Chili's 2014 Annual Report Download - page 58

(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.
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.
(q) Stock-Based Compensation
We measure and recognize compensation cost at fair value for all share-based payments. We record
compensation expense using a graded-vesting schedule or on a straight-line basis, as applicable, 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 company performance goals at the end of a three-year cycle. Performance shares are
paid out in common stock and are 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 totaled approximately $16.9 million, $16.6 million and $13.5 million for
fiscal 2014, 2013 and 2012, respectively. The total income tax benefit recognized in the consolidated statements
of comprehensive income related to stock-based compensation expense was approximately $6.9 million, $6.6
million and $5.1 million during fiscal 2014, 2013 and 2012, respectively.
The weighted average fair values of option grants were $14.75, $12.94 and $9.35 during fiscal 2014, 2013
and 2012, respectively. The fair value of stock options is estimated using the Black-Scholes option-pricing model
with the following weighted average assumptions:
2014 2013 2012
Expected volatility ................................. 47.7% 53.4% 56.7%
Risk-free interest rate ............................... 1.6% 0.7% 0.9%
Expected lives ..................................... 5years 5 years 5 years
Dividend yield ..................................... 2.2% 2.4% 2.6%
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. The
dividend yield is based on the most recent quarterly dividend per share declared and the closing stock price on
the declaration date.
(r) Preferred Stock
Our Board of Directors is authorized to provide for the issuance of 1.0 million preferred shares with a par
value of $1.00 per share, in one or more series, and to fix the voting rights, liquidation preferences, dividend
rates, conversion rights, redemption rights, and terms, including sinking fund provisions, and certain other rights
and preferences. As of June 25, 2014, no preferred shares were issued.
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