Pizza Hut 2004 Annual Report Download - page 61

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FRANCHISE฀AND฀LICENSE฀FEES฀
NOTE฀9
฀2004฀ 2003฀ 2002
Initial฀fees,฀including฀renewal฀fees฀ $฀ 43฀ $฀ 36฀ $฀ 33
Initial฀franchise฀fees฀included฀in฀฀
฀ refranchising฀gains฀ ฀ (10)฀ ฀ (5)฀ ฀ (6)
฀฀฀฀ ฀ 33฀ ฀ 31฀ ฀ 27
Continuing฀fees฀ ฀ 986฀ ฀908฀ ฀839
฀฀฀฀ $฀1,019฀ $฀939฀ $฀866
OTHER฀(INCOME)฀EXPENSE฀
NOTE฀10
฀2004฀ 2003฀ 2002
Equity฀income฀from฀investments฀in฀฀
฀ unconsolidated฀affiliates฀ $฀(54)฀ $฀(39)฀ $฀(29)
Foreign฀exchange฀net฀(gain)฀loss฀ ฀ (1)฀ ฀ (2)฀ ฀ (1)
฀฀฀฀ $฀(55)฀ $฀(41)฀ $฀(30)
PROPERTY,฀PLANT฀AND฀EQUIPMENT,฀NET฀
NOTE฀11
฀2004฀ 2003
Land฀฀ $฀ 617฀ $฀ 662
Buildings฀and฀improvements฀ ฀2,957฀ ฀2,861
Capital฀leases,฀primarily฀buildings฀ ฀ 146฀ ฀ 119
Machinery฀and฀equipment฀ ฀2,337฀ ฀1,964
฀฀฀฀ ฀6,057฀ ฀5,606
Accumulated฀depreciation฀and฀amortization฀ ฀(2,618)฀ ฀(2,326)
฀฀฀฀ $฀3,439฀ $฀3,280
Depreciation฀and฀amortization฀expense฀related฀to฀property,฀
plant฀ and฀ equipment฀ was฀ $434฀million,฀ $388฀million฀ and฀
$357฀million฀in฀2004,฀2003฀and฀2002,฀respectively.
GOODWILL฀AND฀INTANGIBLE฀ASSETS฀
NOTE฀12
The฀ changes฀ in฀ the฀ carrying฀ amount฀ of฀ goodwill฀ are฀ as฀
follows:
฀ ฀ Inter-฀
฀ U.S.฀ national฀ Worldwide
Balance฀as฀of฀December฀28,฀2002฀ $฀372฀ $฀113฀ $฀485
Acquisitions฀ ฀ 21฀ ฀ 15฀ ฀ 36
Disposals฀and฀other,฀net(a)฀ ฀ (7)฀ ฀ 7฀ ฀ —
Balance฀as฀of฀December฀27,฀2003฀ $฀386฀ $฀135฀ $฀521
Acquisitions฀ ฀ 19฀ ฀ 14฀ ฀ 33
Disposals฀and฀other,฀net(a)฀ ฀ (10)฀ ฀ 9฀ ฀ (1)
Balance฀as฀of฀December฀25,฀2004฀ $฀395฀ $฀158฀ $฀553
(a)฀Disposals฀and฀other,฀net฀for฀International฀primarily฀reflects฀the฀impact฀of฀foreign฀
currency฀translation฀on฀existing฀balances.
