Pizza Hut 2009 Annual Report Download - page 124

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Impact of Foreign Currency Translation on Operating Profit
Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated
Operating Profit in our International Division by $56 million and positively impacted Operating Profit in our China
Division by $10 million for the year ended December 26, 2009. In the year ended December 27, 2008 our Operating
Profit in our International and China Divisions was positively impacted by $9 million and $42 million, respectively, by
changes in foreign currency exchange rates.
Pizza Hut South Korea Goodwill Impairment
As a result of a decline in future profit expectations for our Pizza Hut South Korea market we recorded a goodwill
impairment charge of $12 million for this market during 2009. This charge was recorded in Closure and impairment
(income) expenses in our Consolidated Statement of Income and was allocated to our International Division for
performance reporting purposes.
Consolidation of a Former Unconsolidated Affiliate in Beijing, China
In 2008, we began consolidating an entity in which we have a majority ownership interest and that operates the KFCs in
Beijing, China. Our partners in this entity are essentially state-owned enterprises. We historically did not consolidate this
entity, instead accounting for the unconsolidated affiliate using the equity method of accounting, due to the effective
participation of our partners in the significant decisions of the entity that were made in the ordinary course of business.
Concurrent with a decision that we made on January 1, 2008 regarding top management of the entity, we no longer
believe that our partners effectively participate in the decisions that are made in the ordinary course of business. In
accordance with GAAP, we began consolidating this entity on that date.
Like our other unconsolidated affiliates, the accounting for this entity prior to 2008 resulted in royalties being reflected as
Franchise and license fees and our share of the entity’s net income being reflected in Other (income) expense. Subsequent
to the date of consolidation, 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 Statement of Income.
For the year ended December 27, 2008 the consolidation of this entity increased the China Division’s Company sales by
approximately $300 million and decreased Franchise and license fees and income by approximately $20 million. The
consolidation of this entity positively impacted Operating Profit by approximately $20 million in 2008. The positive
impact on Operating Profit was offset by Net Income – noncontrolling interest of $8 million and a higher Income tax
provision such that there was no impact on Net Income – YUM! Brands, Inc. for the year ended December 27, 2008. The
Consolidated Statement of Income was impacted by similar amounts for the year ended December 26, 2009.
Form 10-K