Chili's 2015 Annual Report Download - page 49

We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be
taken, in an income tax return. We recognize any interest and penalties related to unrecognized tax benefits in
income tax expense. Significant judgment is required in assessing, among other things, the timing and amounts
of deductible and taxable items. Tax reserves are evaluated and adjusted as appropriate, while taking into account
the progress of audits of various taxing jurisdictions.
In addition to the risks related to the effective tax rate described above, the effective tax rate reflected in
forward-looking statements is based on current tax law. Any significant changes in the tax laws could affect these
estimates.
Impairment of Long-Lived Assets
We review the carrying amount of property and equipment semi-annually or when events or circumstances
indicate that the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an
impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on
discounted projected future operating cash flows of the restaurants over their remaining service life using a risk
adjusted discount rate that is commensurate with the risk inherent in our current business model. This process
requires the use of estimates and assumptions, which are subject to a high degree of judgment.
Impairment of Goodwill
We assess the recoverability of goodwill related to our restaurant brands on an annual basis or more often if
circumstances or events indicate impairment may exist. We consider our restaurants brands, Chili’s and
Maggiano’s, to be both our operating segments and reporting units. The impairment test is a two-step process.
Step one includes comparing the fair value of our reporting units to their carrying value. If the fair value of the
reporting unit exceeds the carrying value, then the goodwill balance is not impaired and no further evaluation is
required. If the carrying value of the reporting unit exceeds its fair value, impairment may exist and performing
step two is necessary to determine the impairment loss. The amount of impairment would be determined by
performing a hypothetical analysis resulting in an implied goodwill value by performing a fair value allocation as
if the unit were being acquired in a business combination. This implied value would be compared to the carrying
value to determine the amount of impairment loss, if any.
We determine fair value based on discounted projected future operating cash flows of the reporting units
using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. We
make assumptions regarding future profits and cash flows, expected growth rates, terminal values and other
factors which could significantly impact the fair value calculations. In the event that these assumptions change in
the future, we may be required to record impairment charges related to goodwill. The fair value of our reporting
units was substantially in excess of the carrying value as of our fiscal 2015 goodwill impairment test that was
performed at the end of the second quarter. No indicators of impairment were identified from the date of our
impairment test through the end of fiscal year 2015.
Self-Insurance
We are self-insured for certain losses related to health, general liability and workers’ compensation. We
maintain stop loss coverage with third party insurers to limit our total exposure. The self-insurance liability
represents an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date. The
estimated liability is not discounted and is established based upon analysis of historical data and actuarial
estimates, and is reviewed on a quarterly basis to ensure that the liability is appropriate. If actual trends,
including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.
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