STORE CLOSURE COSTS. To conform to the Securities and Exchange Commission’s interpretation of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," our store closure accounting policy was changed in 1998. Effective for closure decisions made on or subsequent to April 23, 1998, we recognize store closure costs when we have closed the restaurant within the same quarter our decision is made. Prior to April 23, 1998, we recognized store closure costs and generally suspended depreciation and amortization when we decided to close a restaurant in a future quarter. Store closure costs include the cost of writing-down (impairing) the carrying amount of a restaurant’s assets to estimated fair market value less costs of disposal. The impact of this accounting policy change was not significant.

When we make a decision to retain a store previously held for closure, we revalue the store at the lower of net book value at the original disposal decision date less normal depreciation during the period held for disposal or the current fair market value. This value becomes the store’s new cost basis. We charge (or credit) any difference between the store’s carrying amount and its new cost to store closure costs. When we make a decision to refranchise a store previously held for closure, we reverse any previously recognized store closure costs and then record the estimated refranchising loss, if any, as described above.

In addition, for all periods presented, we recorded a liability for the net present value of any remaining operating lease obligations after the expected closure date, net of estimated sublease income, if any. If we decide to retain or refranchise a store held for closure, we reverse the post-closing lease liability previously recorded.

IMPAIRMENT OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS. We review our long-lived assets, including any allocated intangible assets, related to each restaurant to be held and used in the business semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We evaluate restaurants using a "two-year history of operating losses" as our primary indicator of potential impairment. Based on the best information available, we write down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. We generally measure estimated fair market value by discounting estimated future cash flows. In addition, when we decide to close a store beyond the quarter in which the closure decision is made, it is reviewed for impairment. The impairment evaluation is based on the estimated cash flows from continuing use until the expected disposal date plus the expected terminal value.

Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates.

IMPAIRMENT OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND ENTERPRISE-LEVEL GOODWILL. Our methodology for determining and measuring impairment of our investments in unconsolidated affiliates and enterprise-level goodwill is similar to the methodology we use for our restaurants except (a) the recognition test for an investment in an unconsolidated affiliate compares the carrying amount of our investment to a forecast of our share of the unconsolidated affiliate’s undiscounted cash flows including interest and taxes instead of undiscounted cash flows before interest and taxes used for our restaurants and (b) enterprise-level goodwill is generally evaluated at a country level instead of by individual restaurant. Also, we record impairment charges related to our investments in unconsolidated affiliates whenever other circumstances indicate that a decrease in the value of an investment has occurred which is other than temporary.

RECLASSIFICATIONS. We have reclassified certain items in the accompanying Consolidated Financial Statements for prior periods to be comparable with the classification we adopted for the fiscal year ended December 26, 1998. These reclassifications had no effect on previously reported net losses.