Pizza Hut 2003 Annual Report Download - page 60

58.
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 trademarks/
brands approximately $191 million and $21 million
were assigned to the U.S. and International operating
segments, respectively. Of the remaining $38 million
in intangible assets, approximately $31 million and
$7 million were assigned to the U.S. and International
operating segments, respectively.
The $209 million in goodwill was 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.
Liabilities assumed included approximately $48 million
of bank indebtedness that was paid off prior to the
end of the second quarter of 2002 and approximately
$11 million in capital lease obligations. We also assumed
approximately $168 million in present value of future rent
obligations related to three existing sale-leaseback agree-
ments entered into by YGR involving approximately 350
LJS units. As a result of liens held by the buyer/lessor on
certain personal property within the units, the sale-lease-
back agreements were accounted for as financings upon
acquisition. As discussed further in Note 14, two of these
sale-leaseback agreements were amended during 2003 and
are now being accounted for as operating leases.
As of the date of acquisition we recorded approxi-
mately $49 million of reserves (“exit liabilities”) related
to our plans to consolidate certain support functions,
and exit certain markets through store refranchisings and
closures, as presented in the table below. The consolida-
tion of certain support functions included the termination of
approximately 100 employees. Our remaining exit liabilities,
as well as amounts utilized through cash payments during
2003 and 2002, are presented below.
Lease and
Other
Severance Contract Other
Benefits Terminations Costs Total
Total reserve at
acquisition $ 13 $ 31 $ 5 $ 49
Amounts utilized in 2003 (5) (5) (3) (13)
Amounts utilized in 2002 (8) — (1) (9)
Total reserve as of
December 27, 2003 $ — $ 26 $ 1 $ 27
We expensed integration costs of approximately $4 million
in 2003 and $6 million in 2002 related to the acquisi-
tion. These costs were recorded as AmeriServe and
other charges (credits). See Note 7 for further discussion
regarding AmeriServe and other charges (credits).
The results of operations for YGR have been included
in our Consolidated Financial Statements since the date
of acquisition. If the acquisition had been completed as of
the beginning of the years ended December 28, 2002 and
December 29, 2001, pro forma Company sales and fran-
chise and license fees would have been as follows:
2002 2001
Company sales $ 7,139 $ 6,683
Franchise and license fees 877 839
The impact of the acquisition, including interest expense on
debt incurred to finance the acquisition, on net income and
diluted earnings per share would not have been significant in
2002 and 2001. The pro forma information is not necessarily
indicative of the results of operations had the acquisition
actually occurred at the beginning of each of these periods
nor is it necessarily indicative of future results.
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS)
note
5
Accumulated other comprehensive income (loss) includes:
2003 2002
Foreign currency translation adjustment $ (107) $ (176)
Minimum pension liability adjustment, net of tax (101) (71)
Unrealized losses on derivative instruments,
net of tax (2) (2)
Total accumulated other comprehensive income
(loss) $ (210) $ (249)
EARNINGS PER COMMON SHARE (“EPS”)
note
6
2003 2002 2001
Net income $ 617 $ 583 $ 492
Basic EPS:
Weighted-average common shares
outstanding 293 296 293
Basic EPS $ 2.10 $ 1.97 $ 1.68
Diluted EPS:
Weighted-average common shares
outstanding 293 296 293
Shares assumed issued on exercise
of dilutive share equivalents 52 56 55
Shares assumed purchased with
proceeds of dilutive
share equivalents (39) (42) (44)
Shares applicable to diluted earnings 306 310 304
Diluted EPS $ 2.02 $ 1.88 $ 1.62
Unexercised employee stock options to purchase approxi-
mately 4 million, 1.4 million and 5.1 million shares of our
Common Stock for the years ended December 27, 2003,
December 28, 2002 and December 29, 2001, respec-
tively, were not included in the computation of diluted EPS
because their exercise prices were greater than the average
market price of our Common Stock during the year.