In adopting this new policy, the company is making a change in accounting principle in order to recognize Area Developer fees on a straight-line basis. These fees will be recognized over the development term of each contract, which averages approximately ten-years. The cumulative effect of the new policy for all years prior to 1999 and the effect on fiscal 1999 will be reported in thecompany's 1999 year-end financial results. While the company has not yet calculated the net effect of this new policy, the company expects that this non-cash adjustment to revenue will have a negative effect on 1999 earnings and a positive effect on forward earnings for years 2000 through 2009. The new accounting policy has no effect on the cash balances or the cash flow of the company.
The company understands that other publicly traded franchise companies utilizing area developer programs are implementing this change in accounting principle effective with fiscal year 1999. A change in accounting principle does not require the restatement of previously filed SEC reports.
The company is scheduled to release 1999 financial results on February 29, 2000.
Schlotzsky's, Inc., founded in Austin in 1971, is a franchisor of quick-service restaurants featuring made to order sandwiches served on distinctive sourdough bread, along with pizzas, salads, and soups. As of December 31, 1999, there were 759 Schlotzsky's restaurants operating in 37 states, the District of Columbia and 12 foreign countries.