Intangible฀assets,฀net฀for฀the฀years฀ended฀2004฀and฀2003฀
are฀as฀follows:
฀2004฀ 2003
฀Gross฀ ฀ Gross฀
฀Carrying฀ Accumulated฀ Carrying฀ Accumulated฀฀
฀Amount฀ Amortization฀ Amount฀ Amortization
Amortized฀intangible฀assets
฀ Franchise฀contract฀rights฀ $฀146฀ $฀(55)฀ $฀141฀ $฀(49)
฀ Trademarks/brands฀ ฀ 67฀ ฀ (3)฀ ฀ 67฀ ฀ (1)
฀ Favorable฀operating฀leases฀ ฀ 22฀ ฀(16)฀ ฀ 27฀ ฀(18)
฀ Pension-related฀intangible฀ ฀ 11฀ ฀ —฀ ฀ 14฀ ฀ —
฀ Other฀ ฀ 5฀ ฀ (1)฀ ฀ 5฀ ฀ —
฀฀฀฀ $฀251฀ $฀(75)฀ $฀254฀ $฀(68)
Unamortized฀intangible฀assets
฀ Trademarks/brands฀ $฀171฀ ฀ ฀ $฀171
The฀ most฀ significant฀ recorded฀ trademark/brand฀ assets฀
resulted฀ when฀ we฀ acquired฀ YGR฀ in฀ 2002.฀ At฀ the฀ date฀ of฀
acquisition,฀ we฀ assigned฀ value฀ to฀ both฀ the฀ LJS฀ and฀ A&W฀
trademark/brand฀ assets฀ and฀ determined฀ both฀ had฀ indefi-
nite฀lives.฀The฀fair฀value฀of฀a฀trademark/brand฀is฀determined฀
based฀upon฀the฀value฀derived฀from฀the฀royalty฀we฀avoid,฀in฀the฀
case฀of฀Company฀stores,฀or฀receive,฀in฀the฀case฀of฀franchise฀
and฀licensee฀stores,฀for฀the฀use฀of฀the฀trademark/brand.฀This฀
fair฀value฀determination฀is฀thus฀largely฀dependent฀upon฀our฀
estimation฀of฀sales฀attributable฀to฀the฀trademark/brand.
The฀ fair฀ value฀of฀the฀ LJS฀trademark/brand฀ was฀ deter-
mined฀to฀be฀in฀excess฀of฀its฀carrying฀value฀during฀our฀2004฀
and฀2003฀annual฀impairment฀tests.฀The฀estimates฀of฀sales฀
attributable฀to฀the฀LJS฀trademark/brand฀at฀the฀dates฀of฀these฀
tests฀reflect฀the฀opportunities฀we฀believe฀exist฀with฀regard฀to฀
increased฀penetration฀of฀LJS,฀for฀both฀stand-alone฀units฀and฀
as฀a฀multibrand฀partner.
As฀a฀result฀of฀the฀decision฀in฀2003฀to฀focus฀short-term฀
development฀ largely฀ on฀ increased฀ penetration฀ of฀ LJS฀ and฀
our฀discretionary฀capital฀spending฀limits,฀less฀development฀
of฀A&W฀was฀assumed฀in฀the฀near฀term฀than฀forecasted฀at฀
the฀date฀of฀acquisition.฀Additionally,฀while฀we฀continued฀to฀
view฀ A&W฀ as฀ a฀ viable฀ multibrand฀ partner,฀ subsequent฀ to฀
acquisition฀we฀decided฀to฀close฀or฀refranchise฀substantially฀
all฀Company-owned฀A&W฀restaurants฀that฀we฀had฀acquired.฀
These฀ restaurants฀ were฀low-volume,฀mall-based฀units฀that฀
were฀inconsistent฀with฀the฀remainder฀of฀our฀Company-owned฀
portfolio.฀Both฀the฀decision฀to฀close฀these฀Company-owned฀
A&W฀units฀and฀the฀decision฀to฀focus฀on฀short-term฀develop-
ment฀opportunities฀at฀LJS฀negatively฀impacted฀the฀fair฀value฀
of฀ the฀ A&W฀ trademark/brand.฀ Accordingly,฀ we฀ recorded฀ a฀
$5฀million฀charge฀in฀2003฀to฀facility฀actions฀to฀write฀the฀value฀
of฀the฀A&W฀trademark/brand฀down฀to฀its฀fair฀value.
Historically,฀ we฀ have฀ considered฀ the฀ assets฀ acquired฀
representing฀trademark/brand฀to฀have฀indefinite฀useful฀lives฀
due฀to฀our฀expected฀use฀of฀the฀asset฀and฀the฀lack฀of฀legal,฀
regulatory,฀contractual,฀competitive,฀economic฀or฀other฀factors฀
that฀may฀limit฀their฀useful฀lives.฀As฀required฀by฀SFAS฀142,฀we฀
reconsider฀the฀remaining฀useful฀life฀of฀indefinite-life฀intangible฀
59
Yum!฀Brands,฀Inc.