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9.฀GOODWILL฀AND฀INTANGIBLE฀ASSETS
The฀changes฀in฀the฀carrying฀amount฀of฀goodwill฀are฀as฀follows:
฀ ฀ Inter-฀
฀ ฀ national฀฀ China฀฀ World-฀
฀ U.S.฀ Division฀ Division฀ wide
Balance฀as฀of฀฀
฀ December฀27,฀2003฀ $฀386฀ $฀ 79฀ $฀56฀ $฀521
Acquisitions฀ ฀ 19฀ ฀ 14฀ ฀—฀ ฀ 33
Disposals฀and฀other,฀net(a)฀ ฀ (10)฀ ฀ 7฀ ฀ 2฀ ฀ (1)
Balance฀as฀of฀฀
฀ December฀25,฀2004฀ $฀395฀ $฀100฀ $฀58฀ $฀553
Acquisitions฀ ฀ —฀ ฀ 1฀ ฀—฀ ฀ 1
Disposals฀and฀other,฀net(a)฀ ฀ (11)฀ ฀ (5)฀ ฀—฀ ฀ (16)
Balance฀as฀of฀฀
฀ December฀31,฀2005฀$฀384฀ $฀ 96฀ $฀58฀ $฀538
(a)฀Disposals฀and฀other,฀net฀for฀International฀Division฀and฀China฀Division,฀primarily฀
reflects฀the฀impact฀of฀foreign฀currency฀translation฀on฀existing฀balances.
Intangible฀assets,฀net฀for฀the฀years฀ended฀2005฀and฀2004฀
are฀as฀follows:
฀2005฀ 2004
฀Gross฀฀ ฀ Gross฀ ฀
฀Carrying฀ Accumulated฀ Carrying฀ Accumulated฀
฀ ฀Amount฀ ฀Amortization฀ Amount฀ Amortization
Amortized฀intangible฀฀
฀ assets
฀ ฀ Franchise฀contract฀฀
฀ ฀ ฀ rights฀ $฀144฀ $฀ (59)฀ $฀146฀ $฀(55)
฀ ฀ Trademarks/brands฀ ฀208฀ ฀ (9)฀ ฀ 67฀ ฀ (3)
฀ ฀ Favorable฀operating฀฀
฀ ฀ ฀ leases฀ ฀ 18฀ ฀ (14)฀ ฀ 22฀ ฀(16)
฀ ฀ Pension-related฀฀
฀ ฀ ฀ intangible฀฀ ฀ 7฀ ฀ —฀ ฀ 11฀ ฀ —
฀ ฀ Other฀ ฀ 5฀ ฀ (1)฀ ฀ 5฀ ฀ (1)
฀฀฀฀ $฀382฀ $฀ (83)฀ $฀251฀ $฀(75)
Unamortized฀intangible฀฀
฀ assets
฀฀Trademarks/brands฀ $฀ 31฀ ฀ ฀ $฀171
We฀ have฀recorded฀intangible฀assets฀through฀past฀acqui-
sitions฀representing฀the฀ value฀of฀our฀ KFC,฀LJS฀ and฀A&W฀
trademarks/brands.฀ The฀ 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.฀ We฀ have฀ determined฀that฀our฀KFC฀
trademark/brand฀intangible฀asset฀has฀an฀indefinite฀life฀and฀
therefore฀is฀not฀amortized.
When฀ we฀ acquired฀ YGR฀ in฀ 2002฀ we฀ assigned฀ ฀
$140฀million฀to฀the฀LJS฀trademark/brand฀and฀$72฀million฀
to฀the฀A&W฀trademark/brand.฀At฀the฀date฀of฀the฀acquisi-
tion,฀we฀determined฀that฀both฀of฀these฀intangible฀assets฀
had฀indefinite฀lives.฀However,฀based฀on฀business฀decisions฀
we฀made฀in฀2005฀and฀2003฀with฀regard฀to฀these฀Concepts,฀
we฀reconsidered฀the฀expected฀useful฀lives฀of฀these฀brand฀
intangibles฀and฀at฀December฀31,฀2005฀both฀of฀these฀assets฀
are฀being฀amortized฀over฀their฀expected฀useful฀lives.
