Chili's 2015 Annual Report Download - page 50

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Gift Card Revenue
Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as revenue when the
gift card is redeemed by the holder. Breakage income represents the value associated with the portion of gift
cards sold that will most likely never be redeemed. Based on our historical gift card redemption patterns and
considering our gift cards have no expiration dates or dormancy fees, we can reasonably estimate the amount of
gift card balances for which redemption is remote and record breakage income based on this estimate. We
recognize breakage income within the Franchise and other revenues caption in the consolidated statements of
comprehensive income. We update our breakage rate estimate periodically and, if necessary, adjust the deferred
revenue balance accordingly. If actual redemption patterns vary from our estimate, actual gift card breakage
income may differ from the amounts recorded.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs. This update requires that debt issuance
costs be presented in the balance sheet as a direct deduction from the associated debt liability. This update is
effective for annual and interim periods beginning after December 15, 2015, which will require us to adopt this
guidance in the first quarter of fiscal 2017. Early adoption is permitted for financial statements that have not been
previously issued. The new guidance will be applied on a retrospective basis. We do not expect the updated
guidance to have a material impact on our financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This
update provides a comprehensive new revenue recognition model that requires a company to recognize revenue
to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to
receive in exchange for those goods or services. The guidance also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August
2015, the FASB issued ASU 2015-14 delaying the effective date for adoption. This update is now effective for
annual and interim periods beginning after December 15, 2017, which will require us to adopt these provisions in
the first quarter of fiscal 2019. Early application in fiscal 2018 is permitted. This update permits the use of either
the retrospective or cumulative effect transition method. We are evaluating the effect this guidance will have on
our consolidated financial statements and related disclosures. We have not yet selected a transition method nor
have we determined the effect of the standard on our ongoing financial reporting.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk on short-term and long-term financial instruments carrying variable
interest rates. The variable rate financial instruments consist of the outstanding borrowings on our revolving
credit facility. At June 24, 2015, $383.8 million was outstanding under the revolving credit facility. 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 24, 2015 would be approximately $3.8 million.
We purchase certain commodities such as beef, pork, poultry, seafood, produce, dairy and natural gas. 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.
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.
F-14