Pizza Hut 2007 Annual Report Download - page 65

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All of the $18 million in intangible assets (primarily reacquired
franchise rights) are subject to amortization with a weighted aver-
age life of approximately 18 years. The $125 million in goodwill
is not expected to be deductible for income tax purposes and will
be allocated to the International Division in its entirety.
Under the equity method of accounting, we reported our
fifty percent share of the net income of the unconsolidated affili-
ate (after interest expense and income taxes) as Other (income)
expense in the Consolidated Statements of Income. We also
recorded a franchise fee for the royalty received from the stores
owned by the unconsolidated affiliate. Since the date of acqui-
sition, we have reported Company sales and the associated
restaurant costs, G&A expense, interest expense and income
taxes associated with the restaurants previously owned by the
unconsolidated affiliate in the appropriate line items of our Con-
solidated Statements of Income. We no longer record franchise
fee income for the restaurants previously owned by the uncon-
solidated affiliate nor do we report other income under the equity
method of accounting. As a result of this acquisition, Company
sales and restaurant profit increased $576 million and $59 mil-
lion, respectively, franchise fees decreased $19 million and G&A
expenses increased $33 million in 2007 compared to 2006.
As a result of this acquisition, Company sales and restaurant
profit increased $164 million and $16 million, respectively, fran-
chise fees decreased $7 million and G&A expenses increased
$8 million in 2006 compared to 2005. The impact of the acqui-
sition on operating profit and net income was not significant in
either year.
If the acquisition had been completed as of the beginning of
the years ended December 30, 2006 and December 31, 2005,
pro forma Company sales and franchise and license fees would
have been as follows:
2006 2005
Company sales $ 8,886 $ 8,944
Franchise and license fees $ 1,176 $ 1,095
The pro forma impact of the acquisition on net income and diluted
earnings per share would not have been significant in 2006 and
2005. 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.
8.
Franchise and License Fees
2007 2006 2005
Initial fees, including renewal fees $ 49 $ 57 $ 51
Initial franchise fees included in
refranchising gains (10) (17) (10)
39 40 41
Continuing fees 1,277 1,156 1,083
$ 1,316 $ 1,196 $ 1,124
9.
Other (Income) Expense
2007 2006 2005
Equity income from investments in
unconsolidated affiliates $ (51) $ (51) $ (51)
Gain upon sale of investment in
unconsolidated affiliate(a) (6) (2) (11)
Recovery from supplier(b) —— (20)
Contract termination charge(c) —8 —
Wrench litigation income(d) (11) — (2)
Foreign exchange net (gain) loss
and other (3) (7) —
Other (income) expense $ (71) $ (52) $ (84)
(a) Fiscal years 2007 and 2006 reflect recognition of income associated with receipt
of payments for a note receivable arising from the 2005 sale of our fifty percent
interest in the entity that operated almost all KFCs and Pizza Huts in Poland and
the Czech Republic to our then partner in the entity. Fiscal year 2005 reflects the
gain recognized at the date of this sale.
(b) Relates to a financial recovery from a supplier ingredient issue in mainland China
totaling $24 million,$4 million of which was recognized through equity income from
investments in unconsolidated affiliates. Our KFC business in mainland China was
negatively impacted by the interruption of product offerings and negative publicity
associated with a supplier ingredient issue experienced in late March 2005. During
2005, we entered into agreements with the supplier for a partial recovery of our
losses.
(c) Reflects an $8 million charge associated with the termination of a beverage agree-
ment in the U.S. segment.
(d) Fiscal years 2007 and 2005 reflect financial recoveries from settlements with
insurance carriers related to a lawsuit settled by Taco Bell Corporation in 2004.
10.
Property, Plant and Equipment, net
2007 2006
Land $ 548 $ 541
Buildings and improvements 3,649 3,449
Capital leases, primarily buildings 284 221
Machinery and equipment 2,651 2,566
7,132 6,777
Accumulated depreciation and amortization (3,283) (3,146)
$ 3,849 $ 3,631
Depreciation and amortization expense related to property, plant
and equipment was $514 million, $466 million and $459 million
in 2007, 2006 and 2005, respectively.