Pizza Hut 2004 Annual Report Download - page 35
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Please find page 35 of the 2004 Pizza Hut annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations
INTRODUCTIONANDOVERVIEW
YUM! Brands, Inc. and Subsidiaries (collectively referred
toas “YUM” orthe“Company”) comprises the worldwide
operationsofKFC,PizzaHut,TacoBell,LongJohnSilver’s
(“LJS”) and A&W All-American Food Restaurants (“A&W”)
(collectively“theConcepts”)andistheworld’slargestquick
servicerestaurant(“QSR”)companybasedonthenumberof
systemunits.LJSandA&WwereaddedwhenYUMacquired
YorkshireGlobalRestaurants,Inc.(“YGR”)onMay7,2002.
With12,998internationalunits,YUMisthesecondlargest
QSRcompanyoutsidetheU.S.YUMbecameanindependent,
publicly-ownedcompanyonOctober6,1997(the“Spin-off
Date”)viaatax-freedistributionofourCommonStock(the
“Distribution”or“Spin-off”)totheshareholdersofourformer
parent,PepsiCo,Inc.(“PepsiCo”).
ThroughitsConcepts,YUMdevelops,operates,franchises
andlicensesasystemofbothtraditionalandnon-traditional
QSRrestaurants.Traditionalunitsfeaturedine-in,carryout
and,insomeinstances,drive-thruordeliveryservices.Non-
traditionalunits,whicharetypicallylicensedoutlets,include
expressunitsandkioskswhichhaveamorelimitedmenu
andoperateinnon-traditionallocationslikemalls,airports,
gasoline service stations, convenience stores, stadiums,
amusementparksandcolleges,whereafull-scaletraditional
outletwouldnotbepracticalorefficient.
Theretailfoodindustry,inwhichtheCompanycompetes,
ismadeupofsupermarkets,supercenters,warehousestores,
conveniencestores,coffeeshops,snackbars,delicatessens
andrestaurants(includingtheQSRsegment),andisintensely
competitivewithrespecttofoodquality,price,service,conve-
nience,locationandconcept.Theindustryisoftenaffected
bychanges inconsumertastes;national,regionalorlocal
economic conditions; currency fluctuations; demographic
trends; traffic patterns; the type, number and location of
competing food retailers and products; and disposable
purchasingpower.EachoftheConceptscompeteswithinter-
national,nationalandregionalrestaurantchainsaswellas
locally-ownedrestaurants,notonlyforcustomers,butalsofor
managementandhourlypersonnel,suitablerealestatesites
andqualifiedfranchisees.
TheCompany’skeystrategiesare:
BuildingdominantrestaurantbrandsinChina
Drivingprofitableinternationalexpansion
Improvingrestaurantoperations
Multibrandingcategory-leadingbrands
The Company is focused on five long-term measures
identifiedasessential to ourgrowthand progress.These
fivemeasuresandrelatedkeyperformanceindicatorsareas
follows:
Internationalexpansion
•Internationalsystem-salesgrowth(localcurrency)
•Numberofnewinternationalrestaurantopenings
•Netinternationalunitgrowth
Multibrandinnovationandexpansion
•Numberofmultibrandrestaurantlocations
•Numberofmultibrandunitsadded
•Numberoffranchisemultibrandunitsadded
Portfolioofcategory-leadingU.S.brands
•U.S.blendedsamestoresalesgrowth
•U.S.systemsalesgrowth
Globalfranchisefees
•Newrestaurantopeningsbyfranchisees
•Franchisefeegrowth
Strongcashgenerationandreturns
•Cashgeneratedfromallsources
•Cashgeneratedfromallsourcesaftercapital
spending
•Restaurantmargins
Our progress against these measures is discussed
throughout the Management’s Discussion and Analysis
(“MD&A”).
Throughout the MD&A, the Company provides the
percentagechangeexcludingtheimpactofforeigncurrency
translation.Theseamountsarederivedbytranslatingcurrent
yearresultsatprioryearaverageexchangerates.Webelieve
the elimination of the foreign currency translation impact
providesbetteryear-to-yearcomparabilitywithoutthedistor-
tionofforeigncurrencyfluctuations.
This MD&A should be read in conjunction with our
ConsolidatedFinancialStatementsonpages47through50
andtheCautionaryStatementsonpage46.AllNoterefer-
enceshereinrefertotheNotestotheConsolidatedFinancial
Statementsonpages51through73.Tabularamountsare
displayedinmillionsexceptpershareandunitcountamounts,
orasotherwisespecificallyidentified.
FACTORSAFFECTINGCOMPARABILITYOF2004RESULTS
TO2003RESULTSAND2003RESULTSTO2002RESULTS
Lease Accounting Adjustments In late 2004 and early
2005, a number of companies within the QSR industry
announcedadjustmentstotheiraccountingforleasesand
thedepreciationofleaseholdimprovements.Inconsultation
withourexternalauditors,wealsodeterminedthatanadjust-
mentwasnecessarytomodifyouraccountingintheseareas.
Accordingly,inthefourthquarterof 2004,we recordedan
adjustmentsuchthatallofourleaseholdimprovementsare
nowbeingdepreciatedovertheshorteroftheirusefullives
orthetermofthelease,includingoptionsinsomeinstances,
overwhichwearerecordingrentexpense,includingescala-
tions,onastraight-linebasis.
Thecumulativeadjustment,primarilythroughincreased
U.S.depreciationexpense,totaled$11.5million($7million
after tax). Theportions of this adjustment that related to
2004fullyearand2004fourthquarterwereapproximately
$3million and $1million, respectively. As the portion of
ouradjustmentrecordedthatwasacorrectionoferrorsof
amountsreportedinourpriorperiodfinancialstatementswas
notmaterialtoanyofthosepriorperiodfinancialstatements,
theentireadjustmentwasrecordedinthe2004Consolidated
FinancialStatementsandnoadjustmentwasmadetoany
prior period financial statements. We anticipate that the
impact of this accounting change will result in additional
expenseof$3millionin2005.
33
Yum!Brands,Inc.