Taco Bell 2004 Annual Report Download - page 57
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Please find page 57 of the 2004 Taco Bell annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.determined to have a finite useful life, we amortize the
intangibleassetprospectivelyoveritsestimatedremaining
usefullife.Amortizableintangibleassetsareamortizedon
astraight-linebasisover3to40years.Asdiscussedabove,
wesuspendamortizationonthoseintangibleassetswitha
definedlifethatareallocatedtorestaurantsthatareheld
forsale.
InaccordancewiththerequirementsofSFAS142,goodwill
hasbeenassignedtoreportingunitsforpurposesofimpair-
menttesting.Ourreportingunitsareouroperatingsegments
intheU.S.(seeNote23)andourbusinessmanagementunits
internationally(typicallyindividualcountries).Goodwillimpair-
menttestsconsistofacomparisonofeachreportingunit’s
fairvaluewithitscarryingvalue.Thefairvalueofareporting
unitisanestimate of theamountforwhichtheunitasa
wholecouldbesoldinacurrenttransactionbetweenwilling
parties.Wegenerallyestimatefairvaluebasedondiscounted
cashflows.Ifthecarryingvalueofareportingunitexceeds
itsfairvalue,goodwilliswrittendowntoitsimpliedfairvalue.
Wehaveselectedthebeginningofourfourthquarterasthe
dateonwhichtoperformourongoingannualimpairmenttest
forgoodwill.For2004and2003,therewasnoimpairment
ofgoodwillidentifiedduringourannualimpairmenttesting.
For2002,goodwillassignedtothePizzaHutFrancereporting
unit was deemed impaired and written off. The charge of
$5millionwasrecordedinfacilityactions.
Forindefinite-livedintangibleassets,ourimpairmenttest
consistsofacomparisonofthefairvalueofanintangible
assetwithitscarryingamount.Fairvalueisanestimateof
thepriceawillingbuyerwouldpayfortheintangibleasset
andisgenerallyestimatedbydiscountingtheexpectedfuture
cash flows associated with the intangible asset. We also
performourannualtestforimpairmentofourindefinite-lived
intangibleassetsatthebeginningofourfourthquarter.Our
indefinite-livedintangibleassetsconsistofvaluesassigned
tocertaintrademarks/brandswehaveacquired.Whendeter-
miningthefairvalue,welimitassumptionsaboutimportant
factorssuchassalesgrowthtothosethataresupportable
basedonourplansforthetrademark/brand.Asdiscussedin
Note12,werecordeda$5millionchargein2003asaresult
oftheimpairmentofanindefinite-livedintangibleasset.This
charge was recorded infacilityactions. No impairment of
indefinite-livedintangibleswasrecordedin2004or2002.
Stock-Based Employee Compensation At December25,
2004,theCompanyhadfourstock-basedemployeecompen-
sationplansineffect,whicharedescribedmorefullyinNote
18.TheCompanyaccountsforthoseplansundertherecog-
nitionandmeasurementprinciplesofAccountingPrinciples
Board Opinion No.25, “Accounting for Stock Issued to
Employees”(“APB25”),andrelatedInterpretations.Nostock-
basedemployeecompensationcostisreflectedinnetincome
foroptionsgrantedundertheseplans,asallsuchoptions
hadanexercisepriceequaltothemarketvalueoftheunder-
lyingcommonstockonthedateofgrant.Thefollowingtable
illustratestheeffectonnetincomeandearningspershareif
theCompanyhadappliedthefairvaluerecognitionprovisions
ofSFASNo.123,“AccountingforStock-BasedCompensation”
(“SFAS123”),tostock-basedemployeecompensation.
2004 2003 2002
NetIncome,asreported $ 740 $ 617 $ 583
Deduct:Totalstock-basedemployee
compensationexpensedetermined
underfairvaluebasedmethodfor
allawards,netofrelatedtaxeffects (34) (36) (39)
Netincome,proforma 706 581 544
BasicEarningsperCommonShare
Asreported $2.54 $2.10 $1.97
Proforma 2.42 1.98 1.84
DilutedEarningsperCommonShare
Asreported $2.42 $2.02 $1.88
Proforma 2.31 1.91 1.76
DerivativeFinancialInstruments Wedonotusederivative
instrumentsfortradingpurposesandwehaveproceduresin
placetomonitorandcontroltheiruse.Ouruseofderivative
instrumentshas included interest rate swaps andcollars,
treasury locks and foreign currency forward contracts. In
addition,onalimitedbasisweutilizecommodityfuturesand
optionscontracts.Ourinterestrateandforeigncurrencyderiv-
ativecontractsareenteredintowithfinancialinstitutionswhile
ourcommodityderivativecontractsareexchangetraded.
Weaccountforthesederivativefinancialinstruments
inaccordancewithSFASNo.133,“AccountingforDerivative
Instruments and Hedging Activities” (“SFAS133”) as
amendedbySFASNo.149,“AmendmentofStatement133on
DerivativeInstrumentsandHedgingActivities”(“SFAS149”).
SFAS133requiresthatallderivativeinstrumentsberecorded
ontheConsolidatedBalanceSheetatfairvalue.Theaccount-
ingforchangesinthefairvalue(i.e.,gainsorlosses)ofa
derivativeinstrumentisdependentuponwhetherthederiva-
tivehasbeendesignatedandqualifiesaspartofahedging
relationshipandfurther,onthetypeofhedgingrelationship.
Forderivativeinstrumentsthataredesignatedandqualifyas
afairvaluehedge,thegainorlossonthederivativeinstru-
mentaswellastheoffsettinggainorlossonthehedgeditem
attributabletothehedgedriskarerecognizedintheresults
ofoperations.Forderivativeinstrumentsthataredesignated
andqualifyasacashflowhedge,theeffectiveportionofthe
gainorlossonthederivativeinstrumentisreportedasacom-
ponentofothercomprehensiveincome(loss)andreclassified
intoearningsinthesameperiodorperiodsduringwhichthe
hedgedtransactionaffectsearnings.Anyineffectiveportionof
thegainorlossonthederivativeinstrumentisrecordedinthe
resultsofoperationsimmediately.Forderivativeinstruments
notdesignatedashedginginstruments,thegainorlossis
recognizedintheresultsofoperationsimmediately.SeeNote
16foradiscussionofouruseofderivativeinstruments,man-
agementofcreditriskinherentinderivativeinstrumentsand
fairvalueinformation.
New Accounting Pronouncements Not Yet Adopted In
October 2004, the FASB ratified the consensus reached
bytheEmergingIssues TaskForce(“EITF”) onIssue04-1
“AccountingforPreexistingRelationshipsbetweentheParties
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