Chili's 2008 Annual Report Download - page 54

BRINKER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Self-Insurance Program
We utilize a paid loss self-insurance plan for health, general liability and workers’ compensation
coverage. Predetermined loss limits have been arranged with insurance companies to limit our per
occurrence cash outlay. Accrued liabilities include the estimated incurred but unreported costs to settle
unpaid claims and estimated future claims.
We utilize a wholly-owned captive insurance company for our general liability and workers’
compensation coverage. We make premium payments to the captive insurance company and accrue for
claims costs based on the actuarially predicted ultimate losses, and the captive insurance company then
pays administrative fees and the insurance claims. As a result of these premium payments, approximately
$44.2 million and $70.5 million of cash from the captive insurance company is included in cash and cash
equivalents in the consolidated balance sheets as of June 25, 2008 and June 27, 2007, respectively.
Additionally, a total of $34.4 million of cash from the captive insurance company is included in prepaid
expenses and other in the consolidated balance sheet as of June 25, 2008.
(n) Income Taxes
Income taxes are accounted for under the asset and liability method prescribed by SFAS No. 109,
‘‘Accounting for 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.
We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions.
We are no longer subject to U.S. federal examinations by tax authorities for fiscal years before 2006. We
are audited by the taxing authorities of most states and certain foreign countries and are subject to
examination by these taxing jurisdictions for fiscal years generally after 2003.
Effective June 28, 2007, we adopted the provisions of the Financial Accounting Standards Board’s
(‘‘FASB’’) Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’ (‘‘FIN 48’’). The adoption
of this standard was consistent with FSP FIN 48-1, ‘‘Definition of Settlement in FASB Interpretation
No. 48,’’ that was issued in May 2007 and that provides guidance on how to determine whether a tax
position is effectively settled for the purpose of recognizing unrecognized tax benefits. As a result of the
adoption we recognized an $847,000 decrease in the liability for unrecognized tax benefits, net of the
federal deferred tax benefit, with a corresponding increase to retained earnings. We recognize accrued
interest and penalties related to unrecognized tax benefits in income tax expense. See Note 9 for additional
disclosures.
(o) Stock-Based Compensation
Stock-based compensation is accounted for under SFAS No. 123 (Revised 2004), ‘‘Share-Based
Payment,’’ (‘‘SFAS 123R’’), which requires the measurement and recognition of compensation cost at fair
value for all share-based payments, including stock options. Stock-based compensation expense for fiscal
2008, 2007 and 2006 includes compensation expense, recognized over the applicable vesting periods, for
new share-based awards and for share-based awards granted prior to, but not yet vested, as of June 29,
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