Pizza Hut 2002 Annual Report Download - page 55

As discussed further in Note 24, we have posted $32 million
of letters of credit supporting our guarantee of franchisee loan
pools. Additionally, we have provided a standby letter of credit
under which we could potentially be required to fund a portion (up
to $25 million) of one of the franchisee loan pools. The letters of
credit were issued under our existing bank credit agreement (see
Note 14). These franchisee loan pools primarily funded purchases
of restaurants from the Company and, to a lesser extent, fran-
chisee development of new restaurants. The total loans
outstanding under these loan pools were approximately $153 mil-
lion and $180 million at December 28, 2002 and December 29,
2001, respectively. Our maximum exposure to loss as a result of
our involvement with these franchisee loan pools was $57 million
at December 28, 2002. We are in the process of determining if we
are the primary beneficiary of these VIEs. We currently believe that
it is reasonably possible we are the primary beneficiary and thus
we would be required to consolidate these VIEs, as they are cur-
rently structured, upon FIN 46 becoming effective for the Company.
We are currently evaluating alternative structures related to these
franchisee loan pools.
The Company along with representatives of the franchisee
groups of each of its Concepts has formed purchasing cooper-
atives for the purpose of purchasing certain restaurant products
and equipment in the U.S. Our equity ownership in each cooper-
ative is generally proportional to our percentage ownership of the
U.S. system units for the Concept. We are continuing to evaluate
whether any of these cooperatives are VIEs under the provisions
of FIN 46 and, if so, whether we are the primary beneficiary. We
do not currently believe that consolidation will be required for any
of these cooperatives as a result of our adoption of FIN 46.
TWO-FOR-ONE COMMON STOCK SPLIT
On May 7, 2002, the Company announced that its Board of
Directors approved a two-for-one split of the Company’s out-
standing shares of Common Stock. The stock split was effected in
the form of a stock dividend and entitled each shareholder of
record at the close of business on June 6, 2002 to receive one
additional share for every outstanding share of Common Stock
held on the record date. The stock dividend was distributed on
June 17, 2002, with approximately 149 million shares of common
stock distributed. All per share and share amounts in the accom-
panying Consolidated Financial Statements and Notes to the
Financial Statements have been adjusted to reflect the stock split.
NOTE
3
YGR ACQUISITION
On May 7, 2002, YUM completed its acquisition of YGR. At the date
of acquisition, YGR consisted of 742 and 496 company and fran-
chise LJS units, respectively, and 127 and 742 company and
franchise A&W units, respectively. In addition, 133 multibranded
LJS/A&W restaurants were included in the LJS unit totals. This
acquisition was made to facilitate our strategic objective of achiev-
ing growth through multibranding, where two or more of our
Concepts are operated in a single restaurant unit.
We paid approximately $275 million in cash and assumed
approximately $48 million of bank indebtedness in connection with
the acquisition of YGR. The purchase price was allocated to the
assets acquired and liabilities assumed based on estimates of
their fair values at the date of acquisition. We determined these
fair values with the assistance of a third party valuation expert.
The following table summarizes the fair values of YGR’s assets
acquired and liabilities assumed at the date of acquisition.
Current assets $ 35
Property, plant and equipment 58
Intangible assets 250
Goodwill 209
Other assets 85
Total assets acquired 637
Current liabilities 100
Long-term debt, including current portion 59
Future rent obligations related to
sale-leaseback agreements 168
Other long-term liabilities 35
Total liabilities assumed 362
Net assets acquired (net cash paid) $ 275
Of the $250 million in acquired intangible assets, $212 million was
assigned to brands/trademarks, which have indefinite lives and
are not subject to amortization. The remaining acquired intangi-
ble assets primarily consist of franchise contract rights which will
be amortized over thirty years, the typical term of a YGR franchise
agreement including renewals. Of the $212 million in brands/
trademarks approximately $191 million and $21 million were
assigned to the U.S. and International operating segments,
respectively. Of the $38 million in intangible assets subject to amor-
tization, approximately $31 million and $7 million were assigned
to the U.S. and International operating segments, respectively.
The $209 million in goodwill was primarily assigned to the
U.S. operating segment. As we acquired the stock of YGR, none of
the goodwill is expected to be deductible for income tax purposes.
NOTE
4
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Yum! Brands Inc.