Pizza Hut 2010 Annual Report Download - page 178
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81
(a) Refranchising (gain) loss is not allocated to segments for performance reporting purposes.
(b) U.S. refranchising loss for the year ended December 25, 2010 is the net result of gains from 404 restaurants sold an
d
non-cash impairment charges related to our offers to refranchise KFCs in the U.S. While we did not yet believe
these KFCs met the criteria to be classified as held for sale, we did, consistent with our historical practice, review the
restaurants for impairment as a result of our offer to refranchise. We recorded impairment charges where we
determined that the carrying value of restaurant groups to be sold was not recoverable based upon our estimate o
f
expected refranchising proceeds and holding period cash flows anticipated while we continue to operate the
restaurants as company units. For those restaurant groups deemed impaired, we wrote such restaurant groups down
to our estimate of their fair values, which were
b
ased on the sales price we would expect to receive from a franchisee
for each restaurant group. This fair value determination considered current market conditions, real-estate values,
trends in the KFC-U.S. business, prices for similar transactions in the restaurant industry and preliminary offers fo
r
the restaurant group to date. We continued to depreciate the pre-impairment charges carrying value of these
restaurants for periods prior to impairment being recorded and continued to depreciate the post-impairment charges
carrying value thereafter. We will continue to depreciate the post-impairment charges carrying value going forward
until the date we believe the held for sale criteria for any restaurants are met. Additionally, we will continue to
review the restaurant groups for any further necessary impairment. The aforementioned non-cash write downs
totaling $85 million do not include any allocation of the KFC reporting unit goodwill in the restaurant group carrying
value. This additional non-cash write down would be recorded, consistent with our historical policy, if the restaurant
groups, or any subset of the restaurant groups, ultimately meet the criteria to be classified as held for sale. We will
also be required to record a charge for the fair value of our guarantee of future lease payments for leases we assign to
the franchisee upon any sale.
Form 10-K