Intangible assets
2003, the Company had USD 750 and EUR 600 drawn in loans and USD 353 in letters of credit issued under the 2003
Credit Facility. The Company's current level of indebtedness and other commitments and contingencies could affect its
operations in a number of ways, including (1) requiring it to dedicate a substantial portion of our cash flow from operations
to service debt, (2) limiting its ability to obtain additional debt financing in the future for working capital, capital
expenditures or to refinance existing debt, (3) limiting its flexibility in reacting to industry changes and economic
conditions generally and (4) placing it at a competitive disadvantage.
As announced on September 4, 2003, under the direction of the Company's new President and Chief Executive Officer
and new Chief Financial Officer, a primary focus of the Company is on debt reduction through divestments, improving
performance and generating free cash flow with working capital management and scrutinizing capital expenditures. Cost
reduction programs also have been announced and are being implemented throughout the Company. The Company has
begun divesting and will continue divesting non-core businesses and consistently under-performing assets, either in whole
or in part, in an effort to focus on core operations. As part of the Company's new strategic framework, the scope of this
divestment program will be expanded, as the Company intends to review its portfolio of businesses with a focus on
operations and formats that are capable of appropriate levels of growth and have the potential to become market leaders.
The Company is assessing the options available for refinancing existing debt and reducing leverage.
The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of its
operating performance and other relevant circumstances. Because cash flow from operations alone will be insufficient to
repay all of the Company's maturing indebtedness, the Company's ability to have sufficient liquidity will depend on, among
other things: being able to implement successfully its strategic plans; generating cash flows from operations and from the
sale of assets; complying with the terms of its debt agreements and other contractual obligations, including the 2003
Credit Facility; refinancing its existing debt obligations, including the 2003 Credit Facility, obtaining bank loans, raising
equity or issuing debt in the capital markets; and maintaining credit ratings.
If funds from these anticipated sources are not available on a timely basis or on satisfactory terms or at all or if these
sources are insufficient to pay the Company's obligations as they mature or to fund the Company's liquidity needs, the
Company and its subsidiaries may be forced to reduce or delay business activities or refinance all or a portion of its debt
on or before maturity. In addition, if the Company's estimates of cash flow, expenses or capital or liquidity requirements
change or are inaccurate, it may need to raise additional funds. As a consequence of the issues announced on February
24, 2003, and subsequent related events, the credit rating downgrades, the Company's consolidated net losses for fiscal
2002, its high debt level and the pledge of a substantial portion of its assets to secure indebtedness, it may be more
difficult for the Company to refinance its debt, raise additional funds and improve liquidity on favorable terms. If the
Company is unable to raise additional financing when needed, this could materially adversely affect its financial condition,
results of operations and liquidity.
In light of its strategic framework and based on current levels of operations, the Company's management expects to meet
short and mid-term working capital, capital expenditures and scheduled indebtedness repayment requirements with cash
from operations, proceeds from asset divestitures and the refinancing of debt, including the 2003 Credit Facility, through
accessing the capital markets, obtaining bank loans or otherwise.
Intangible assets primarily consist of goodwill, brand names, customer relationships, favorable operating lease contracts
and trade name licenses acquired separately or in business acquisitions. Intangible assets also consist of contractual lease
rights and software costs separately acquired and developed internally. These assets are recorded at fair value determined
at the date of acquisition of the related underlying business, or at cost if they are internally developed (i.e., software) or
separately acquired.
Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets
at the dates of acquisition. Prior to December 2000, goodwill was charged directly to shareholders' equity. Beginning
December 1, 2000, goodwill is capitalized and amortized over the period the Company is expected to benefit from the
goodwill, not exceeding 20 years.
Brand names acquired in business acquisitions after January 1, 2001, are capitalized and amortized over the period
the Company is expected to benefit from the brand names, not exceeding 20 years. Brand names acquired have been
capitalized at fair value determined using the royalty method, whereby the fair value is based on the present value of
the estimated royalty payments that would be expected to be paid for the use of the brand name.
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