Chili's 2008 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In February 2007, the FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and
Financial Liabilities,’’ (‘‘SFAS 159’’). SFAS 159 provides companies with an option to report selected assets
and liabilities at fair value. This statement contains financial statement presentation and disclosure
requirements for assets and liabilities reported at fair value as a consequence of the election and is
effective for us beginning in fiscal 2009. We do not plan to elect to measure any additional assets or
liabilities at fair value that are not already measured at fair value under existing standards. Therefore, the
adoption of this standard will not have an impact on our consolidated financial statements.
The Emerging Issues Task Force (‘‘EITF’’) reached a consensus on EITF 06-11, ‘‘Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards’’ (‘‘EITF 06-11’’) in June 2007. The
EITF consensus indicates that the tax benefit received on dividends associated with share-based awards
that are charged to retained earnings should be recorded in additional paid-in capital and included in the
pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment
awards. Currently, we do not record a tax benefit on dividends associated with share-based awards. The
consensus is effective for the tax benefits of dividends declared in fiscal years beginning after December 15,
2007. EITF 06-11 will be effective for us beginning in fiscal 2009 and its adoption will not have a material
impact on our financial position, results of operations or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on debt and certain leasing facilities and
from changes in commodity prices. A discussion of our accounting policies for derivative instruments is
included in the summary of significant accounting policies in the notes to our consolidated financial
statements.
We are exposed to interest rate risk on short-term and long-term financial instruments carrying
variable interest rates. The variable rate financial instruments, consisting of the outstanding borrowings on
our term loan and credit facilities, totaled $558.0 million at June 25, 2008. The impact on our annual
results of operations of a one-point interest rate change on the outstanding balance of these variable rate
financial instruments as of June 25, 2008 would be approximately $5.6 million. We may from time to time
utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations
in interest rates.
We purchase certain commodities such as beef, pork, poultry, seafood, produce, and dairy. These
commodities are generally purchased based upon market prices established with vendors. These purchase
arrangements may contain contractual features that fix the price paid for certain commodities. We do not
use financial instruments to hedge commodity prices because these purchase arrangements help control
the ultimate cost paid and any commodity price aberrations are generally short-term in nature.
This market risk discussion contains forward-looking statements. Actual results may differ materially
from this discussion based upon general market conditions and changes in domestic and global financial
markets.
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