Pizza Hut 2004 Annual Report Download - page 41
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Please find page 41 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.OPERATINGPROFIT
%Increase/
(decrease)
2004 2003 2004 2003
UnitedStates $ 777 $ 812 (4) 1
International 542 441 23 22
Unallocatedandcorporate
expenses (204) (179) (14) —
Unallocatedotherincome
(expense) (2) (3) NM NM
Unallocatedfacilityactions 12 4 NM NM
Wrenchlitigationincome
(expense) 14 (42) NM NM
AmeriServeandother
(charges)credits 16 26 NM NM
Operatingprofit $1,155 $1,059 9 3
In2004,thedecreaseinU.S.operatingprofitwasdrivenby
theimpactonrestaurantprofitofhighercommoditycosts
(primarilycheeseand meat)and theadjustmentrecorded
relatedto our accountingforleases and the depreciation
ofleaseholdimprovements,aswellashighergeneraland
administrativeexpenses.Thedecreasewaspartiallyoffset
bytheimpactofsamestoresalesincreasesonrestaurant
profitandfranchiseandlicensefees.Excludingthefavorable
impactoftheYGRacquisition,U.S.operatingprofitin2003
wasflatcomparedto2002.Decreasesdrivenbylowerrestau-
rantprofitasaresultofincreasedoccupancyexpensesand
theimpactofunfavorablediscountingandproductmixshift
onfoodandpapercostswereoffsetbylowerfranchiseand
licenseandgeneralandadministrativeexpenses.
Excluding the favorable impact from foreign currency
translation,Internationaloperatingprofitincreased17%in
2004.Theincreasewasdrivenbynewunitdevelopment,the
impactofsamestoresalesincreasesonrestaurantprofitand
franchiseandlicensefeesandhigherincomefromourinvest-
mentsinunconsolidatedaffiliates,partiallyoffsetbyhigher
general and administrative costs. Excluding the favorable
impactfromforeigncurrencytranslation,Internationaloper-
atingprofitincreased15%in2003.Theincreasewasdrivenby
newunitdevelopmentandtheimpactofsupplychainsavings
initiativesonthecostoffoodandpaper,partiallyoffsetbythe
impactofsamestoresalesdeclinesonrestaurantprofitand
highergeneralandadministrativeexpenses.
Unallocatedandcorporateexpensescomprisegeneral
andadministrativeexpensesandunallocatedfacilityactions
compriserefranchisinggains(losses),neitherofwhichare
allocatedtotheU.S. orInternationalsegmentsforperfor-
mancereportingpurposes.
INTERESTEXPENSE,NET
2004 2003 2002
Interestexpense $145 $185 $180
Interestincome (16) (12) (8)
Interestexpense,net $129 $173 $172
Interestexpensedecreased$40millionor22%in2004.The
decreasewasprimarilydrivenbyadecreaseinouraverage
interestratesprimarilyattributabletopay-variableinterest
rateswapsenteredintoduring2004.Alsocontributingtothe
decreasewasareductioninouraveragedebtoutstanding
primarily as a result of the amended YGR sale-leaseback
agreementandlowerInternationalshort-termborrowings.
Interestexpenseincreased$5millionor3%in2003.
ExcludingtheimpactoftheYGRacquisition,interestexpense
decreased6%.Thedecreasewasprimarilyduetoadecrease
inouraveragedebtoutstanding.
INCOMETAXES
2004 2003 2002
Reported
Incometaxes $286 $268 $275
Effectivetaxrate 27.9% 30.2% 32.1%
Thereconciliationofincometaxescalculatedat the U.S.
federaltaxstatutoryratetooureffectivetaxrateissetforth
below:
2004 2003 2002
U.S.federalstatutorytaxrate 35.0% 35.0% 35.0%
Stateincometax,netof
federaltaxbenefit 1.3 1.8 2.0
ForeignandU.S.taxeffects
attributabletoforeignoperations (5.8) (3.6) (2.8)
Adjustmentstoreserves
andprioryears (6.7) (1.7) (1.8)
Foreigntaxcreditamended
returnbenefit — (4.1) —
Valuationallowanceadditions
(reversals) 4.2 2.8 —
Other,net (0.1) — (0.3)
Effectivetaxrate 27.9% 30.2% 32.1%
Income taxes and the effective tax rate as shown above
reflecttaxonallamountsincludedinourresultsofoperations
exceptfortheincometaxbenefitofapproximately$1million
onthe$2millioncumulativeeffectadjustmentrecordedin
theyearendedDecember27,2003duetotheadoptionof
SFAS143.
The2004effectivetaxratedecreased2.3percentage
points to 27.9%. The decrease in the effective tax rate
was driven by a number of factors, including the reversal
ofreservesinthecurrentyearassociatedwithauditsthat
weresettledaswellastheeffectsofcertaininternational
taxplanningstrategiesimplementedin2004.Thedecrease
waspartiallyoffsetbytheimpactoflappingthebenefitin
2003ofamendingcertainpriorU.S.incometaxreturnsto
claimcreditforforeigntaxespaidinprioryearsaswellas
39
Yum!Brands,Inc.