Pizza Hut 2004 Annual Report Download - page 36
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Please find page 36 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.YGRAcquisition OnMay7,2002,theCompanycompleted
itsacquisitionofYGR,theparentcompanyofLJSandA&W.
SeeNote4foradiscussionoftheacquisition.
Asofthedateoftheacquisition,YGRconsistedof742
and496companyandfranchiseLJSunits,respectively,and
127and 742 company and franchise A&W units,respec-
tively.Inaddition,133multibrandedLJS/A&Wrestaurants
were includedintheLJSunittotals.Exceptasdiscussed
incertainsectionsoftheMD&A,theimpactoftheacquisi-
tiononourresultsofoperationsin2003wasnotsignificant
relativeto2002.
AmendmentofSale-LeasebackAgreements Asdiscussed
in Note 14, on August 15, 2003 we amended two sale-
leasebackagreementsassumedinour2002acquisitionof
YGRsuchthattheagreementsnowqualifyforsale-leaseback
accounting.Restaurantprofitdecreasedby$5millionand
by$3millionin2004and2003,respectively,asaresultof
thetwoamendedagreementsbeingaccountedforasoper-
atingleasessubsequenttotheamendment.Thedecrease
inrestaurantprofitwaslargelyoffsetbyasimilardecreasein
interestexpense.
CanadaUnconsolidatedAffiliateDissolution OnNovember
10,2003,wedissolvedourunconsolidatedaffiliatethatprevi-
ouslyoperated733restaurantsinCanada.Weowned50%
ofthisunconsolidatedaffiliatepriorto itsdissolutionand
accountedforourinterestundertheequitymethod.Ofthe
restaurantspreviouslyoperatedbytheunconsolidatedaffil-
iate,wenowoperatethevastmajorityofPizzaHutsandTaco
Bells,whilealmostallKFCsareoperatedbyfranchisees.As
aresultofoperatingcertainrestaurantsthatwerepreviously
operatedbytheunconsolidatedaffiliate,ourCompanysales,
restaurantprofitandgeneralandadministrativeexpenses
increased and our franchise fees decreased. Additionally,
onafullyearbasisotherincomeincreasedaswerecorded
alossfromourinvestmentintheCanadianunconsolidated
affiliatein2003.
Asaresultofthe dissolutionofour Canadian uncon-
solidatedaffiliate,Companysalesincreased$147million,
franchise fees decreased $9million, restaurant profit
increased$8million,generalandadministrativeexpenses
increased$11millionandotherincomeincreased$4million
fortheyearendedDecember25,2004comparedtotheyear
endedDecember27,2003.Theimpacton2004netincome
wasnotsignificant.Theimpactofthedissolutiononour2003
resultswasalsonotsignificant.
SaleofPuertoRicoBusiness OurPuertoRicobusinesswas
heldforsalesincethefourthquarterof2002andwassold
onOctober4,2004for anamountapproximatingitsthen
carryingvalue.Companysalesandrestaurantprofitdecreased
$27million and $4million, respectively, franchise fees
increased$1millionandgeneralandadministrativeexpenses
decreased$1millionfortheyearendedDecember25,2004
ascomparedtotheyearendedDecember27,2003.
CommodityInflation Theincreasedcostofcertaincommod-
itiesnegativelyimpactedourU.S.marginsfortheyearended
December25,2004.Highercommoditycosts,particularlyin
cheeseandmeatprices,negativelyimpactedU.S.restaurant
marginsasapercentageofsalesbyapproximately160basis
pointsfortheyearendedDecember25,2004.
WrenchLitigation Werecorded income of $14million in
2004andexpenseof$42millionin2003.SeeNote24fora
discussionoftheWrenchlitigation.
AmeriServe and Other Charges (Credits) We recorded
income of $16million in 2004, $26million in 2003 and
$27millionin2002.SeeNote7foradetaileddiscussionof
AmeriServeandothercharges(credits).
StorePortfolioStrategy FromtimetotimewesellCompany
restaurantstoexistingandnewfranchiseeswheregeographic
synergies can be obtained or where their expertise can
generallybeleveragedtoimproveouroveralloperatingperfor-
mance,whileretainingCompanyownershipofkeyU.S.and
Internationalmarkets.Suchrefranchisingsreduceourreported
revenuesandrestaurantprofitsandincreasetheimportance
ofsystemsalesgrowthasakeyperformancemeasure.
The following table summarizes our refranchising
activities:
2004 2003 2002
Numberofunitsrefranchised 317 228 174
Refranchisingproceeds,pre-tax $140 $92 $81
Refranchisingnetgains,pre-tax(a)$ 12 $ 4 $19
(a)RefranchisingnetgainsfortheyearendedDecember25,2004includecharges
towritedownourPuertoRicobusinesstoourthenestimateofitsfairvalueand
chargestowritedown certainU.S. restaurantswe currentlyownbut wehave
offeredtosellatamountslowerthantheircarryingvalues.Refranchisingnetgains
fortheyearendedDecember27,2003alsoincludechargestowritedownour
PuertoRicobusinesstoourthenestimateofitsfairvalue.Aspreviouslynoted,
wesoldourPuertoRicobusinesseffectiveOctober4,2004foranamountapproxi-
matingitsthencarryingvalue.
Inadditiontoourrefranchisingprogram,fromtimetotime
wecloserestaurantsthatarepoorperforming,werelocate
restaurantstoanewsitewithinthesametradeareaorwe
consolidatetwoormoreofourexistingunitsintoasingleunit
(collectively“storeclosures”).
ThefollowingtablesummarizesCompanystoreclosure
activities:
2004 2003 2002
Numberofunitsclosed 319 287 224
Storeclosurecosts(income)(a)$(3) $ 6 $15
Impairmentchargesforstores
tobeclosed $ 5 $12 $ 9
(a)Storeclosureincomein2004isprimarilytheresultofgainsfromthesaleof
propertiesonwhichweformerlyoperatedrestaurants.
The impact on operating profit arising from refranchising
andCompanystoreclosuresisthenetof(a)theestimated
reductionsinrestaurantprofit,whichreflectsthedecreasein
Companysales,andgeneralandadministrativeexpensesand
(b)theestimatedincreaseinfranchisefeesfromthestores
refranchised.Theamountspresentedbelowreflecttheesti-
matedimpactfromstoresthatwereoperatedbyusforall
orsomeportionoftherespectivepreviousyearandwereno
longeroperatedbyusasofthelastdayoftherespectiveyear.
Theamountsdonotincluderesultsfromnewrestaurantsthat
weopenedinconnectionwitharelocationofanexistingunit
oranyincrementalimpactuponconsolidationoftwoormore
ofourexistingunitsintoasingleunit.
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