Pizza Hut 2009 Annual Report Download - page 122

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Consolidation of a Former Unconsolidated Affiliate in Shanghai, China
On May 4, 2009 we acquired an additional 7% ownership in the entity that operates more than 200 KFCs in Shanghai,
China for $12 million, increasing our ownership to 58%. This entity has historically been accounted for as an
unconsolidated affiliate under the equity method of accounting. Concurrent with the acquisition we received additional
rights in the governance of the entity and thus we began consolidating the entity upon acquisition. As required by GAAP,
we remeasured our previously held 51% ownership, which had a recorded value of $17 million at the date of acquisition,
in the entity at fair value and recognized a gain of $68 million accordingly. This gain, which resulted in no related income
tax expense, was recorded in Other (income) expense in our Consolidated Statements of Income and was not allocated to
any segment for performance reporting purposes.
Under the equity method of accounting, we previously reported our 51% share of the net income of the unconsolidated
affiliate (after interest expense and income taxes) as Other (income) expense in the Consolidated Statements of Income.
We also recorded a franchise fee for the royalty received from the stores owned by the unconsolidated affiliate.
Subsequent to the date of the acquisition, we reported the results of operations for the entity in the appropriate line items
of our Consolidated Statement of Income. We no longer record franchise fee income for these restaurants nor do we
report Other (income) expense as we did under the equity method of accounting. Net income attributable to our partner’s
ownership percentage is recorded as Net Income-noncontrolling interest within our Consolidated Statements of Income.
For the year ended December 26, 2009 the consolidation of this entity increased Company sales by $192 million and
decreased Franchise and license fees and income by $12 million. The consolidation of this entity positively impacted
Operating Profit by $4 million in 2009. The impact on Net Income – YUM! Brands, Inc. was not significant to the year
ended December 26, 2009. Prior to lapping the acquisition of this entity during the second quarter of 2010, we expect the
impact of this transaction to increase the China Division’s Company sales by approximately $100 million, decrease
Franchise and license fees and income by approximately $6 million and provide a modest increase to Operating Profit
during the first half of 2010.
Refranchising of an International Equity Market
In the third quarter of 2009 we recognized a $10 million refranchising loss as a result of our decision to offer to
refranchise our KFC Taiwan equity market. This loss, which resulted in no related income tax benefit, was not allocated
to any segment for performance reporting purposes. This market was refranchised on January 31, 2010. We are currently
evaluating what amount of the $37 million in goodwill associated with KFC Taiwan should be written off in the first
quarter of 2010 as a result of this refranchising.
Sale of our Interest in our Unconsolidated Affiliate in Japan
During the year ended December 27, 2008 we recorded a pre-tax gain of approximately $100 million related to the sale of
our interest in our unconsolidated affiliate in Japan (See Note 5 for further discussion of this transaction). This gain was
recorded in Other (income) expense in our Consolidated Statement of Income and was not allocated to any segment for
performance reporting purposes.
Form 10-K