Pizza Hut 2006 Annual Report Download - page 62

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10.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows:
Inter-
national China
U.S. Division Division Worldwide
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
Acquisitions — 123 — 123
Disposals and other, net(a) (17) 18 — 1
Balance as of
December 30, 2006 $ 367 $ 237 $ 58 $ 662
(a) Disposals and other, net for the International Division primarily reflects the impact
of foreign currency translation on existing balances. Disposals and other, net for the
U.S. Division, primarily reflects goodwill write-offs associated with refranchising.
Intangible assets, net for the years ended 2006 and 2005 are
as follows:
2006 2005
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Amortized intangible
assets
Franchise contract
rights $ 153 $ (66) $ 144 $ (59)
Trademarks/brands 220 (18) 208 (9)
Favorable operating
leases 15 (10) 18 (14)
Reacquired franchise
rights(a) 18 — — —
Pension-related
intangible(b) — — 7 —
Other 5 (1) 5 (1)
$ 411 $ (95) $ 382 $ (83)
Unamortized intangible
assets
Trademarks/brands $31 $31
(a) Increase is primarily due to the acquisition of the remaining fifty percent interest
in our former Pizza Hut U.K. unconsolidated affiliate.
(b) Subsequent to the adoption of SFAS 158 a pension-related intangible asset is no
longer recorded. See Note 2 for further discussion.
We have recorded intangible assets through past acquisitions rep-
resenting 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. We have determined that our LJS
and A&W trademarks/brands are subject to amortization and
are being amortized over their expected useful lives which are
currently thirty years.
On March 24, 2006, we finalized an agreement with Rostik’s
Restaurant Ltd. (“RRL”), a franchisor and operator of a chicken
chain in Russia known as Rostik’s, under which we acquired the
Rostik’s brand and associated intellectual property for $15 mil-
lion. We will also provide financial support, including loans and
guarantees, up to $30 million to support future development by
RRL in Russia, an insignificant amount of which has been incurred
as of December 30, 2006. This agreement also includes a put/
call option that may be exercised, subject to certain conditions,
between the fifth and seventh year whereby ownership of then
existing restaurants would be transferred to YRI. The majority of
the purchase price of $15 million was allocated to the trademarks
acquired for the International Division and will be amortized over
a period of seven years.
Amortization expense for all definite-lived intangible assets
was $15 million in 2006, $13 million in 2005 and $8 million in
2004. Amortization expense for definite-lived intangible assets
will approximate $17 million annually in 2007 through 2011.
11.
Accounts Payable and Other Current Liabilities
2006 2005
Accounts payable $ 554 $ 473
Accrued compensation and benefits 302 274
Dividends payable 119 32
Other current liabilities 411 477
$ 1,386 $ 1,256
12.
Short-term Borrowings and Long-term Debt
2006 2005
Short-term Borrowings
Unsecured Term Loans, expire January 2007 $ 183 $—
Current maturities of long-term debt 16 211
Other 28 —
$ 227 $ 211
Long-term Debt
Unsecured International Revolving Credit
Facility, expires November 2010 $ 174 $ 180
Unsecured Revolving Credit Facility,
expires September 2009 — —
Senior, Unsecured Notes, due April 2006 — 200
Senior, Unsecured Notes, due May 2008 251 251
Senior, Unsecured Notes, due April 2011 646 646
Senior, Unsecured Notes, due July 2012 399 398
Senior, Unsecured Notes, due April 2016 300 —
Capital lease obligations (See Note 13) 228 114
Other, due through 2019 (11%) 76 77
2,074 1,866
Less current maturities of long-term debt (16) (211)
Long-term debt excluding SFAS 133 adjustment 2,058 1,655
Derivative instrument adjustment under
SFAS 133 (See Note 14) (13) (6)
Long-term debt including SFAS 133 adjustment $ 2,045 $ 1,649