Chili's 2012 Annual Report Download - page 57

(n) Sales Taxes
Sales taxes collected from guests are excluded from revenues. The obligation is included in accrued
liabilities until the taxes are remitted to the appropriate taxing authorities.
(o) 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 and other liabilities include the estimated incurred but unreported costs to settle unpaid claims and
estimated future claims.
(p) Income Taxes
Income taxes are accounted for under the asset and liability method. 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.
(q) Stock-Based Compensation
We measure and recognize compensation cost at fair value for all share-based payments, including stock
options. We record compensation expense using a graded-vesting schedule over the vesting period, or to the date
on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach).
Certain employees are eligible to receive stock options, performance shares, restricted stock and restricted
stock units, while non-employee members of the Board of Directors are eligible to receive stock options,
restricted stock and restricted stock units. Performance shares represent a right to receive shares of common
stock upon satisfaction of performance goals at the end of a three-year cycle. Performance shares are paid out in
common stock and will be fully vested upon issuance. The fair value of performance shares is determined on the
date of grant based on a Monte Carlo simulation model. The fair value of restricted stock and restricted stock
units are based on our closing stock price on the date of grant.
Stock-based compensation expense from continuing operations totaled approximately $13.5 million, $13.4
million and $15.8 million for fiscal 2012, 2011 and 2010, respectively. The total income tax benefit recognized
in the consolidated statements of income related to stock-based compensation expense from continuing
operations was approximately $5.1 million, $5.7 million and $5.3 million during fiscal 2012, 2011 and 2010,
respectively.
The weighted average fair values of option grants were $9.35, $7.20 and $6.04 during fiscal 2012, 2011 and
2010, respectively. The fair value of stock options is estimated using the Black-Scholes option-pricing model
with the following weighted average assumptions:
2012 2011 2010
Expected volatility ................................. 56.7% 55.6% 53.7%
Risk-free interest rate ............................... 0.9% 1.6% 2.5%
Expected lives ..................................... 5years 5 years 5 years
Dividend yield ..................................... 2.6% 3.1% 3.1%
Expected volatility and the expected life of stock options are based on historical experience. The risk-free
rate is based on the yield of a Treasury Note with a term equal to the expected life of the stock options.
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