Chili's 2002 Annual Report Download - page 48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(i) Self-Insurance Program
The Company utilizes a paid loss self-insurance plan for general liability and workers’ compensation
coverage. Predetermined loss limits have been arranged with insurance companies to limit the Company’s per
occurrence cash outlay. Additionally, in fiscal 2002 and 2001, the Company entered into guaranteed cost
agreements with an insurance company to eliminate all future general liability losses for those respective fiscal
years. Accrued expenses and other liabilities include the estimated incurred but unreported costs to settle unpaid
claims and estimated future claims.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
(k) Stock-Based Compensation
The Company uses the intrinsic value method for measuring employee stock-based compensation cost.
Under this method, compensation cost is measured as the excess, if any, of the quoted market price of the
Company’s common stock at the grant date over the amount the employee must pay for the stock. The
Company’s policy is to grant stock options at the market value of the underlying stock at the date of grant.
Proceeds from the exercise of common stock options issued to officers, directors, and key employees under the
Company’s stock option plans are credited to common stock to the extent of par value and to additional paid-in
capital for the excess. Required pro forma disclosures of compensation expense determined under the fair value
method prescribed by SFAS No. 123, ‘‘Accounting for Stock-Based Compensation,’’ are presented in Note 9.
(l) Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Comprehensive income consists of net
income and the effective unrealized portion of changes in the fair value of the Company’s cash flow hedges.
(m) Net Income Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock. For the calculation of diluted net income per share, the basic weighted average
number of shares is increased by the dilutive effect of stock options determined using the treasury stock method.
For all periods presented, there were no other securities excluded from the calculation of diluted earnings per
share because their effect on the periods presented was antidilutive. The Company’s contingently convertible
debt securities are not considered for purposes of diluted earnings per share unless the required conversion
criteria have been met as of the end of the reporting period.
(n) Segment Reporting
Operating segments are components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company identifies operating segments based on management responsibility and
believes it meets the criteria for aggregating its operating segments into a single reporting segment.
(o) Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and costs and expenses during the
reporting period. Actual results could differ from those estimates.
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