Pizza Hut 2009 Annual Report Download - page 168
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77
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.
Accordingly, we began consolidating this entity.
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. Beginning
January 1, 2008, we have reported the results of operations for the entity in the appropriate line items of our Consolidated
Statement of Income. We no longer recorded franchise fee income for these restaurants nor did 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. 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