Items Affecting Comparability of Net Income and/or Cash Flows
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Sep. 03, 2011
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Items Affecting Comparability Of Net Income And Cash Flows Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Items Affecting Comparability of Net Income and/or Cash Flows | Items Affecting Comparability of Net Income and/or Cash Flows Pizza Hut United Kingdom ("UK") Refranchising During the quarter ended September 3, 2011 we decided to refranchise or close all of our remaining company operated Pizza Hut dine-in restaurants in the UK market. While the asset group comprising approximately 350 stores did not meet the criteria for held for sale classification as of September 3, 2011, our decision to sell was considered an impairment indicator. As such we reviewed the asset group for potential impairment and determined that its carrying value was not recoverable based upon our estimate of expected refranchising proceeds and holding period cash flows anticipated while we continue to operate the restaurants as company units. Accordingly, we wrote the asset group down to our estimate of its fair value, which is based on the sales price we would expect to receive from a buyer. This fair value determination considered current market conditions, trends in the Pizza Hut UK business, and prices for similar transactions in the restaurant industry and resulted in a non-cash write down totaling $80 million, of which $74 million was recorded to refranchising loss and $6 million was recorded to closures and impairment expenses for stores we will likely close. We continued to depreciate the full carrying value of these restaurants through the quarter ended September 3, 2011 and will continue to depreciate the carrying value, adjusted for the write down described in the previous sentence, going forward until the date we believe the held for sale criteria for the restaurants to be sold are met. Additionally, we will continue to review the asset group for any further necessary impairment. We also recorded $2 million in refranchising loss related to obligations that we believe are now probable related to the proposed refranchising of Pizza Hut UK. The write down does not include any allocation of the Pizza Hut UK reporting unit goodwill in the asset group carrying value. This additional non-cash write down would be recorded, consistent with our historical policy, if the asset group ultimately meets the criteria to be classified as held for sale. Upon the ultimate sale of the restaurants, depending on the form of the transaction, we could also be required to record a charge for the fair value of any guarantee of future lease payments for any leases we assign to a franchisee and for the cumulative foreign currency translation adjustment associated with Pizza Hut UK. The decision to refranchise or close all remaining Pizza Hut dine-in restaurants in the UK was considered to be a goodwill impairment indicator. We determined that the fair value of our Pizza Hut UK reporting unit exceeded its carrying value and as such there was no goodwill impairment. Planned Sale of LJS and A&W During the quarter ended September 3, 2011 we determined that the asset groups comprising the LJS and A&W brands that we had previously decided to sell in the first quarter of 2011 had met the criteria to be classified as held for sale. Accordingly, we wrote the carrying value of the disposal groups down to their fair values, which reflected the sales prices we expect to receive, less estimated costs to sell. This resulted in a non-cash pre-tax write down of the disposal groups' carrying value of $16 million. Upon our initial decision to sell in the quarter ended March 19, 2011, we recorded a $66 million held for use impairment charge, and thus have recorded $82 million in impairment in the year to date ended September 3, 2011. On September 22, 2011 we entered into definitive agreements to sell the LJS and A&W brands to key franchisee leaders. As a result of these asset groups being deemed held for sale, we recognized tax benefits of $53 million related to tax losses associated with the planned sales. Additionally, we ceased amortization of the long-lived assets of the disposal groups and reclassified all assets and liabilities within the disposal groups as held for sale. As a result of this reclassification, $144 million of assets and $79 million of liabilities have been classified as Prepaid expenses and other current assets and Accounts payable and other current liabilities, respectively, in our Condensed Consolidated Balance Sheet as of September 3, 2011. As of December 25, 2010 the combined assets and liabilities for LJS and A&W are primarily presented as Intangible assets, net of approximately $190 million and Long-term debt of approximately $60 million. These businesses have not historically been significant to our operating results. Potential Acquisition of Additional Ownership in Little Sheep We currently own 27% of the outstanding shares of Little Sheep Group Limited (“Little Sheep”), a Hot Pot concept headquartered in Inner Mongolia, China. On April 26, 2011, we announced that we had submitted a preliminary proposal to Little Sheep under which we would offer to acquire all outstanding shares of Little Sheep, other than a minority interest to be held by the chairman and other founding shareholders of Little Sheep. On May 12, 2011, we made a pre-conditional cash offer to acquire additional shares of Little Sheep for approximately $570 million. If approved, this would bring our total ownership to approximately 93% of the Little Sheep business. In connection with this potential acquisition, we have placed $300 million in escrow and provided a $300 million letter of credit to demonstrate availability of funds to acquire the additional shares in this business. The funds placed in escrow are restricted to the potential acquisition of Little Sheep and are separately presented in our Condensed Consolidated Balance Sheet as of September 3, 2011 and in our Condensed Consolidated Statement of Cash Flow for the year to date ended September 3, 2011. Russia Acquisition On July 1, 2010, we completed the exercise of our option with our Russian partner to purchase their interest in the co-branded Rostik's-KFC restaurants across Russia and the Commonwealth of Independent States. As a result, we acquired company ownership of 50 restaurants and gained full rights and responsibilities as franchisor of 81 restaurants, which our partner previously managed as master franchisee. Upon exercise of our option, we paid cash of $56 million, net of settlement of a long-term note receivable of $11 million, and assumed long-term debt of $10 million which was subsequently repaid. The remaining balance of the purchase price of $16 million will be paid in cash by July 2012. The impact of consolidating this business on all line items within our Condensed Consolidated Statement of Income was insignificant for the quarter and year to date ended September 3, 2011. Issuance and Repayment of Senior Unsecured Notes On August 22, 2011, we issued $350 million aggregate principal amount of 3.75% Senior Unsecured Notes that are due on November 1, 2021 (the "2011 Notes"). On April 15, 2011, we repaid $650 million of Senior Unsecured Notes upon their maturity primarily with existing cash on hand. On August 24, 2010, we issued $350 million aggregate principal amount of 3.88% Senior Unsecured Notes that are due on November 1, 2020. Facility Actions Refranchising (gain) loss, Store closure (income) costs and Store impairment charges by reportable segment are as follows:
Assets held for sale at September 3, 2011 and December 25, 2010 total $159 million and $23 million, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Assets held for sale at September 3, 2011 primarily consist of $144 million related to the planned sales of the LJS and A&W brands. Liabilities held for sale at September 3, 2011 total $79 million related to the planned sales of the LJS and A&W brands and are included in Accounts payable and other current liabilities in our Condensed Consolidated Balance Sheet. |