Red Lobster 2012 Annual Report Download - page 50

Notes to Consolidated Financial Statements
Darden
46 Darden Restaurants, Inc. 2012 Annual Report
reporting unit’s fair value is less than its carrying value before applying the
two-step goodwill impairment model that is currently in place. If it is determined
through the qualitative assessment that a reporting unit’s fair value is more likely
than not greater than its carrying value, the remaining impairment steps would
be unnecessary. The qualitative assessment is optional, allowing companies to go
directly to the quantitative assessment. This update is effective for annual and
interim goodwill impairment tests performed in fiscal years beginning after
December฀15,฀2011,฀which฀will฀require฀us฀to฀adopt฀these฀provisions฀in฀fiscal฀2013;฀
however, early adoption is permitted. We do not believe adoption of this new
guidance will have a significant impact on our consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210),
Disclosures about Offsetting Assets and Liabilities, which requires companies to
disclose information about financial instruments that have been offset and
related arrangements to enable users of its financial statements to understand
the effect of those arrangements on its financial position. Companies will be
required to provide both net (offset amounts) and gross information in
the notes to the financial statements for relevant assets and liabilities that are
offset. This update is effective for us in our first quarter of fiscal 2014 and will
be applied retrospectively. We do not believe adoption of this new guidance
will have a significant impact on our consolidated financial statements.
`NOTE 2
DISCONTINUED OPERATIONS
For fiscal 2012, 2011 and 2010, all gains and losses on disposition, impairment
charges and disposal costs related to the closure and disposition of Smokey Bones
and Rocky River Grillhouse restaurants and closure of nine Bahama Breeze
restaurants in fiscal 2007 and 2008 have been aggregated to a single caption
entitled losses from discontinued operations, net of tax benefit in our
consolidated statements of earnings and are comprised of the following:
Fiscal Year
(in millions) 2012 2011 2010
Sales $ — $ — $ —
Losses before income taxes (1.7) (3.9) (4.0)
Income tax benefit 0.7 1.5 1.5
Net losses from
discontinued operations $(1.0) $(2.4) $(2.5)
As of May 27, 2012 and May 29, 2011, we had $5.6 million and $7.8 million,
respectively, of assets associated with the closed restaurants reported as
discontinued operations, which are included in land, buildings and equipment,
net on the accompanying consolidated balance sheets.
`NOTE 3
RECEIVABLES, NET
Receivables, net are primarily comprised of amounts owed to us from the sale
of gift cards in national retail outlets and receivables from national storage and
distribution companies with which we contract to provide services that are billed to
us on a per-case basis. In connection with these services, certain of our inventory
items are conveyed to these storage and distribution companies to transfer
ownership and risk of loss prior to delivery of the inventory to our restaurants.
We reacquire these items when the inventory is subsequently delivered to our
restaurants. These transactions do not impact the consolidated statements of
earnings. Receivables from the sale of gift cards in national retail outlets, national
storage and distribution companies and our overall allowance for doubtful
accounts are as follows:
(in millions) May 27, 2012 May 29, 2011
Retail outlet gift card sales $33.4 $25.0
Storage and distribution 6.5 17.4
Allowance for doubtful accounts (0.3) (0.3)
` NOTE 4
ASSET IMPAIRMENTS
During fiscal 2012, we recognized long-lived asset impairment charges of
$0.5 million ($0.3 million net of tax), primarily related to the permanent closure
of one Red Lobster, and the write-down of assets held for disposition based on
updated valuations. During fiscal 2011, we recognized long-lived asset impairment
charges of $4.7 million ($2.9 million net of tax), primarily related to the permanent
closure of two Red Lobsters, the write-down of another Red Lobster based on an
evaluation of expected cash flows, and the write-down of assets held for disposition
based on updated valuations. During fiscal 2010 we recognized long-lived asset
impairment charges of $6.2 million ($3.8 million net of tax), primarily related to
the write-down of assets held for disposition based on updated valuations, the
permanent closure of three Red Lobsters and three LongHorn Steakhouses and
the write-down of two LongHorn Steakhouses and one Olive Garden based on an
evaluation of expected cash flows. These costs are included in selling, general and
administrative expenses as a component of earnings from continuing operations
in the accompanying consolidated statements of earnings for fiscal 2012, 2011
and 2010. Impairment charges were measured based on the amount by which the
carrying amount of these assets exceeded their fair value. Fair value is generally
determined based on appraisals or sales prices of comparable assets and estimates
of future cash flows.
The results of operations for all Red Lobster, Olive Garden and
LongHorn Steakhouse restaurants permanently closed in fiscal 2012, 2011
and 2010 that would otherwise have met the criteria for discontinued
operations reporting are not material to our consolidated financial position,
results of operations or cash flows and, therefore, have not been presented
as discontinued operations.