Forum Archive Index - September 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Noticed while perusing my Restaurant Brand report FY2000:

"Goodwill is being amortised over a period of 17 years from balance 
date, reflecting the tenure of the master franchise agreement with 
'Yum' (USA).  The agreement includes an initial period of 7 years from 
the balance date, after which the agreement is subject to renewal.   
The directors are of the view that it is reasonably certain the 
agreement will be renewed."

OK that makes sense, at least on the surface.   

*However*, this goodwill does not include any exemption to the pay the 
6% 'concept royalty' fee on sales (regardless of profitability).    It does 
not include any exemption to pay one off franchise payments that must 
be made to YUM when new restaurants are opened.    It does not 
include an exemption to pay the $NZ12m or so renewal fee to have 
another 10 years use of the KFC/PH concepts in 2007.  Ultimate 
'ownership' of the KFC and Pizza Hutt concepts rest with YUM in the 
USA.  

The blunt fact is all RBD has is an inescapable liability to pay YUM.     
Why is this inescpable liability represented on the books still recorded 
as goodwill?  Or have I got the wrong impression of what this goodwill 
represents?

Also I note since this statement was made, the KFC real estate has 
been sold and leased back.   So we can't say that RBD 'owns' any 
goodwill associated with 'real estate as good business sites' any more.
Why was no adjustment to goodwill on the books made when the KFC 
premises were sold?

Here is my overall question.    

Long form/

If the goodwill on the RBD books repesents the price paid to acquire 
an asset that will produce on going returns well above and beyond the 
fire sale price of those assets,  then can anyone describe that 
measurable advantage RBD now has due to this goodwill?

Short form/

Is the value of goodwill on the RBD books BS?

SNOOPY



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