Our accounting policies regarding land, buildings, and equipment, including leasehold improvements, include our judgments regard- ing the estimated useful lives of these assets, the residual values to which the assets are depreciated or amortized, and the determina- tion as to what constitutes enhancing the value of or increasing the life of existing assets. These judgments and estimates may produce materially different amounts of reported depreciation and amorti- zation expense if different assumptions were used. As discussed fur- ther below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized. 

## Impairment of Long-Lived Assets 

Land, buildings, and equipment and certain other assets, includ- ing capitalized software costs and liquor licenses, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recover- able. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. If these assets are determined to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined based on appraisals or sales prices of comparable assets. Restaurant sites and certain other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell. Restaurant sites and certain other assets to be disposed of are included in assets held for disposal when certain criteria are met. These criteria include the requirement that the likelihood of disposing of these assets within one year is probable. Those assets whose disposal is not probable within one year remain in land, buildings, and equipment until their disposal is probable within one year. 

The judgments we make related to the expected useful lives of long- lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors s uch as the ongoing maintenance and improvements of the assets, 

changes in economic conditions, and changes in usage or operating performance. As we assess the ongoing expected cash flows and car- rying amounts of our long-lived assets, significant adverse changes in these factors could cause us to realize a m aterial impairment charge. In fiscal 2004, we recognized asset impairment charges of $37 million ($22 million after-tax) fo r the closing of six Bahama Breeze restaurants and the write-down of four other Baham a Breeze restaurants, one Olive Garden restaurant, and one Red Lobster restaurant based on an evaluation of expected cash flows. 

## Self-Insurance Accruals 

We self-insure a significant portion of expected losses under our workers' compensation, employee medical, and general liability programs. Accrued liabilities have been recorded based on our esti- mates of the ultimate costs to settle incurred claims, both reported and not yet reported. 

Our accounting policies regarding self-insurance programs include our judgments and independent actuarial assumptions regarding economic conditions, the frequency or severity of claims and claim development patterns, and claim reserve, management, and settlement practices. Unanticipated changes in these factors may produce materially different amounts of reported expense under these programs. 

## Income Taxes 

We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes, and the tax deductibility of certain other items. 

Our estimates are based on the best available information at the time that we prepare the provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local govern- ments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. 

