Pizza Hut 1999 Annual Report Download - page 50

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(2) reduction to fair market value, less costs to sell, of the car-
rying amounts of certain restaurants we intended to
refranchise; (3) impairment of certain restaurants intended to
be used in the business; (4) impairment of certain investments
in unconsolidated affiliates to be retained; and (5) costs of
related personnel reductions. Of the $530 million charge,
approximately $401 million related to asset writedowns and
approximately $129 million related to liabilities, primarily
occupancy-related costs and, to a much lesser extent, sever-
ance. The liabilities were expected to be settled from cash flows
provided by operations. Through December 25, 1999, the
amounts used apply only to the actions covered by the charge.
The components of the 1997 fourth quarter charge are detailed
below:
U.S. International Worldwide
Store closure costs $ 141 $ 72 $ 213
Refranchising losses 77 59 136
Impairment charges 12 49 61
Total facility actions net loss 230 180 410
Impairment of investments in
unconsolidated affiliates — 79 79
Severance and other 18 23 41
Total unusual items 18 102 120
Total fourth quarter charges $ 248 $ 282 $ 530
Total fourth quarter charges,
after-tax $ 176 $ 249 $ 425
During 1999 and 1998, we continued to re-evaluate our prior
estimates of the fair market value of units to be refranchised or
closed and other liabilities arising from the charge. In 1999, we
recorded favorable adjustments of $13 million ($10 million
after-tax) and $11 million ($10 million after-tax) included in
facility actions net gain and unusual items, respectively. These
adjustments relate to lower-than-expected losses from stores
disposed of, decisions to retain stores originally expected to be
disposed of and changes in estimated costs. In 1998, favor-
able adjustments of $54 million ($33 million after-tax) and
$11 million ($7 million after-tax) were included in facility
actions net gain and unusual items, respectively. These adjust-
ments primarily related to decisions to retain certain stores
originally expected to be disposed of, lower-than-expected
losses from stores disposed of and favorable lease settlements
with certain lessors related to stores closed.
Our operating profit includes benefits from the suspension of
depreciation and amortization of approximately $12 million
($7 million after-tax) and $33 million ($21 million after-tax)
in 1999 and 1998, respectively, for stores held for disposal.
The relatively short-term benefits from depreciation and amor-
tization suspension related to stores that were operating at the
end of the respective periods ceased when the stores were
refranchised, closed or a subsequent decision was made to
retain the stores.
Although we originally expected to refranchise or close all
1,392 units included in the original charge by year-end 1998,
the disposal of 531 units was delayed. In 1999, we disposed of
326 units, and decisions were made to retain 195 units origi-
nally expected to be disposed of in 1999.
Below is a summary of activity through 1999 related to the units
covered by the 1997 fourth quarter charge:
Units Expected to be Total Units
Closed Refranchised Remaining
Units at December 27, 1997 740 652 1,392
Units disposed of (426) (320) (746)
Units retained (88) (20) (108)
Change in method of disposal (109) 109 —
Other 6 (13) (7)
Units at December 26, 1998 123 408 531
Units disposed of (79) (247) (326)
Units retained (29) (166) (195)
Change in method of disposal (21) 21 —
Other 6 (16) (10)
Units at December 25, 1999 ———
Below is a summary of the 1999 and 1998 activity related to
our asset valuation allowances and liabilities recognized as a
result of the 1997 fourth quarter charge:
Asset
Valuation
Allowances Liabilities Total
Balance at
December 27, 1997 $ 261 $ 129 $ 390
Amounts used (131) (54) (185)
(Income) expense impacts:
Completed transactions (27) (7) (34)
Decision changes (22) (17) (39)
Estimate changes 15 (7) 8
Other 1 — 1
Balance at
December 26, 1998 $ 97 $ 44 $ 141
Amounts used (87) (32) (119)
(Income) expense impacts:
Completed transactions (5) — (5)
Decision changes 1 (3) (2)
Estimate changes (7) (9) (16)
Other 1 — 1
Balance at
December 25, 1999 $— $— $—