Pizza Hut 2000 Annual Report Download - page 63

TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES 61
the ultimate cost of the AmeriServe bankruptcy reorganiza-
tion process will not materially exceed the amounts already
provided. A summary of the expense is as follows:
DIP Facility $÷«70
Gross Settlement Amount 246
Less: Dismissed Payables (101)
Residual Assets (86)
Net Settlement Amount 59
TDPP and Other 41
Bankruptcy Causes of Action –
$«170
Each of the amounts in this table is more fully
described below.
DIP Facility
On February 2, 2000, AmeriServe was provided with a
$150 million interim debtor-in-possession (“DIP”) revolving
credit facility (the “DIP Facility”). Through a series of trans-
actions, our effective net commitment under the DIP Facility
was $70 million. At November 30, 2000, the total DIP com-
mitment had essentially been funded.
Replacement Lien
During the bankruptcy reorganization process, we consented
to a cash collateral order by the U.S. Bankruptcy Court
under which the pre-petition secured lenders of AmeriServe
agreed to allow certain AmeriServe pre-petition collateral
(principally inventory and receivables) to be used in the nor-
mal course of business. In exchange, we agreed to grant a lien
(“Replacement Lien”) to these lenders on inventory that we
purchased and the receivables resulting from the sale of this
inventory under the Temporary Direct Purchase Program
described below.
AmeriServe POR
The POR provided for the sale of the AmeriServe U.S. distri-
bution business to McLane effective on November 30, 2000.
In connection with this sale, we have agreed to (a) an extension
of the sales and distribution agreement for U.S. Company-
owned stores (the “Distribution Agreement”) through
October 31, 2010; (b) a five-percent increase in distribution
fees under the Distribution Agreement; and (c) a reduction
in our payment terms for supplies from 30 to 15 days.
Beginning on November 30, 2000 (the closing date of the
sale), McLane assumed all supply and distribution responsi-
bilities under our Distribution Agreement, as well as under
the distribution agreements of most of our franchisees and
licensees previously serviced by AmeriServe.
Under the terms of the POR, TRICON provided approxi-
mately $246 million to AmeriServe (the “Gross Settlement
Amount”) to facilitate a global settlement with holders of
allowed secured and administrative priority claims in the
bankruptcy. In exchange, TRICON will receive the proceeds
from the liquidation of AmeriServe’s remaining inventory,
accounts receivable and certain other assets (the “Residual
Assets”). We have currently estimated these proceeds to be
approximately $86 million and have recorded a receivable
from the AmeriServe bankruptcy estate in this amount. We
expect that these proceeds will be primarily realized over
the next twelve months. Through March 9, 2001, we have
collected approximately $29 million.
The POR also released us from any further obligations or
claims under the Replacement Lien and provided for the dis-
missal of the legal action filed by AmeriServe against TRICON
seeking payment of the $101 million in pre-petition trade
accounts payable to AmeriServe (the “Dismissed Payables”).
As previously disclosed, we had accrued for, but withheld
payment of the Dismissed Payables.
In addition, the POR grants TRICON a priority right to
proceeds (up to a maximum of $220 million) from certain
litigation claims and causes of action held by the AmeriServe
bankruptcy estate, including certain avoidance and preference
actions (collectively, the “Bankruptcy Causes of Action”).
We expect that any such proceeds, the potential amounts of
which are not yet reasonably estimable, will be primarily
realized over the next twelve to twenty-four months. These
recoveries, if any, will be recorded as unusual items as they
are realized.
Temporary Direct Purchase Program
During the bankruptcy reorganization process, to help ensure
that our supply chain remained open, we purchased supplies
directly from suppliers for use in our restaurants, as well as
for resale to our franchisees and licensees who previously pur-
chased supplies from AmeriServe (the “Temporary Direct
Purchase Program” or “TDPP”). AmeriServe agreed, for the
same fee in effect prior to the bankruptcy filing, to continue to
be responsible for distributing supplies to us and our partici-
pating franchisee and licensee restaurants. Operations under
the TDPP ceased on November 30, 2000, the date on which
McLane purchased AmeriServe’s U.S. distribution business.
In connection with the TDPP, we incurred approximately
$41 million of costs, principally related to allowances for
estimated uncollectible receivables from our franchisees and
licensees and the incremental interest cost arising from the
additional debt required to finance the inventory purchases
and the receivables arising from supply sales to our franchisees
and licensees. These costs also included inventory obsoles-
cence and certain general and administrative expenses. Under
SFAS No. 45, “Accounting for Franchise Fee Revenue,” the
results of these agency distribution activities are reported on a
net basis in the Consolidated Statement of Income.
At December 30, 2000, our remaining receivables from
franchisees and licensees for sales of supplies under the TDPP
were approximately $52 million, net of related allowances for
doubtful accounts. The Company intends to vigorously pur-
sue collection of these receivables. Through March 9, 2001,