Chili's 2008 Annual Report Download - page 53

BRINKER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Operating Leases
Rent expense for leases that contain scheduled rent increases is recognized on a straight-line basis
over the lease term, including cancelable option periods where failure to exercise such options would result
in an economic penalty such that the renewal appears reasonably assured. We adopted FASB Staff Position
13-1, ‘‘Accounting for Rental Costs Incurred During a Construction Period’’ beginning December 29, 2005.
Subsequent to the adoption, the straight-line rent calculation and rent expense includes the rent holiday
period, which is the period of time between taking control of a leased site and the rent commencement
date. Prior to the adoption of FASB Staff Position 13-1, the portion of straight-line rent allocated to the
construction period was capitalized and amortized to depreciation and amortization expense over the
useful life of the related assets.
Contingent rents are generally amounts due as a result of sales in excess of amounts stipulated in
certain restaurant leases and are included in rent expense as they are incurred. Landlord contributions are
recorded when received as a deferred rent liability and amortized as a reduction of rent expense on a
straight-line basis over the lesser of the lease term, including renewal options, or 20 years.
(i) Capitalized Interest
Interest costs capitalized during the construction period of restaurants were approximately
$3.7 million, $6.0 million and $5.0 million during fiscal 2008, 2007, and 2006, respectively.
(j) Advertising
Advertising production costs are expensed in the period when the advertising first takes place. Other
advertising costs are expensed as incurred. Advertising costs were $133.6 million, $135.5 million and
$135.2 million in fiscal 2008, 2007, and 2006, respectively, and are included in restaurant expenses in the
consolidated statements of income.
(k) Goodwill
Goodwill represents the residual purchase price after allocation to all other identifiable net assets
acquired. Goodwill is not subject to amortization but is tested for impairment annually or more frequently
if events or changes in circumstances indicate that the asset might be impaired. Statement of Financial
Accounting Standards (‘‘SFAS’’) No. 142, ‘‘Goodwill and Other Intangible Assets,’’ requires a two-step
process for testing impairment of goodwill. First, the fair value of each reporting unit is compared to its
carrying value to determine whether an indication of impairment exists. If an impairment is indicated, then
the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets
and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination. The amount of impairment for goodwill is measured as the excess of its carrying
value over its implied fair value. See Note 7 for additional disclosures related to goodwill.
(l) Sales Taxes
Sales taxes collected from customers are excluded from revenues. The obligation is included in
accrued liabilities until the taxes are remitted to the appropriate taxing authorities.
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