In฀2005,฀we฀decided฀to฀adjust฀development฀of฀certain฀
multibrand฀combinations฀with฀LJS.฀While฀we฀and฀our฀franchi-
sees฀continue฀to฀build฀new฀LJS฀stand฀alone฀units฀as฀well฀as฀
multibrand฀units฀that฀include฀LJS,฀our฀decision฀to฀reallocate฀
certain฀capital฀spending฀in฀the฀near฀term฀to฀other฀investment฀
alternatives฀was฀considered฀an฀economic฀factor฀that฀may฀
limit฀the฀useful฀life฀of฀the฀LJS฀trademark/brand.฀Accordingly,฀
in฀the฀first฀quarter฀of฀2005฀we฀began฀to฀amortize฀the฀LJS฀
trademark/brand฀over฀thirty฀years,฀the฀typical฀term฀of฀our฀
multibrand฀ franchise฀ agreements฀ including฀ one฀ renewal.฀
We฀ reviewed฀ the฀ LJS฀ trademark/brand฀ for฀ impairment฀
prior฀to฀beginning฀amortization฀in฀2005฀and฀determined฀no฀
impairment฀existed.฀Amortization฀expense฀of฀the฀LJS฀trade-
mark/brand฀ approximated฀ $4฀million฀ in฀ 2005.฀ When฀ the฀
LJS฀trademark/brand฀ was฀ considered฀to฀be฀an฀indefinite-
life฀intangible฀asset฀in฀2004฀and฀2003฀and฀was฀therefore฀
subject฀to฀annual฀impairment฀tests,฀we฀determined฀that฀the฀
fair฀value฀of฀the฀LJS฀trademark/brand฀was฀in฀excess฀of฀its฀
carrying฀value.
In฀2003,฀we฀decided฀to฀close฀or฀refranchise฀substan-
tially฀ 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.฀Also,฀at฀that฀time฀we฀decided฀to฀
focus฀more฀on฀short-term฀development฀opportunities฀at฀LJS.฀
These฀decisions฀negatively฀impacted฀the฀fair฀value฀of฀the฀
A&W฀trademark/brand฀because฀we฀assumed฀less฀develop-
ment฀of฀A&W฀in฀the฀near฀term฀than฀forecasted฀at฀the฀date฀of฀
acquisition.฀Accordingly,฀we฀recorded฀a฀$5฀million฀charge฀in฀
2003฀to฀facility฀actions฀to฀write฀the฀value฀of฀the฀A&W฀trade-
mark/brand฀down฀to฀its฀fair฀value.฀Our฀decision฀to฀no฀longer฀
operate฀ the฀ acquired฀ stand-alone฀ Company-owned฀ A&W฀
restaurants฀was฀considered฀a฀factor฀that฀limited฀the฀A&W฀
trademark/brand฀expected฀useful฀life.฀Subsequent฀to฀the฀
recording฀of฀the฀impairment฀in฀2003,฀we฀began฀amortizing฀
the฀A&W฀trademark/brand฀remaining฀balance฀over฀a฀period฀
of฀thirty฀years,฀the฀typical฀term฀of฀our฀multibrand฀franchise฀
agreements฀including฀one฀renewal.฀Amortization฀expense฀of฀
the฀A&W฀trademark/brand฀approximated฀$2฀million฀in฀2005฀
and฀2004฀and฀$1฀million฀in฀2003.
Amortization฀ expense฀ for฀ all฀ definite-lived฀ intangible฀
assets฀was฀$13฀million฀in฀ 2005,฀$8฀million฀ in฀ 2004฀ and฀
$7฀million฀in฀2003.฀Amortization฀expense฀for฀definite-lived฀
intangible฀ assets฀ will฀ approximate฀ $12฀million฀ in฀ 2006฀
through฀2010.
66.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.