Red Lobster 2015 Annual Report Download - page 41

DARDEN RESTAURANTS, INC. | 2015 ANNUAL REPORT 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DARDEN
APPLICATION OF NEW ACCOUNTING STANDARDS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606). This update provides a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict
the transfer of goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or services.
The guidance also requires additional disclosure about the nature, amount,
timing and uncertainty of revenue and cash flows arising from customer
contracts. This update was originally effective for annual and interim periods
beginning after December 15, 2016, which would have required us to adopt
these provisions in the first quarter of fiscal 2018. In July 2015, the FASB
affirmed its proposal for a one-year deferral of the effective date. Early
application is now permitted, but not before the original effective date.
This update permits the use of either the retrospective or cumulative
effect transition method. We are evaluating the effect this guidance will
have on our consolidated financial statements and related disclosures.
We have not yet selected a transition method nor have we determined
the effect of the standard on our ongoing financial reporting.
NOTE 2
DISPOSITIONS
On July 28, 2014, we closed on the sale of 705 Red Lobster restaurants;
however, as of May 31, 2015, 9 of the properties remain subject to landlord
consents and satisfaction of other contractual requirements. Therefore, the
assets of these remaining restaurants continue to be classified as held for sale
and recognition of the gain on the related proceeds was deferred. The proceeds
of approximately $31.5 million associated with the remaining landlord consents
are classified as other current liabilities on our consolidated balance sheet
as of May 31, 2015. As the landlord consents and remaining contractual
requirements are satisfied, which we expect to occur within the next six months,
we will derecognize the related assets and record the commensurate gain on
the transaction. All direct cash flows related to operating these businesses
were eliminated at the date of sale. Our continuing involvement has been
limited to a transition service agreement for up to two years from the date of
sale with minimal impact to our cash flows. In conjunction with the sale of
Red Lobster, there were 19 locations where Red Lobster shared a land parcel
with another Darden brand. The land and related buildings for these 19 Darden
locations were included in the sale transaction and simultaneously leased
back to Darden. The proceeds associated with the sale of these properties are
classified as a financing lease obligation on our consolidated balance sheet
as a component of other liabilities and the associated lease payments will
amortize the obligation over the life of the properties. Additionally, in the fourth
quarter of fiscal 2014, in connection with the expected sale of Red Lobster,
we closed two of the six restaurants that housed both a Red Lobster and an
Olive Garden in the same building (synergy restaurants). In the first quarter of
fiscal 2015, we completed the conversion of the four remaining company-
owned synergy restaurants to stand-alone Olive Garden restaurants.
As of May 31, 2015, we received $2.08 billion in cash proceeds, net of
transaction-related costs of approximately $29.3 million. During fiscal 2015,
we recognized a pre-tax gain on the sale of Red Lobster of $837.0 million,
which is included in earnings from discontinued operations in our consolidated
statement of earnings.
For fiscal 2015, 2014 and 2013, all gains on disposition, impairment
charges and disposal costs, along with the sales, costs and expenses and
income taxes attributable to these restaurants, have been aggregated in a
single caption entitled “Earnings from discontinued operations, net of tax
expense” in our consolidated statements of earnings for all periods presented.
No amounts for shared general and administrative operating support expense
or interest expense were allocated to discontinued operations. Assets associated
with those restaurants not yet disposed of, that are considered held for sale,
have been segregated from continuing operations and presented as assets
held for sale on our accompanying consolidated balance sheets. In April 2014,
the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic
205) and Property, Plant and Equipment (Topic 360), Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity. This
update modifies the requirements for reporting discontinued operations. Under
the amendments in ASU 2014-08, the definition of a discontinued operation
has been modified to only include those disposals of an entity that represent
a strategic shift that has (or will have) a major effect on an entity’s operations
and financial results. This update also expands the disclosure requirements
for disposals that meet the definition of a discontinued operation and requires
entities to disclose information about disposals of individually significant
components that do not meet the definition of discontinued operations. We
elected to early adopt these provisions in the third quarter of fiscal 2015.
Earnings from discontinued operations, net of taxes in our accompanying
consolidated statements of earnings are comprised of the following:
Fiscal Year Ended
May 31, May 25, May 26,
(in millions) 2015 2014 2013
Sales $ 400.4 $2,472.1 $2,630.9
Restaurant and marketing expenses 353.0 2,134.1 2,212.4
Depreciation and amortization 0.2 124.6 116.4
Other costs and expenses (1) (810.7) 78.1 54.8
Earnings before income taxes 857.9 135.3 247.3
Income tax expense 344.8 32.3 72.7
Earnings from discontinued
operations, net of tax $ 513.1 $ 103.0 $ 174.6
(1) Amounts for fiscal year ended May 31, 2015 include the gain recognized on the sale of
Red Lobster.
The following table presents the carrying amounts of the major classes of
assets and liabilities associated with the restaurants reported as discontinued
operations and classified as held for sale on our accompanying consolidated
balance sheets.
(in millions) May 31, 2015 May 25, 2014
Current assets $ — $ 241.0
Land, buildings and equipment, net 32.9 1,084.8
Other assets — 64.5
Total assets $32.9 $1,390.3
Current liabilities $ — $ 130.6
Other liabilities — 84.9
Total liabilities $ — $ 215.5