Popeye's 2013 Annual Report Download - page 71

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Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2013, 2012, and 2011 — (Continued)
55
Gains and Losses Associated With Re-franchising. From time to time, the Company engages in re-franchising
transactions. Typically,these transactions involve the sale of a company-operated restaurant to an existing or new
franchisee.
The Company defers gains on the sale of company-operated restaurants when the Company has continuing
involvement in the assets sold beyond the customary franchisor role. The Company’scontinuing involvement generally
includes seller financing or the leasing of real estate to the franchisee. Deferred gains are recognized over the remaining
term of the continuing involvement. Losses are recognized immediately.
There were no sales of company-operated restaurants in 2013, 2012, or 2011. During 2013, 2012 and 2011, previously
deferred gains of approximately $0.1 million,$0.6 million, and $0.3 million, respectively, were recognized in income
as a component of “Other expenses (income), net” in the accompanying Consolidated Statements of Operations.
Research and Development. Research and development costs are expensed as incurred. During 2013, 2012, and
2011, such costs were approximately $2.2 million,$1.8 million, and $2.3 million, respectively.
Foreign Currency Transactions. Substantially all of the Company’s foreign-sourced revenues (principally royalties
from international franchisees) are recorded in U.S. dollars. The aggregate effects of any exchange gains or losses are
included in the accompanying Consolidated Statements of Operations as a component of “General and administrative
expenses.” The net foreign currency gains and losses were insignificant in 2013 and 2012. The net foreign currency
loss was $0.1 million in 2011.
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 and operating loss, capital loss and tax credit carryforwards. 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. The Company provides avaluation allowance against deferred
tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
The Company recognizes the benefit of positions taken or expected to be taken in atax return in the financial
statements when it is more likely than not (i.e. alikelihood of more than fifty percent) that the position would be
sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of
benefit that is greater than fifty percent likely of being realized upon settlement. Changes in judgment that result in
subsequent recognition, derecognition or change in a measurement of atax position taken in aprior annual period
(including any related interest and penalties) is recognized as a discrete item in the interim period in which the change
occurs.
See Note 18 for additional information regarding income taxes.
Stock-Based Compensation Expense. The Company measures and recognizes compensation cost at fair value for
all share-based payments, including stock options, restricted share awards and restricted share units. The fair value of
stock options with service and market conditions are valued utilizing aMonte Carlo simulation model. The fair value
of stock options with only service conditions are estimated using a Black-Scholes option-pricing model. Restricted
share awards and restricted share units are valued at the market price of the Company’s shares on the grant date. The
fair value of restricted share awards with service and market conditions are valued utilizing aMonte Carlo simulation
model. The fair value of stock-based compensation is amortized either on the graded vesting attribution method or on
the cliffvesting attribution method depending on the specific award. The Company issues new shares for common
stock upon exercise of stock options.