Pizza Hut 2003 Annual Report Download - page 59

Yum! Brands Inc. 57.
FIN 46 excludes from its scope businesses (as defined
by FIN 46) unless certain conditions exist. We believe the
franchise entities which operate our restaurants, including
our Unconsolidated Affiliates, meet the definition of a busi-
ness. Thus, we are currently evaluating whether any of the
aforementioned conditions exist that would subject any of
our franchisees, including our Unconsolidated Affiliates, to
the provisions of FIN 46, requiring us to determine if they
are VIEs, and, if so, whether we are the primary beneficiary.
We do not possess any ownership interests in our franchi-
sees except for our investments in various Unconsolidated
Affiliates accounted for under the equity method (see
Note 24 for further description). Additionally, we generally
do not provide financial support to our franchisees in a
typical franchise relationship. While we continue to evaluate
the applicability of FIN 46 to our franchise relationships, at
this time we do not believe that the required consolidation
of franchise entities, if any, would materially impact our
Financial Statements.
The Company, along with representatives of the
franchisee groups of each of its Concepts, has formed
purchasing cooperatives for the purpose of purchasing
certain restaurant products and equipment in the U.S. Our
equity ownership in each cooperative is generally propor-
tional 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 benefi-
ciary. We do not currently believe that consolidation will be
required for these cooperatives as a result of our adoption
of FIN 46.
As discussed further in Note 24, we have posted a
$12 million of letter of credit supporting our guarantee
of a franchisee loan pool. Additionally, we have provided
a standby letter of credit of $23 million under which we
could potentially be required to fund a portion of this loan
pool. The letters of credit were issued under our existing
bank credit agreement. This loan pool, which is not held
or funded by an affiliate of the Company, primarily funded
purchases of restaurants from the Company and, to a lesser
extent, franchisee development of new restaurants. The
total loans outstanding under this loan pool were approxi-
mately $87 million at December 27, 2003. Our maximum
exposure to loss as a result of our involvement with this
loan pool was $28 million at December 27, 2003. During
the year ended December 27, 2003 the entity which holds
this loan pool sold these loans to a qualifying special-
purpose entity (“QSPE”) as described in SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities” and settled its existing
obligations with the proceeds. As QSPEs are not within
the scope of FIN 46, the Company will not be required to
consolidate the entity that now holds this loan pool.
TWO-FOR-ONE COMMON STOCK SPLIT
note
3
On May 7, 2002, the Company announced that its Board
of Directors approved a two-for-one split of the Company’s
outstanding 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 approxi-
mately 149 million shares of common stock distributed.
All per share and share amounts in the accompanying
Consolidated Financial Statements and Notes to the
Financial Statements have been adjusted to reflect the
stock split.
YGR ACQUISITION
note
4
On May 7, 2002, YUM completed its acquisition of YGR.
At the date of acquisition, YGR consisted of 742 and 496
company and franchise 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 achieving growth
through multibranding, where two or more of our Concepts
are operated in a single restaurant unit. We paid approxi-
mately $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 esti-
mates 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 trademarks/brands. The
remaining acquired intangible assets primarily consist