Commitments And Contingent Liabilities

6 Months Ended

Aug. 15, 2011

Commitments And Contingent Liabilities

Commitments And Contingent Liabilities

NOTE 10 — COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitments

Under various past and present refranchising programs, we have sold restaurants to franchisees, some of which were on leased sites. We entered into sublease agreements with these franchisees but remained principally liable for the lease obligations. We account for the sublease payments received as franchising rental income in franchised and licensed restaurants and other revenue, and the payments on the leases as rental expense in franchised and licensed restaurants and other expense, in our Condensed Consolidated Statements of Operations. As of August 15, 2011, the present value of the lease obligations under the remaining master leases' primary terms is $123,257. Franchisees may, from time to time, experience financial hardship and may cease payment on their sublease obligations to us. The present value of the exposure to us from franchisees characterized as under financial hardship is $3,511.

Letters of Credit

Pursuant to our Credit Facility, we may borrow up to $100,000 for senior secured revolving facility loans, swingline loans and letters of credit (see Note 7). We have several standby letters of credit outstanding under our Credit Facility, which primarily secure our potential workers' compensation, general and auto liability obligations. We are required to provide letters of credit each year, or set aside a comparable amount of cash or investment securities in a trust account, based on our existing claims experience. As of August 15, 2011, we had outstanding letters of credit of $31,913, expiring at various dates through August 2012.

Unconditional Purchase Obligations

As of August 15, 2011, we had unconditional purchase obligations in the amount of $89,398, which consisted primarily of contracts for goods and services related to restaurant operations and contractual commitments for marketing and sponsorship arrangements.

Employment Agreements

We entered into employment agreements with certain key executives (the "Employment Agreements"), dated July 12, 2010. Pursuant to the terms of the Employment Agreements, each executive is entitled to receive certain retention bonus payments that will be paid out over the next two to three years, in accordance with such executive's Employment Agreement. In addition, each executive will be entitled to payments that may be triggered by the termination of employment under certain circumstances, as set forth in each Employment Agreement. If certain provisions are triggered, our Chief Executive Officer shall be entitled to receive an amount equal to his minimum base salary multiplied by six and our President and Chief Legal Officer and our Chief Financial Officer shall each be entitled to receive an amount equal to his respective minimum base salary multiplied by three plus a pro-rata portion of his then-current year bonus. The affected executive may also be entitled to receive a portion of his retention bonus. If all payment provisions of the Employment Agreements had been triggered as of August 15, 2011, we would have been required to make cash payments of approximately $13,279.

Litigation

We are currently involved in legal disputes related to employment claims, real estate claims and other business disputes. As of August 15, 2011, our accrued liability for litigation contingencies with a probable likelihood of loss was $2,140, with an expected range of losses from $2,140 to $9,940. With respect to employment matters, our most significant legal disputes relate to employee meal and rest break disputes, and wage and hour disputes. Several potential class action lawsuits have been filed in the State of California, regarding such employment matters, each of which is seeking injunctive relief and monetary compensation on behalf of current and former employees. The Company intends to vigorously defend against all claims in these lawsuits; however, we are presently unable to predict the ultimate outcome of these actions. As of August 15, 2011, we estimated the contingent liability of those losses related to litigation claims that are not accrued, but that we believe are reasonably possible to result in an adverse outcome and for which a range of loss can be reasonably estimated, to be in the range of $2,555 to $12,780. In addition, we are involved in legal matters where the likelihood of loss has been judged to be reasonably possible, but for which a range of the potential loss cannot be reasonably estimated.