Pizza Hut 2006 Annual Report Download - page 60

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4.
Items Affecting Comparability of Net Income
FACILITY ACTIONS Refranchising (gain) loss, store closure
(income) costs and store impairment charges by reportable seg-
ment are as follows:
2006 2005 2004
U.S.
Refranchising net (gain) loss(a)(b) $ (20) $ (40) $ (14)
Store closure costs (income) (1) 2 (3)
Store impairment charges 38 44 17
Closure and impairment expenses $37 $46 $14
International Division
Refranchising net (gain) loss(a)(b) $ (4) $ (3) $ 3
Store closure costs (income) 1 (1) 1
Store impairment charges 15 10 19
Closure and impairment expenses $16 $9 $20
China Division
Refranchising net (gain) loss(a) $— $ — $ (1)
Store closure costs (income) (1) (1) (1)
Store impairment charges 7 8 5
Closure and impairment expenses $6 $7 $4
Worldwide
Refranchising net (gain) loss(a)(b) $ (24) $ (43) $ (12)
Store closure costs (income) (1) — (3)
Store impairment charges 60 62 41
Closure and impairment expenses $59 $62 $38
(a) Refranchising (gain) loss is not allocated to segments for performance reporting
purposes.
(b) Includes initial franchise fees in the U.S. of $11 million in 2006, $7 million in 2005
and $2 million in 2004, and in the International Division of $6 million in 2006,
$3 million in 2005 and $8 million in 2004. See Note 7.
The following table summarizes the 2006 and 2005 activity related
to reserves for remaining lease obligations for closed stores.
Estimate/
Beginning Amounts New Decision Ending
Balance Used Decisions Changes Other Balance
2005 Activity $ 43 (13) 14 — — $ 44
2006 Activity $ 44 (17) 8 1 — $ 36
Assets held for sale at December 30, 2006 and December 31,
2005 total $13 million and $11 million, respectively, of U.S. prop-
erty, plant and equipment, primarily land, on which we previously
operated restaurants and are included in prepaid expenses and
other current assets on our Consolidated Balance Sheets.
WRENCH LITIGATION In fiscal year 2003, we recorded a charge
of $42 million related to a lawsuit filed against Taco Bell Corp.
(the “Wrench litigation”). Income of $14 million was recorded for
2004 reflecting settlements associated with the Wrench litiga-
tion for amounts less than previously accrued as well as related
insurance recoveries. We recorded income of $2 million in 2005
from a settlement with an insurance carrier related to the Wrench
litigation. We continue to pursue additional recoveries which, if
any, will be recorded as realized.
AMERISERVE AND OTHER CHARGES (CREDITS) AmeriServe
Food Distribution Inc. (“AmeriServe”) was the primary distributor
of food and paper supplies to our U.S. stores when it filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on Janu-
ary 31, 2000. A plan of reorganization for AmeriServe (the “POR”)
was approved on November 28, 2000, which resulted in, among
other things, the assumption of our distribution agreement, sub-
ject to certain amendments, by McLane Company, Inc. During the
AmeriServe bankruptcy reorganization process, we took a num-
ber of actions to ensure continued supply to our system. Those
actions resulted in significant expense for the Company, primarily
recorded in 2000. Under the POR, we are entitled to proceeds
from certain residual assets, preference claims and other legal
recoveries of the estate.
Income of $1 million, $2 million and $16 million was
recorded as AmeriServe and other charges (credits) for 2006,
2005 and 2004, respectively. These amounts primarily resulted
from cash recoveries related to the AmeriServe bankruptcy reor-
ganization process.
5.
Supplemental Cash Flow Data
2006 2005 2004
Cash Paid For:
Interest $ 185 $ 132 $ 146
Income taxes 304 232 276
Significant Non-Cash Investing and
Financing Activities:
Assumption of capital leases
related to the acquisition of
restaurants from franchisees $— $— $ 8
Capital lease obligations
incurred to acquire assets 9 7 13
Additionally, we assumed the full liability associated with capital
leases of $95 million and short-term borrowings of $23 million
when we acquired the remaining fifty percent ownership interest
of our Pizza Hut United Kingdom unconsolidated affiliate (See
Note 6). Previously, our fifty percent share of these liabilities were
reflected in our Investment in unconsolidated affiliate balance
under the equity method of accounting and were not presented
as liabilities on our Consolidated Balance Sheet.
6.
Pizza Hut United Kingdom Acquisition
On September 12, 2006, we completed the acquisition of the
remaining fifty percent ownership interest of our Pizza Hut United
Kingdom (“U.K.”) unconsolidated affiliate for $187 million in
cash, including transaction costs and prior to $9 million of cash
assumed. This unconsolidated affiliate owned more than 500
restaurants in the U.K. The acquisition was driven by growth
opportunities we see in the market and the desire of our former
partner in the unconsolidated affiliate to refocus its business to
other industry sectors. Prior to this acquisition, we accounted for
our ownership interest under the equity method of accounting.
Our Investment in unconsolidated affiliate balance for the Pizza
Hut U.K. unconsolidated affiliate was $58 million at the date of
this acquisition.