|STORE CLOSURE COSTS. To conform to the Securities and Exchange Commissions 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 restaurants assets to estimated
fair market value less costs of disposal. The impact of this accounting policy change was
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 stores new cost
basis. We charge (or credit) any difference between the stores 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
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 affiliates 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.