Pizza Hut 2011 Annual Report Download - page 167

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Balance Sheets. Equity income recognized from our investment in Little Sheep was not significant in the years ended December
31, 2011, December 25, 2010 or December 26, 2009.
In May 2011, we announced our intent to acquire an additional 66% controlling interest in Little Sheep. As a result, we 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 were restricted to the pending acquisition of Little Sheep and are separately
presented in our Consolidated Balance Sheet as of December 31, 2011 and in our Consolidated Statement of Cash Flows for the
year ended December 31, 2011. See Note 21 for information regarding the completion of this acquisition subsequent to year-end.
YRI Acquisitions
On October 31, 2011, YRI acquired 68 KFC restaurants from an existing franchisee in South Africa for $71 million.
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. We paid cash of $60 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 $12 million
will be paid in cash in July 2012.
The impact of consolidating these businesses on all line-items within our Consolidated Statement of Income was insignificant to
the comparison of our year-over-year results.
Refranchising (Gain) Loss
The Refranchising (gain) loss by reportable segment is presented below. We do not allocate such gains and losses to our segments
for performance reporting purposes.
China
YRI (a)(b)(c)
U.S. (d)
Worldwide
Refranchising (gain) loss
2011
$ (14)
69
17
$ 72
2010
$ (8)
53
18
$ 63
2009
$(3)
11
(34)
$(26)
(a) During the year ended December 31, 2011 we decided to refranchise or close all of our remaining Company-operated
Pizza Hut restaurants in the UK market. While an asset group comprising approximately 350 dine-in restaurants did not
meet the criteria for held-for-sale classification as of December 31, 2011, our- decision to sell was considered an
impairment indicator. As such we reviewed this 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 this 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 pre-tax write-down of $74 million which was recorded
to Refranchising (gain) loss. This impairment charge decreased depreciation expense versus what would have otherwise
been recorded by $3 million in 2011. This depreciation reduction was not allocated to the YRI segment, resulting in
depreciation expense in the YRI segment results continuing to be recorded at the rate at which it was prior to the impairment
charges being recorded for these restaurants. We will continue to review the asset group for any further necessary
impairment until the date it is sold. 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
restaurants in the UK was considered to be a goodwill impairment indicator. We determined that the fair value of our
Form 10-K