Chili's 2008 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Impairment of Long-Lived Assets and Goodwill
We review property and equipment for impairment when events or circumstances indicate that the
carrying amount of a restaurant’s assets may not be recoverable. We test for impairment using historical
cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash
flows. This process requires the use of estimates and assumptions, which are subject to a high degree of
judgment. In addition, at least annually we assess the recoverability of goodwill related to our restaurant
brands. This impairment test requires us to estimate fair values of our restaurant brands by making
assumptions regarding future profits and cash flows, expected growth rates, terminal values, and other
factors. In the event that these assumptions change in the future, we may be required to record impairment
charges related to goodwill.
Self-Insurance
We are self-insured for certain losses related to health, general liability and workers’ compensation.
We maintain stop loss coverage with third party insurers to limit our total exposure. The self-insurance
liability represents an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet
date. The estimated liability is not discounted and is established based upon analysis of historical data and
actuarial estimates, and is reviewed on a quarterly basis to ensure that the liability is appropriate. If actual
trends, including the severity or frequency of claims, differ from our estimates, our financial results could
be impacted.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, ‘‘Business Combinations,’’ (‘‘SFAS 141R’’).
Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method.
SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a
business combination to be recorded at full fair value. SFAS 141R is effective for annual reporting periods
beginning on or after December 15, 2008 and will be effective for us beginning in the first quarter of fiscal
2010 for business combinations occurring on or after the effective date.
In December 2007, the FASB issued SFAS No. 160, ‘‘Noncontrolling Interests in Consolidated
Financial Statements—an amendment of ARB No. 51,’’ (‘‘SFAS 160’’). SFAS 160 will require
noncontrolling interests (previously referred to as minority interests) to be treated as a separate
component of equity, not as a liability or other item outside of permanent equity. The Statement applies to
the accounting for noncontrolling interests and transactions with noncontrolling interest holders in
consolidated financial statements. SFAS 160 is effective for periods beginning on or after December 15,
2008 and is effective for us beginning in the third quarter of fiscal 2009. We do not expect that SFAS 160
will have a material impact on our financial statements.
In December 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements,’’ (‘‘SFAS 157’’).
SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value,
and expands fair value disclosure requirements, but does not change existing guidance as to whether or not
an instrument is carried at fair value. For financial assets and liabilities, SFAS 157 is effective for fiscal
years beginning after November 15, 2007, which will require us to adopt these provisions in first quarter
fiscal 2009. We do not expect the adoption to have an impact on our consolidated financial statements. For
nonfinancial assets and liabilities, SFAS 157 is effective for fiscal years beginning after November 15, 2008,
which will require us to adopt these provisions in fiscal 2010. We are currently evaluating the impact, if any,
that an adoption of the deferred provisions of this statement will have on our consolidated financial
statements.
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