Red Lobster 2014 Annual Report Download - page 36

Notes to Consolidated Financial Statements
Darden
34 Darden Restaurants, Inc.
In April 2014, the FASB issued ASU No. 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 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. This update is effective for annual and
interim periods beginning after December 15, 2014, which will require us to
adopt these provisions in the first quarter of fiscal 2016. We are evaluating
the effect this guidance will have on our consolidated financial statements
and related disclosures.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740),
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The
objective of this update is to eliminate the diversity in practice in the presen-
tation of unrecognized tax benefits when a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward exists. Under this guidance, an
unrecognized tax benefit, or a portion of an unrecognized tax benefit, should
be presented in the financial statements as a reduction to a deferred tax
asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward, except in certain circumstances. This update does not require
any new recurring disclosures and is effective for annual and interim periods
beginning after December 15, 2013, which will require us to adopt these
provisions in the first quarter of fiscal 2015. We do not believe adoption
of this new guidance will have a significant impact on our consolidated
financial statements.
NOTE 2
DISCONTINUED OPERATIONS
On May 15, 2014, we entered into an agreement to sell Red Lobster and
certain related assets and associated liabilities for $2.11 billion in cash and
we expect the transaction to close during the first quarter of fiscal 2015.
These assets and liabilities are classified as held for sale on our consolidated
balance sheet as of May 25, 2014. Additionally, in the fourth quarter of fiscal
2014, in connection with the sale of Red Lobster, we closed two synergy
restaurants. During fiscal 2014, we recorded long-lived asset impairment
charges of $7.6 million, $7.4 million of which was recorded during the fourth
quarter as a result of these actions and $20.7 million of separation-related
costs which are included in earnings from discontinued operations. No
amounts for shared general and administrative operating support expense or
interest expense were allocated to discontinued operations. We expect all
direct cash flows related to operating these businesses to be eliminated at
the date of sale. Our continuing involvement will be limited to a transition
service agreement for up to two years with minimal impact to our cash flows.
For fiscal 2014, 2013 and 2012, all impairment charges and disposal
costs, along with the sales, direct costs and expenses and income taxes
attributable to restaurants classified as discontinued operations have been
aggregated to a single caption entitled earnings from discontinued operations,
net of tax in our consolidated statements of earnings for all periods presented.
Earnings from discontinued operations, net of taxes in our accompanying
consolidated statements of earnings are comprised of the following:
Fiscal Year Ended
May 25, May 26, May 27,
(in millions) 2014 2013 2012
Sales $2,472.1 $2,630.9 $2,671.6
Earnings before income taxes 135.3 247.3 281.2
Income tax expense 32.3 72.7 84.9
Earnings from discontinued
operations, net of tax $ 103.0 $ 174.6 $ 196.3
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 sheet as of May 25, 2014:
(in millions) May 25, 2014
Current assets $ 241.0
Land, buildings and equipment, net 1,084.8
Other assets 64.5
Total assets $1,390.3
Current liabilities $ 130.6
Other liabilities 84.9
Total liabilities $ 215.5
NOTE 3
RECEIVABLES, NET
Receivables from the sale of gift cards in national retail outlets, allowances
due from landlords based on lease terms, miscellaneous receivables and our
overall allowance for doubtful accounts are as follows:
(in millions) May 25, 2014 May 26, 2013
Retail outlet gift card sales $39.6 $37.5
Landlord allowances due 22.5 26.5
Miscellaneous 22.0 21.7
Allowance for doubtful accounts (0.3) (0.3)
Receivables, net $83.8 $85.4