Multibranding - Yum!
Multibranding - Yum!
Multibranding - Yum!
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The increase in other (income) expense in 2003 was<br />
primarily driven by the improved operating performance of<br />
our unconsolidated affiliates, particularly in China.<br />
WORLDWIDE FACILITY ACTIONS<br />
We recorded a net loss from facility actions of $36 million,<br />
$32 million and $1 million in 2003, 2002 and 2001,<br />
respectively. See the Store Portfolio Strategy section for<br />
more detail of our refranchising and closure activities and<br />
Note 7 for a summary of the components of facility actions<br />
by reportable operating segment.<br />
WORLDWIDE OPERATING PROFIT<br />
% B/(W) % B/(W)<br />
vs. vs.<br />
2003 2002 2002 2001<br />
United States $ 812 1 $ 802 15<br />
International<br />
Unallocated and corporate<br />
441 22 361 19<br />
expenses<br />
Unallocated other income<br />
(179) — (178) (20)<br />
(expense) (3) NM (1) NM<br />
Unallocated facility actions gain 4 NM 19 NM<br />
Wrench litigation<br />
AmeriServe and other (charges)<br />
(42) NM — —<br />
credits 26 NM 27 NM<br />
Operating profit $ 1,059 3 $ 1,030 16<br />
The changes in U.S. and International operating profit for<br />
2003 and 2002 are discussed in the respective sections.<br />
Unallocated and corporate expenses increased<br />
$1 million in 2003 and $30 million or 20% in 2002. The<br />
2002 increase was primarily driven by higher compensationrelated<br />
costs and higher corporate and project spending.<br />
Unallocated facility actions comprises refranchising<br />
gains (losses) which are not allocated to the U.S. or<br />
International segments for performance reporting purposes.<br />
See Note 7 for further discussion.<br />
WORLDWIDE INTEREST EXPENSE, NET<br />
2003 2002 2001<br />
Interest expense $ 185 $ 180 $ 172<br />
Interest income (12) (8) (14)<br />
Interest expense, net $ 173 $ 172 $ 158<br />
Interest expense increased $5 million or 3% in 2003.<br />
Excluding the impact of the YGR acquisition, interest<br />
expense decreased 6%. The decrease was primarily due<br />
to a decrease in our average debt outstanding.<br />
Interest expense increased $8 million or 5% in 2002.<br />
Excluding the impact of the YGR acquisition, interest<br />
expense decreased 12%. The decrease was driven by<br />
a reduction in our average debt balance partially offset<br />
by an increase in our average interest rate. Our average<br />
interest rate increased due to a reduction in our variablerate<br />
borrowings using proceeds from the issuance of longer<br />
term, fixed-rate notes.<br />
WORLDWIDE INCOME TAXES<br />
<strong>Yum</strong>! Brands Inc. 37.<br />
2003 2002 2001<br />
Reported<br />
Income taxes $ 268 $ 275 $ 241<br />
Effective tax rate 30.2% 32.1% 32.8%<br />
The reconciliation of income taxes calculated at the U.S.<br />
federal tax statutory rate to our effective tax rate is set<br />
forth below:<br />
2003 2002 2001<br />
U.S. federal statutory tax rate<br />
State income tax, net of federal<br />
35.0% 35.0% 35.0%<br />
tax benefit<br />
Foreign and U.S. tax effects<br />
1.8 2.0 2.1<br />
attributable to foreign operations (3.6) (2.8) (0.7)<br />
Adjustments to reserves and prior years<br />
Foreign tax credit amended<br />
(1.7) (1.8) (1.8)<br />
return benefit<br />
Valuation allowance additions<br />
(4.1) — —<br />
(reversals) 2.8 — (1.7)<br />
Other, net — (0.3) (0.1)<br />
Effective tax rate 30.2% 32.1% 32.8%<br />
Income taxes and the effective tax rate as shown above<br />
reflect tax on all amounts included in our results of operations<br />
except for the income tax benefit of approximately<br />
$1 million on the $2 million cumulative effect adjustment<br />
recorded in the year ended December 27, 2003 due to the<br />
adoption of SFAS 143.<br />
The 2003 effective tax rate decreased 1.9 percentage<br />
points to 30.2%. The decrease in the effective tax rate was<br />
primarily due to a 4.1 percentage point benefit of amending<br />
certain prior U.S. income tax returns to claim credit for<br />
foreign taxes paid in prior years. The returns were amended<br />
upon our determination that it was more beneficial to claim<br />
credit for such taxes than to deduct such taxes, as had<br />
been done when the returns were originally filed. In future<br />
years, we anticipate continuing to claim credit for foreign<br />
taxes paid in the then current year, as we have done in 2003<br />
and 2002. However, the amended return benefit recognized<br />
in 2003 is non-recurring.<br />
The decrease in the 2003 effective tax rate was<br />
partially offset by the recognition of valuation allowances for<br />
certain deferred tax assets whose realization is no longer<br />
considered more likely than not. The valuation allowances<br />
recognized primarily related to deferred tax assets in Mexico<br />
and Thailand. See Note 22 for a discussion of valuation<br />
allowances.<br />
The 2002 effective tax rate decreased 0.7 percentage<br />
points to 32.1%. The decrease in the effective tax rate<br />
was primarily due to our claiming credit against our current<br />
and future U.S. income tax liability for foreign taxes paid<br />
in 2002, as opposed to deducting such taxes on our U.S.<br />
income tax returns as was done in 2001. This decrease was<br />
partially offset by the impact of lapping valuation allowance<br />
reversals recorded in 2001.<br />
In 2003 and 2002, the effective tax rate attributable to<br />
foreign operations was lower than the U.S. federal statutory