
repurchases฀against฀Common฀Stock฀except฀when฀to฀do฀so฀
would฀ result฀ in฀ a฀ negative฀ balance฀in฀ our฀ Common฀Stock฀
account.฀In฀such฀instances,฀on฀a฀period฀basis,฀we฀record฀
the฀cost฀of฀any฀further฀share฀repurchases฀as฀a฀reduction฀in฀
retained฀earnings.฀Due฀to฀the฀large฀number฀of฀share฀repur-
chases฀and฀the฀increase฀in฀our฀Common฀Stock฀value฀over฀
the฀past฀several฀years,฀our฀Common฀Stock฀balance฀reached฀
zero฀during฀the฀fourth฀quarter฀of฀2005.฀Accordingly,฀in฀the฀
fourth฀quarter฀of฀2005,฀$87฀million฀in฀share฀repurchases฀
were฀recorded฀as฀a฀reduction฀in฀retained฀earnings.฀We฀have฀
no฀legal฀restrictions฀on฀the฀payment฀of฀dividends฀provided฀
total฀shareholders’฀equity฀is฀positive.฀See฀Note฀18฀for฀addi-
tional฀information.
3.฀EARNINGS฀PER฀COMMON฀SHARE฀(“EPS”)
฀2005฀ 2004฀ 2003
Net฀income฀ $฀ 762฀ $฀ 740฀ $฀ 617
Basic฀EPS:฀฀
Weighted-average฀common฀฀
฀ shares฀outstanding฀ ฀ 286฀ ฀ 291฀ ฀ 293
Basic฀EPS฀ $฀2.66฀ $฀2.54฀ $฀2.10
Diluted฀EPS:
Weighted-average฀common฀฀
฀ shares฀outstanding฀ ฀ 286฀ ฀ 291฀ ฀ 293
Shares฀assumed฀issued฀on฀฀
฀ exercise฀of฀dilutive฀share฀฀
฀ equivalents฀ ฀ 38฀ ฀ 47฀ ฀ 52
Shares฀assumed฀purchased฀฀
฀ with฀proceeds฀of฀dilutive฀฀
฀ share฀equivalents฀ ฀ (26)฀ ฀ (33)฀ ฀ (39)
Shares฀applicable฀to฀diluted฀฀
฀ earnings฀ ฀ 298฀ ฀ 305฀ ฀ 306
Diluted฀EPS฀ $฀2.55฀ $฀2.42฀ $฀2.02
Unexercised฀employee฀stock฀options฀to฀purchase฀approxi-
mately฀0.5฀million,฀0.4฀million฀and฀4฀million฀shares฀of฀our฀
Common฀Stock฀for฀the฀years฀ ended฀December฀31,฀2005,฀
December฀25,฀2004฀and฀December฀27,฀2003,฀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.
4.฀ITEMS฀AFFECTING฀฀
COMPARABILITY฀OF฀NET฀INCOME
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฀business;
฀ Impairment฀of฀goodwill฀and฀indefinite-lived฀฀
intangible฀assets.
฀2005฀ 2004฀ 2003
U.S.
Refranchising฀net฀(gains)฀losses(a)(d)฀฀ $฀(40)฀ $฀(14)฀ $฀(20)
Store฀closure฀costs฀ ฀ 2฀ ฀ (3)฀ ฀ 1
Store฀impairment฀charges฀฀ ฀ 44฀ ฀ 17฀ ฀ 10
SFAS฀142฀impairment฀charges(c)฀฀ —฀ ฀ —฀ ฀ 5
Facility฀actions฀ ฀ 6฀ ฀ —฀ ฀ (4)
International฀Division
Refranchising฀net฀(gains)฀losses(a)(b)(d)฀฀ (3)฀ ฀ 3฀ ฀ 20
Store฀closure฀costs฀ ฀ (1)฀ ฀ 1฀ ฀ 5
Store฀impairment฀charges฀ ฀ 10฀ ฀ 19฀ ฀ 13
Facility฀actions฀฀ ฀ 6฀ ฀ 23฀ ฀ 38
China฀Division
Refranchising฀net฀(gains)฀losses(a)(d)฀฀ ฀ —฀ ฀ (1)฀ ฀ (4)
Store฀closure฀costs฀ ฀ (1)฀ ฀ (1)฀ ฀ —
Store฀impairment฀charges฀ ฀ 8฀ ฀ 5฀ ฀ 6
Facility฀actions฀฀ ฀ 7฀ ฀ 3฀ ฀ 2
Worldwide
Refranchising฀net฀(gains)฀losses(a)(b)฀฀ ฀(43)฀ ฀(12)฀ ฀ (4)
Store฀closure฀costs฀฀ ฀ —฀ ฀ (3)฀ ฀ 6
Store฀impairment฀charges฀ ฀ 62฀ ฀ 41฀ ฀ 29
SFAS฀142฀impairment฀charges(c)฀฀ —฀ ฀ —฀ ฀ 5
Facility฀actions฀฀ $฀ 19฀ $฀ 26฀ $฀ 36
(a)฀Includes฀initial฀franchise฀fees฀in฀the฀U.S.฀of฀$7฀million฀in฀2005,฀$2฀million฀in฀
2004฀and฀$3฀million฀in฀2003,฀and฀in฀International฀Division฀of฀$3฀million฀in฀2005,฀
$8฀million฀in฀2004฀and฀$1฀million฀in฀2003฀and฀China฀Division฀of฀$1฀million฀in฀
2003.฀See฀Note฀6.
(b)฀International฀Division฀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.
(c)฀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฀9).
(d)฀Refranchising฀(gains)฀losses฀are฀not฀allocated฀to฀segments฀for฀performance฀
reporting฀purposes.
The฀following฀table฀summarizes฀the฀2005฀and฀2004฀activity฀
related฀to฀reserves฀for฀remaining฀lease฀obligations฀for฀closed฀
stores.
฀ ฀ ฀ ฀Estimate/฀
฀ Beginning฀฀ Amounts฀฀ New฀฀ Decision฀฀ ฀ Ending฀
฀ Balance฀ Used฀Decisions฀ Changes฀ Other(a)฀ ฀Balance
2004฀Activity฀ $฀40฀ (17)฀ 8฀ (1)฀ 13฀ $฀43
2005฀Activity฀$฀43฀ (13)฀ 14฀ —฀ —฀ $฀44
(a)฀Primarily฀reserves฀established฀upon฀acquisitions฀of฀franchisee฀restaurants.
64.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.